Restructuring Of Advances To Msme

The RBI has issued a notification on Extension of Restructuring of Advances in Micro, Small and Medium Enterprises (MSME) sector on 11th February 2020. RBI has decided to extend the

Loan Restructuring for MSME that was introduced in January 2019. The restructuring of advances will improve the financial status of MSMEs through which the business can prosper. This article will explain the restructuring process and its applicability.

Background

The restructuring of Advances for MSMEs that were stressed to provide relief to the MSMEs since they play an important part in the growth of the Indian Economy. The MSMEs contribute to over 28 per cent of the GDP, over 40 per cent of exports, and have created employment opportunities for about 11 crore people in India. Giving due acknowledgement 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

In the Union Budget 2020 presentation on 1st February 2020, it was announced that the government has asked the Reserve Bank of India (RBI) to extend the debt restructuring window by another year ending 31st March 2021, and the RBI in its Monetary Policy Review Meeting decided to extend the scheme to 31st December 2020. 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. The loan restructuring is allowed provided the following conditions are satisfied:

The aggregate exposure of banks and NBFCs to the borrower does not exceed Rs.25 crores as on 1st January. The aggregate exposure of banks includes non-fund based facilities also.
The borrower’s account was in default but was a ‘standard asset’ as on 1st January 2020 and till the implementation date of the loan restructuring, the borrower’s account continues to be classified as a ‘standard asset’.
The loan restructuring of the MSME is done on or before 31st December 2020
The borrowing MSME is GST-registered on the implementation date of the loan restructuring. MSMEs that are exempt from GST-registration need not satisfy this condition. To be determined based on the exemption limit obtained as on 1st January 2020

There is an important clarification given for accounts which have already been restructured based on the circular dated 1st January 2019: These accounts or borrower MSMEs are not eligible for restructuring under this present circular. In other words, if a loan restructuring has already been implemented based on the

RBI circular on 1st January 2019, then such MSMEs cannot benefit again from the current circular dated 11th February 2020, for extension of loan restructuring. Apart from the updated instructions or conditions mentioned above in the new circular from RBI, all other instructions specified in the are applicable. The notification can be accessed below:

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Frequently Asked Questions

Common questions about MSME Loan Restructuring Extension.

The purpose of the RBI's notification is to extend the one-time restructuring of existing loans for micro, small, and medium enterprises (MSMEs) classified as 'standard' assets without a downgrade in their asset classification. This restructuring aims to improve the financial status of MSMEs and enable them to prosper.

To be eligible for loan restructuring, the aggregate exposure of banks and NBFCs to the MSME borrower should not exceed Rs. 25 crores as of January 1, 2020. Additionally, the borrower's account should have been a 'standard asset' as of January 1, 2020, and remain classified as such until the loan restructuring implementation date.

The loan restructuring for eligible MSMEs must be implemented on or before December 31, 2020, as per the RBI's notification.

Yes, the borrowing MSME must be GST-registered on the implementation date of the loan restructuring. However, MSMEs that are exempt from GST registration need not satisfy this condition.

No, MSMEs whose loans have already been restructured based on the RBI circular dated January 1, 2019, are not eligible for restructuring under the current circular dated February 11, 2020.

The RBI is extending the loan restructuring scheme for MSMEs in recognition of their importance to the Indian economy. MSMEs contribute significantly to GDP, exports, and employment generation in the country.

The borrower's account must be classified as a 'standard asset' as of January 1, 2020, and remain so until the loan restructuring implementation date. This ensures that the MSME is not in a severe financial distress situation and has a reasonable chance of recovery after the restructuring.

Yes, the aggregate exposure of banks and NBFCs to the MSME borrower, including non-fund based facilities, should not exceed Rs. 25 crores as of January 1, 2020.

The RBI's notification does not provide specific guidelines for the loan restructuring process. However, it mentions that all other instructions specified in the RBI circular dated January 1, 2019, are applicable, except for the updated conditions in the new circular.

No, the loan restructuring scheme is not mandatory for eligible MSMEs. It is an option provided by the RBI to support MSMEs facing financial stress and enable them to restructure their loans without an asset classification downgrade.