RBI Resolution Framework 2.0 for MSME

Because of the uncertainties created by the resurgence of the COVID-19 pandemic in India, RBI vides a notification dated May 5, 2021, has announced Resolution Framework 2.0 for MSME - Resolution of Covid-19 Related Stress of Micro, Small and Medium Enterprises (MSMEs).

With this notification, RBI announced the extension of the facility for restructuring existing loans without a downgrade in the asset classification.

Restructuring under the proposed framework may be invoked up to September 30, 2021, and would have to be implemented within 90 days after invocation.

Restructuring of Advances for MSMEs

Restructuring of Advances to MSME was introduced in January 2019 to provide relief to stressed MSMEs. Giving due acknowledgment to the importance of MSMEs in the Indian economy and also to create an enabling environment for the MSME sector formally, a one-time restructuring of loans to MSMEs that were in default was permitted without an asset classification downgrade, provided the MSME account was a ‘standard asset’ as per the bank from whom they had borrowed, as on 1st January 2019.

Extension of Restructuring of Advances - Resolution Framework 2.0

According to the latest notification from RBI, there will be an extension to the one-time restructuring of existing loans permitted to MSMEs that are classified as ‘standard’ without a downgrade in the asset classification.

MSME who have availed loans with aggregate exposure of less than Rs 25 crore as of March 31, 2021, are eligible to apply for the Resolution Framework 2.0.
Retail borrowers who did not opt for the earlier resolution framework announced in August last year can benefit from the Resolution Framework 2.0 till September 30, 2021.
No restructuring availed under Resolution Framework 1 and classified as 'Standard' as of March 31, 2021 and MSMEs having aggregate exposure (including non-fund-based facilities) of up to Rs.25 Crore, shall be eligible to be considered under Resolution Framework 2.0 for MSMEs. Such proposed restructuring framework may be invoked up to September 30, 2021, and shall have to be implemented within 90 days after invocation

Condition for availing the Benefit of Resolution Framework 2.0

The conditions that need to be fulfilled for availing the benefit of loan restructuring is as follows:

The borrower should be classified as a micro, small or medium enterprise as of March 31, 2021, in terms of the Gazette Notification S.O. 2119 (E) dated June 26, 2020
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. This shall be determined on the basis of the exemption limit obtaining as of March 31, 2021
The aggregate exposure, including non-fund-based facilities, of all lending institutions to the borrower does not exceed Rs.25 crore as of March 31, 2021.
The borrower’s account was a ‘standard asset’ as of March 31, 2021.
The borrower’s account was not restructured in terms of MSME restructuring circulars
The restructuring of the borrower account is implemented within 90 days from the date of invocation.
If the borrower is not registered in the Udyam Registration portal, such registration shall be required to be completed before the date of implementation of the restructuring plan for the plan to be treated as implemented
Upon implementation of the restructuring plan, the lending institutions shall keep the provision of 10 percent of the residual debt of the borrower.

Invoking Restructuring of Advances

The restructuring of the borrower account is invoked by September 30, 2021. For this purpose, the restructuring shall be treated as invoked when the lending institution and the borrower agree to proceed with the efforts towards finalizing a restructuring plan to be implemented in respect of such borrower.

The decisions on applications received by the lending institutions from their customers for invoking restructuring under this facility shall be communicated in writing to the applicant by the lending institutions within 30 days of receipt of such applications.
The decision to invoke the restructuring under this facility shall be taken by each lending institution having exposure to a borrower independent of invocation decisions taken by other lending institutions, if any, having exposure to the same borrower

Asset classification under Resolution Framework 2.0

The asset classification of borrowers classified as 'Standard' may be retained as such, whereas the accounts which may have slipped into the NPA category between April 1, 2021, and the date of implementation may be upgraded as 'Standard' as on the date of implementation of the restructuring plan. The asset classification benefit will be available only if the restructuring is done as per provisions of the RBI circular. As hitherto, for accounts restructured under Resolution Framework 2.0, banks shall maintain an additional provision of 5% over and above the provision already held by them. The official notification about RBI Resolution Framework 2.0 for MSME can be accessed below:

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Frequently Asked Questions

Common questions about RBI Resolution Framework 2.0 for MSME Loan Restructuring.

The RBI Resolution Framework 2.0 for MSME is a scheme announced by the Reserve Bank of India that allows for one-time restructuring of existing loans to micro, small, and medium enterprises (MSMEs) without a downgrade in asset classification. This framework aims to provide relief to stressed MSMEs affected by the resurgence of the COVID-19 pandemic in India.

MSMEs that have aggregate exposure (including non-fund based facilities) of up to Rs. 25 crore as of March 31, 2021, and whose accounts were classified as 'standard' as of the same date, are eligible to be considered under the Resolution Framework 2.0. Additionally, MSMEs that did not opt for the earlier resolution framework announced in August 2020 can also benefit from this scheme.

The main conditions include being classified as an MSME as of March 31, 2021, being GST-registered (unless exempt), having an aggregate exposure of up to Rs. 25 crore, being a 'standard asset' as of March 31, 2021, and not having been restructured under previous MSME restructuring circulars.

The restructuring of the borrower account must be invoked by September 30, 2021, and implemented within 90 days after invocation.

Accounts classified as 'Standard' may retain their asset classification, while accounts that slipped into the NPA category between April 1, 2021, and the date of implementation may be upgraded to 'Standard' upon implementation of the restructuring plan.

Yes, banks shall maintain an additional provision of 5% over and above the provision already held by them for accounts restructured under the Resolution Framework 2.0.

The Resolution Framework 2.0 acknowledges the importance of MSMEs in the Indian economy and aims to create an enabling environment for the MSME sector by providing relief to stressed MSMEs impacted by the COVID-19 pandemic through loan restructuring without asset classification downgrades.

No, MSMEs whose accounts were restructured under previous MSME restructuring circulars and were classified as 'Standard' as of March 31, 2021, are not eligible to be considered under the Resolution Framework 2.0.

GST registration is mandatory for availing the benefit of loan restructuring under the Resolution Framework 2.0, unless the MSME is exempt from GST registration based on the exemption limit as of March 31, 2021.

The restructuring plan must be implemented within 90 days from the date of invocation, which should be done by September 30, 2021.