MSME Borrowers Eligible for Debt Restructuring under Existing Framework

But accounts should have been classified as standard as on March 1, says central bank

The Reserve Bank of India (RBI) on Thursday, 6 August 2020 said that MSME (micro, small and medium enterprise) borrowers will be eligible for restructuring their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020.

This restructuring will have to be implemented by March 31, 2021.

“A restructuring framework for MSMEs that were in default but ‘standard’ as on January 1, 2020 is already in place. The scheme has provided relief to a large number of MSMEs. With Covid-19 continuing to disrupt normal functioning and cash flows, the stress in the MSME sector has got accentuated, warranting further support,” RBI Governor Shaktikanta Das said.

As per the “MSME sector – Restructuring of Advances” circular of February 11, 2020, a one-time restructuring of existing loans to MSMEs classified as 'standard' without a downgrade in the asset classification is permitted, subject to conditions (for instance, the aggregate exposure, including non-fund based facilities of banks and NBFCs to the borrower, should not exceed ₹25 crore as on January 1, 2020).

Among the other conditions prescribed by the February circular are: the borrower’s account was in default but was a ‘standard asset’ as on January 1, 2020 and continues to be classified as a ‘standard asset’ till the date of implementation of the restructuring; and the restructuring of the borrower account is implemented on or before December 31, 2020.