The Reserve Bank of India (RBI) on Tuesday introduced a one-time restructuring scheme for micro, small and medium enterprises (MSMEs) with a maximum exposure of Rs 25 crore.
The restructuring has to be implemented by March 31, 2020. Banks have to incur an additional provision of 5 per cent for these restructured accounts, the RBI said in a notification on its website.
To be eligible, the MSME account should remain a ‘standard asset’ as of January 1. Accounts in default can be restructured, provided their asset classification has not been downgraded.
“Any MSME account which is restructured must be downgraded to non-performing asset upon restructuring, and will slip into progressively lower asset classification and higher provisioning requirements,” the RBI said.
Such an account can be considered for upgrade to ‘standard’ after a year, only if it demonstrates satisfactory performance, which means debt servicing should not remain due for more than 30 days.
The entity, unless already exempt, should be goods and services tax (GST)-registered. Banks and non-banking financial companies (NBFCs) will have to disclose the number of accounts restructured and the amounts involved. The lenders should have board-approved policies for the restructuring.
The restructured accounts need to be disclosed. Banks and NBFCs should have board-approved policies on restructuring.
The issue of restructuring of MSMEs under stress was first decided in the November 19 board meeting of the RBI. The central bank’s board member S Gurumurthy had been a vocal supporter of a special scheme for MSMEs.
Newly appointed RBI Governor Shaktikanta Das had discussed MSME restructuring in his first meeting with bankers.
Fitch Ratings had, earlier, warned allowing restructuring of MSME loans up to Rs 25 crore would be a “step backwards”, with the risks becoming apparent in the next six to nine months.
“In one way, it is a step backwards, given the RBI’s previous stance to do away with all restructuring. It clearly reflects stress in the MSME sector, although we expect risk to manifest in the next six to nine months,” Saswata Guha, director (financial institutions), Fitch Ratings, had said in a report.
Guha had warned banks would not be careful in restructuring the loans, given their past records, and this would build up stress.
“There is adequate evidence in the form of $140 billion of non-performing loan stock that the sector is currently grappling with, which, in my opinion, is a direct result of the unbridled lending of the past,” the rating agency had said in its report.

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