RBI permits one-time restructuring of MSME advances till December 31, 2020

RBI permits one-time restructuring of MSME advances till December 31, 2020
RBI on Tuesday (11.02.2020) allowed a one-time restructuring of existing loans extended to MSMEs by Banks and NBFCs and permitting them to classify such assets as ‘Standard’ without a downgrade in the asset classification if the following conditions are met.
• The aggregate of fund-based and non-fund based exposure to the borrower does not exceed Rs.25 crore as on January 1, 2020.
• The borrower account was a ‘standard asset’ as on January 1, 2020, but the account was subsequently in default, shall continue to be classified as ‘standard asset’ till the date of the restructuring.
• The restructuring of the borrower account is implemented on or before December 31, 2020. However, accounts already been restructured in terms of RBI circular dated January 1, 2019, are not eligible for the restructuring of accounts as per the last year circular.

• The borrower account should be GST registered on the date of implementation of the restructuring. This condition is not applicable to the MSMEs that are exempt from GST registration. However, the same shall be determined on the basis of exemption limit obtaining as on January 1, 2020.

The restructuring of the account is treated as implemented if all related documentation completed by the lender including the execution of necessary agreements between lender and borrower, creation of security charge, perfections of securities. A provision of 5 percent in addition to the provisions already held. However, such provision may be reversed at the end of the specified period provided the account is proving satisfactory performance during a specified period*.
*Specified Period’ means a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with the longest period of moratorium under the terms of restructuring package. ‘Satisfactory Performance’ means no payment (interest and/or principal) shall remain overdue for a period of more than 30 days. In case of cash credit/ overdraft account, satisfactory performance means that the outstanding in the account shall not be more than the sanctioned limit or drawing power, whichever is lower, for a period of more than 30 days