Restructuring of MSME Advances
Definition of Restructuring
Where bank grants concessions / relief in any account due to economic or legal reasons relating to the borrower's financial difficulty (rather than on commercial/competitive grounds) then the account will be considered as restructured account.
Restructuring would normally involve modification of terms of the advances / securities, which would generally include:
- Reschedulement of repayment period
- Alteration in the amount of installments.
- Shift/postponement in date of commencement of commercial operations (DCCO)
- Reduction in Rate of interest.
One Time Restructuring Guidelines for MSME Loans up to 25 crore
As per RBI notification the one-time restructuring of existing loans to MSMEs classified as 'standard' without a downgrade in the asset classification is permitted, subject to the following conditions:
- 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 standard, 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 restructuring guidelines.
- A restructuring would be treated as implemented if all related documentation, including execution of necessary agreements between lenders and borrower / creation of security charge / perfection of securities are completed by Bank and the new capital structure and / or changes in the terms and conditions of the existing loans get duly reflected in the books of all the lenders and the borrower.
Q: Who is eligible for restructuring?
- All MSME borrowers having aggregate exposure (from banks and NBFCs), including non-fund facilities, up to Rs.25 Crores as on 01.03.2020, including accounts under consortium or multiple banking arrangement (MBA), are eligible
- The accounts classified under “Standard” category as on 01.03.2020 are eligible.
- The accounts which was under “Standard” Category on 01.03.2020 but may have slipped into NPA category between 02.03.2020 and date of implementation of restructuring may be restructured and upgraded
- The account will be taken for restructuring if the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package
- The borrowers indulging in frauds and malfeasance will be ineligible for restructuring
- Wilful defaulters shall not be eligible for restructuring
On restructuring, the IRAC status of the account will remain “Standard”.
The restructuring of loan accounts with exposure of above Rs.25.00 Crores will be governed by RBI Guidelines dated 06.08.2020 and 07.09.2020 on Resolution Framework for COVID 19
Q: By what time the restructuring can be implemented
A: By 31.03.2021, the restructuring of the borrowal account should be implemented
Q: What is restructuring?
A: Where bank grant concessions / relief in any account due to economic or legal reasons relating to the borrower’s financial difficulty (rather than on commercial / competitive grounds) then the account will be considered as restructured account.
Restructuring would normally involve modification of terms of the advances / securities, which would generally include
- Reschedulement of repayment period
- Alteration in the amount of instalments
- Shift / Postponement in DCCO
- Reduction in rate of interest
Q: Whether GST Registration is mandatory?
A: 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
Q: What is the maximum repayment period for restructured debt?
A: 10 Years (including moratorium period) from the date of implementation of restructuring
Q: Whether additional finance can be considered?
A: Yes, need based additional finance by way of Term Loan or working capital may be considered on merits of the proposal and on case to case basis.