RBI allows lenders to revamp MSME accounts under Covid-19 related stress

The Reserve Bank of India (RBI) has allowed lenders to extend the facility for restructuring existing loans of micro, small and medium enterprises (MSMEs) without a downgrade in the asset classification under the “Resolution Framework 2.0” given the uncertainties created by the resurgence of the Covid-19 pandemic.

Among the conditions specified by the central bank for restructuring existing MSME loans include: the aggregate exposure, including non-fund based facilities, of all lenders to the borrower should not exceed ₹25 crore as on March 31, 2021; and the borrower’s account should have been a ‘standard asset’ as on March 31, 2021. Further, the borrower’s account should not have been restructured earlier.

RBI said the restructuring of the borrower account has to be invoked by September 30, 2021.

The decisions on applications received by the lenders from their customers for invoking restructuring under this facility should be communicated in writing to the applicant by the lending institutions within 30 days of receipt of such applications.

Further, the restructuring of the borrower account has to be implemented within 90 days from the date of invocation.

Upon implementing the restructuring plan, lenders have to keep the provision of 10 per cent of the borrower’s residual debt.

RBI asked lending institutions to put in place a Board approved policy on the restructuring of MSME advances at the earliest, and in any case, not later than a month.

In respect of accounts of borrowers, which were restructured in terms of the MSME restructuring circulars, lending institutions have been permitted, as a one-time measure, to review the working capital sanctioned limits and/or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring.

The decision with regard to above should be taken by lending institutions by September 30, 2021.

RBI said accounts provided relief under these instructions will be subject to subsequent supervisory review about their justifiability on account of the economic fallout from Covid-19.

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