The Reserve Bank of India (RBI) in its second bi-monthly monetary meet held on August 6, 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 January 1, 2020 is already in place. "The scheme has provided relief to a large number of MSMEs. With Covid-19 continuing to disrupt normal functioning and cash flows, the stress in the MSME sector has got accentuated, warranting further support," said RBI Governor Shaktikanta Das.
Accordingly, the six-member monetary policy committee (MPC), headed by Das has decided that stressed MSME borrowers will be made eligible for restructuring their debt under the existing framework, provided their accounts with the lenders were classified as standard as on March 1, 2020. "This restructuring will have to be implemented by March 31,2021." said Das.
The conditions stipulated by the RBI include:
- The aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower does not exceed Rs. 25 crore as on March 1, 2020.
- The borrower's account was a 'standard asset' as on March 1, 2020.
- The restructuring of the borrower account is implemented by March 31, 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 March 1, 2020.
- Asset classification of borrowers classified as standard may be retained as such, whereas the accounts which may have slipped into NPA category between March 2, 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 shall maintain additional provision of 5% over and above the provision already held by them.
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