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RBI allows one-time restructuring of MSME loans of up to Rs 25 crore

To be eligible, the MSME account should remain a 'standard asset' as of January 1

Anup Roy  |  Mumbai 

Sewn up: Employees sew clothes at the Estee garment factory in Tirupur, in  Tamil Nadu. Relatively high labour cost is costing the textile town its competitive advantage. Photo: Reuters

The (RBI) on Tuesday introduced a one-time restructuring scheme for micro, (MSMEs) with a maximum exposure of Rs 25 crore.

The restructuring has to be implemented by March 31, 2020. have to incur an additional provision of 5 per cent for these restructured accounts, the said in a notification on its website.

To be eligible, the account should remain a ‘standard asset’ as of January 1. Accounts in default can be restructured, provided their asset classification has not been downgraded.

“Any account which is restructured must be downgraded to non-performing asset upon restructuring, and will slip into progressively lower asset classification and higher provisioning requirements,” the said.

Such an account can be considered for upgrade to ‘standard’ after a year, only if it demonstrates satisfactory performance, which means debt servicing should not remain due for more than 30 days.

The entity, unless already exempt, should be goods and services tax (GST)-registered. and (NBFCs) will have to disclose the number of accounts restructured and the amounts involved. The lenders should have board-approved policies for the restructuring.

RBI allows one-time restructuring of MSME loans of up to Rs 25 crore

The need to be disclosed. and should have board-approved policies on restructuring.

The issue of restructuring of MSMEs under stress was first decided in the November 19 board meeting of the The central bank’s board member S Gurumurthy had been a vocal supporter of a special scheme for MSMEs.

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Newly appointed RBI Governor had discussed restructuring in his first meeting with bankers.

Fitch Ratings had, earlier, warned allowing restructuring of up to Rs 25 crore would be a “step backwards”, with the risks becoming apparent in the next six to nine months.

“In one way, it is a step backwards, given the RBI’s previous stance to do away with all restructuring. It clearly reflects stress in the MSME sector, although we expect risk to manifest in the next six to nine months,” Saswata Guha, director (financial institutions), Fitch Ratings, had said in a report.

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Guha had warned banks would not be careful in restructuring the loans, given their past records, and this would build up stress.

“There is adequate evidence in the form of $140 billion of non-performing loan stock that the sector is currently grappling with, which, in my opinion, is a direct result of the unbridled lending of the past,” the rating agency had said in its report.

(With inputs from PTI)

First Published: Wed, January 02 2019. 00:54 IST