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MSME Loan Restructuring

MSME Loan Restructuring

MSME Loan Restructuring 2019

The Reserve Bank of India on 1st January 2019 has announced a MSME loan restructuring scheme to provide relief for small businesses across the country. Under the scheme, the RBI has allowed for one-time restructuring of existing loans to MSMEs that are in default but not NPA as on 1st January 2019. Such loans restructured under the scheme will not require an asset classification downgrade.


For a loan to be eligible for restructuring under this scheme, the following conditions must be fulfilled:

  1. The aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower does not exceed ₹250 million as on January 1, 2019.
  2. The borrower’s account is in default but is a ‘standard asset’ as on January 1, 2019 and continues to be classified as a ‘standard asset’ till the date of implementation of the restructuring.
  3. 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.
  4. The restructuring of the borrower account is implemented on or before March 31, 2020. A restructuring would be treated as implemented if the following conditions are met:
    1. all related documentation, including execution of necessary agreements between lenders and borrower / creation of security charge / perfection of securities are completed by all lenders; and
    2. 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.
  5. A provision of 5% in addition to the provisions already held, shall be made in respect of accounts restructured under these instructions. Banks will, however, have the option of reversing such provisions at the end of the specified period, subject to the account demonstrating satisfactory performance during the specified period.
  6. Post-restructuring, NPA classification of these accounts shall be as per the extant IRAC norms.
  7. Banks and NBFCs shall make appropriate disclosures in their financial statements, under ‘Notes on Accounts’, relating to the MSME accounts restructured under these instructions as per the following format:
    No. of accounts restructured Amount (₹ in million)
  8. All other instructions applicable to restructuring of loans to MSME borrowers shall continue to be applicable.


For the implementation of the scheme, Banks and NBFCs must put in place a Board approved policy on restructuring of MSME advances under this scheme within a month from the date of this circular. The policy put forth by the bank must also include a framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.


As a general rule, barring the above one-time exception, any MSME account which is restructured must be downgraded to NPA upon restructuring and will slip into progressively lower asset classification and higher provisioning requirements as per extant IRAC norms. Such an account may be considered for upgradation to ‘standard’ only if it demonstrates satisfactory performance during the specified period.

‘Specified Period’ means a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium under the terms of restructuring package.

‘Satisfactory Performance’ means no payment (interest and/or principal) shall remain overdue for a period of more than 30 days. In case of cash credit/overdraft account, satisfactory performance means that the outstanding in the account shall not be more than the sanctioned limit or drawing power, whichever is lower, for a period of more than 30 days.

RBI Circular

The RBI circular on MSME loan restructuring is reproduced below for ready-reference:

MSME Loan Restructuring – RBI Notification