New RBI norm allows one-time restructuring of loans defaulted by MSMEs

The aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed Rs 25 crore as on January 1, 2019 to be eligible for the scheme.

The Reserve Bank of India (RBI) on Tuesday issued norms for restructuring loans defaulted by micro, small and medium enterprises (MSME), aiding a sector hit by demonetisation and implementation of GST.

The RBI allowed a one-time restructuring of loans up to Rs 25 crore defaulted on payment but are classified "standard” as on January 1, 2019, without an asset classification downgrade, the central bank said in a statement.

The aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed Rs 25 crore as on January 1, 2019, and the restructuring has to be implemented by March 31, 2020.

A restructuring package for MSME was one sticky point between the RBI and the government in their clash over the central bank’s policies.

The RBI's board, in a meeting on November 19, 2018 had advised the central bank examine a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability.

The government had suggested several steps to help the sector, which contributes 50 per cent to the manufacturing sector.

"A major step for MSMEs with a total liability up to 25 cr suffering from past issues and illiquidity, though delayed. Congratulations RBI for the restructure circular," said S Gurumurthy, a RBI board member and Swadeshi ideologue, on Twitter.

Gurumurthy has pressed for a relief to MSME sector which provides 12 crore employment, the second largest after the agriculture sector.