RBI Guidelines for restructuring of MSME accounts

In continuation of the series of big reliefs granted to MSME borrowers earlier vide notifications dated 7th Feb and 6th June 2018, yesterday RBI has granted a much awaited relief to this category of borrowers by permitting banks to restructure 'standard' loans of this category without downgrading the asset class.

The gist of the scheme is as follows:

1. The borrower should be MSME as per MSMED Act 2006 (based on investment in plant & machinery or equipment, as the case may be).

2. The account is standard as on 1st Jan 2019 and continues to be so till the date of implementation of restructuring.

3. The aggregate exposure (fund based+non fund based) to the borrower from all banks and FIs taken together, should not exceed Rs. 25 crores as on 1st Jan 2019.

4. The entity is registered under GST on the date of implementation of restructuring. (not applicable to entities who are exempt from registration under GST laws)

5. The restructuring is implemented by 31.03.2020. A restructuring would be treated as implemented if the following conditions are met:

(i) all related documentation, creation of security charge and perfection of securities is completed by all lenders; and

(ii) 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.

6. Provision of additional 5% on such accounts.

7. Post-restructuring, classification of these accounts shall be as per the extant IRAC norms.

Notes:

1. This is a one time relief. If any MSME account is restructured second time, it will be straightaway classified as NPA.

2. Any account other than MSME shall be classified as NPA immediately on restructuring even for the first time.

3. Any MSME account to whom aggregate exposure exceeds Rs. 25 crores as on 01.01.2019 shall be classified as NPA forthwith on restructuring even for the first time.

4. All MSME accounts (with exposure not exceeding Rs. 25 crores as on 31.05.2018) can continue to avail benefit of higher repayment period of upto 180 days allowed by RBI vide notification dated 6th June 2018 without downgrading asset quality.

Attachments:

1. RBI notification dated 1.1.2019 containing these guidelines

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11445&Mode=0

2. RBI notification dated 6.6.2018 allowing higher repayment period upto 180 days

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11289&Mode=0