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Restructuring of Advances to MSME

Restructuring of Loans to MSME

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.


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:

  1. 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.
  2. 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’.
  3. The loan restructuring of the MSME is done on or before 31st December 2020
  4. 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 RBI circular dated 1st January 2019 are applicable.

The notification can be accessed below: