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Debt Restructuring Scheme for MSME – Indian Overseas Bank

Debt Restructuring Scheme MSME

Debt Restructuring Scheme for MSME – Indian Overseas Bank

The rising NPA on the Bank’s balance sheet has forced banks to think outside the box and avoid costly legal formalities, while improving realisation on non-performing assets (NPA) of the bank. According to the Indian Overseas Bank Debt restructuring mechanism for SMEs, the subsequent entities which are viable or potentially viable are eligible for restructuring:

  1. All non-corporate SMEs irrespective of the level of dues to banks.  
  2. All corporate SMEs, which are benefitting banking facilities from a single bank, irrelevant of the level of dues to the bank.
  3. All corporate SMEs, that have funded and non-funded outstanding up to Rs.10 crore under multiple or consortium banking arrangement.
  4. In respect of BIFR cases banks should guarantee completion of all formalities in seeking authorization from BIFR before implementing the package.

Accounts are NOT determined eligible for restructuring

  1. Accounts involving determined default, fraud and malfeasance.  
  2. Accounts distinguished by banks as “Loss Assets”

Wilful Defaulters &

With reference to RBI’s guidelines, the process for identification of the wilful defaulters has been made more apparent.  While corporates indulging in frauds and malfeasance will continue to remain not qualified for restructuring under the Debt restructuring Mechanism for SMEs as up till now, an appraisal of the reasons for classification of the borrower as wilful defaulter will be made particularly in old cases and satisfy that the borrower is in a position to set right the wilful default provided he is approved an opportunity under the Debt Restructuring Mechanism for SMEs.  Such extraordinary cases are admitted for restructuring with the consent of the Board of Directors of the Banks only.  The Banks may guarantee that cases involving frauds or diversion of funds with deceitful intents are not covered. Accounts related to fraud and malfeasance will continue to remain not entitled for restructuring under these guidelines.

Eligibility for Restructuring

The assess the viability of the unit, th businesses will be reckoned according to Bank’s existing financial benchmark levels, for the reason of making the unit viable in 7 years and the repayment period for restructured debt not  to be in excess of 10 years. Enterprises satisfying the following conditions will be considered eligible under the scheme. 


Key Ratios


Permitted level


Current Ratio


  • 1.33(by way of no inclusion of maturing liabilities within 12 months under CL)
  • 1.20 (inclusion of maturing liabilities under CL)


Debt Equity


  • 3:1 for Term loan upto Rs 10 lakhs
  • 2:1 for other Term Loans








1: 1.5 to 2


Interest Servicing Ratio


1:  1.5 to 2


Security coverage


  • 1 to 1.25 times of advance value for WC limits
  • 1.2 to 1.33 times for Term Loans

Time Frame for Restructuring

On receiving the request for restructuring along with all the necessary particulars for working out restructuring package, the restructuring program must be sanctioned and effected within 60 days. The sub-standard or doubtful accounts that been subjected to restructuring, whether with reference to principal installments or interest, by whatever modality, would be qualified to be upgraded to the standard category after the particular period, i.e., a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due under the rescheduled terms, subject to acceptable performance throughout the period. 

NPA Asset Classification Status

During the particular one-year period, the asset classification status of rescheduled accounts will not worsen if satisfactory performance of the account is demonstrated during the period. In case, nevertheless, the satisfactory performance during the one year period is not evidenced, the asset categorization of the restructured account would be governed according to the appropriate prudential norms with reference to the pre-restructuring payment schedule. The asset classification would be bank-specific on the basis of record of recovery related to each bank, according to the existing prudential norms applicable to banks.

Procedure for Requesting  Debt Restructuring

The Indian Overseas Bank scheme for dispensation for asset classification is only accessible when the account is restructured for the first time. In addition, the Bank and Lender must follow the following conditions:

  1. The restructuring will follow a receipt of a request to that effect from the borrowing units with necessary details.
  2. In case of eligible SMEs which are under consortium or multiple banking arrangements, the bank with the upper limit outstanding may, work out the restructuring package, together with the bank having the second largest share.

Operational aspects

Finally, restructuring must be done by way of repayment of term loans, blocking of working capital with a repayment schedule, permit of additional finance. Period of repayment and amount of blocking/ additional finance to be determined based on cash flow and genuine credit needs on a case to case basis by the permitting authority.