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RBI extends provisions for restructuring MSME loans

Thursday, 06 Aug 2020

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The six-member Monetary Policy Committee (MPC) has decided that stressed micro, small & medium enterprise (MSME) borrowers will be made eligible for restructuring their debt under the existing framework, provided their accounts with lenders were classified as standard as on 1 March 2020.

The Reserve Bank of India (RBI), in its second bi-monthly monetary meet held on 6 August 2020, provided a fresh lifeline to millions of stressed small businesses by extending the provision of restructuring of loans.

A restructuring framework for MSMEs that were in default, but were standard on 1 January 2020, is already in place.

MPC decided that stressed MSME borrowers will be made eligible for restructuring their debt under the existing framework, provided their accounts with lenders were classified as standard as on 1 March 2020. This restructuring will have to be implemented by 31 March 2021.

The conditions stipulated by RBI include -- aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower does not exceed Rs 25 crore as on 1 March 2020. The borrower’s account was a standard asset as on 1 March 2020.

The restructuring of the borrower account is implemented by 31 March 2021. The borrowing entity is GST-registered on the date of implementation of the restructuring.

However, this condition will not apply to MSMEs that are exempt from GST-registration. This shall be determined on the basis of exemption limit obtaining as on 1 March 2020.

Asset classification of borrowers classified as standard may be retained as such, whereas the accounts which may have slipped into NPA category between 2 March 2020 and date of implementation may be upgraded as ‘standard asset’ as on the date of implementation of the restructuring plan.

The asset classification benefit will be available only if the restructuring is done as per provisions of the circular.

As hitherto, for accounts restructured under these guidelines, banks will maintain additional provision of five percent over and above the provision already held by them.

The Central Bank kept repo rate untouched at four percent, and reverse repo rate at 3.35 percent. In MPC’s assessment, global economic activity has remained fragile and in retrenchment in the H1/2020.