MSME loans upto Rs 25 Cr can be restructured, no downgrade in asset classification: RBI

The Reserve Bank of India (RBI) has allowed the recasting of loans to stressed micro, small and medium enterprises (MSMEs), under the condition that the total fund and non-fund based exposure to the MSME borrowers does not exceed Rs 25 crore. The central bank made the announcement in a statement on Tuesday.

The issue of restructuring of MSME accounts was initially discussed in the RBI board meeting on November 19. At the meeting, the central board, which met amid the ongoing tussle between the Finance Ministry and the central bank over various issues, discussed the restructuring scheme for stressed MSMEs.

The board had advised the RBI to consider a scheme for restructuring of stressed standard assets of MSME borrowers, with aggregate credit facilities of up to Rs 25 crore, subject to conditions necessary for ensuring financial stability. Debt restructuring was also a subject of importance at the central bank’s recent interactions with banks and other stakeholders.

According to the RBI, the debt restructuring announced on Tuesday would not cause downgrades in asset classification. It said, ““RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade.”

The MSME sector is stressed following the disruption caused by demonetisation and the goods and services tax (GST). The government has been pushing RBI to provide relief to the stressed sector. The MSME loan restructuring, which comes as on the relief measures, has to be implemented by 31 March 2020.

Further, a provision of five percent of the total outstanding loan, in addition to contingency funds, will be made for MSME borrowers. The RBI added that “each bank or non-banking financial company (NBFC) should formulate a policy for this scheme with board approval which shall, inter alia, include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.”