RBI announces Resolution Framework 2.0 for COVID Related Stressed Assets

RBI on Wednesday (5^th May) announced Resolution Framework 2.0 targeting individual, small businesses and MSME borrowers.

In terms of RBI’s Febraury 5^th circular, Scheduled Commercial Banks were allowed to deduct the amount equivalent to credit disbursed to new MSME borrowers from their Net Demand and Time Liabilities (NDTL) for calculation of the Cash Reserve Ratio (CRR). This exemption was available up to ₹ 25 lakh per borrower for the credit disbursed up to the fortnight ending October 1, 2021. Banks are on Wednesday allowed to extended this credit facility to new MSME borrowers till December 31, 2021 and allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR). “This decision was taken in order to incentivise inclusion of unbanked MSMEs into the banking system”, RBI said.

The individuals who have availed of loans for business purposes, small businesses and MSME borrowers having aggregate exposure of upto ₹25 crore and who have not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021 shall be eligible to be considered under Resolution Framework 2.0. The proposed framework of restructuring may be invoked up to September 30, 2021 and shall have to be implemented within 90 days after invocation.

 The individual borrowers and small businesses that have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, may be extended till the residual tenor up to a total of 2 years. Lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of 2 years. Other conditions will remain the same.

Lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, to small businesses and MSMEs restructured earlier based on a reassessment of the working capital cycle, margins, etc.

The circular further stated that “It has been decided to extend this exemption for such credits disbursed up to the fortnight ending December 31, 2021”.

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