The Reserve Bank of India (RBI) has issued a notification to financial institutions extending the facility of restructuring existing loans to MSME borrowers without a downgrade in asset classification. Lending institutions must put in place a Board approved policy for the restructuring of MSME advances under these instructions within one month from the date of this circular. In order to qualify for the facility, the borrower must be classified as a micro, small or medium enterprise as on March 31, 2021 in terms of the Gazette Notification S.O. 2119 (E) dated June 26, 2020. The borrower's account must have been a standard asset, and the aggregate exposure, including non-fund based facilities, of all lending institutions to the borrower must not exceed ₹25 crore as on March 31, 2021. Additionally the account must not have been previously restructured under the MSME restructuring circulars.
This provision must be invoked by 30th September, 2021, and the restructuring must be implemented within 90 days from the date of invocation. Lending institutions must keep a provision of 10 percent of the residual debt of the borrower upon implementation of the restructuring plan. With respect to accounts that slip into the Non Performing Asset (NPA) category between April 1, 2021 and the date of implementation, such accounts may be upgraded as ‘ standard asset’. Accounts of borrowers which were restructured in terms of the MSME restructuring circulars, may be reviewed by lending institutions as a one-time measure, with respect to the working capital sanctioned limits and/or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring.