In a breather to the micro, small and medium enterprise (MSME) sector, the Reserve Bank of India has decided to permit one-time restructuring of existing loans to these enterprises that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade.
Restructuring without an asset classification downgrade will save the lenders from higher provisioning burden. This will encourage banks and non-banking finance companies (NBFCs) to take up restructuring in the case of MSMEs.
To be eligible for the restructuring, the aggregate exposure, including non-fund-based facilities of banks and NBFCs, to a borrower should not exceed ₹25 crore as on January 1, 2019. The restructuring has to be implemented by March 31, 2020.
While the scheme will save lenders from higher provision when an asset is downgraded, the RBI has mandated that a provision of 5 per cent in addition to the provisions already held, should be made in respect of accounts restructured under this scheme.
Each bank/NBFC should formulate a policy for this scheme with the board approval, which should include the framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.
The central bank, in a statement, said MSMEs form an important component of the Indian economy and contribute significantly to the country’s GDP, exports, industrial output, and employment generation, among others.