Reserve Bank of India Offers Relief To MSMEs; Allows Restructuring of Loans Upto Rs 25 Crore

by Abbas Adil

Mumbai : The Reserve Bank of India has allowed a one-time restructuring of existing debt of up to 25 crore rupees for the companies which have defaulted on payment but the loans given to them have continued to be classified as standard assets.

The decision will help the micro, small and medium enterprises (MSMEs) which are facing cash crunch in the wake of demonetisation and GST implementation.

“RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade,” RBI said in a statement. 

The government has been pushing RBI to provide relief to the stressed MSME sector. The central bank’s board on 19 November advised RBI to consider a scheme to recast loans of MSMEs, which have been hurt by the disruption caused by demonetization   in late 2016 and the implementation of the goods and services tax  (GST) in July the following year.

The MSME loan restructuring, according to the RBI statement, has to be implemented by 31 March 2020 and a provision of 5% of the total outstanding loan, in addition to the money already set aside to cover potential losses, will have to be made for such borrowers. “Each bank or non-banking financial company (NBFC) should formulate a policy for this scheme with board approval which shall, inter alia, include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts,” RBI said.

The regulator also said that MSMEs form an important component of the Indian economy and contribute significantly to the country’s gross domestic product (GDP), exports, industrial output and employment generation. “Considering the importance of MSMEs in the Indian economy, it is considered necessary at this juncture to take certain measures for creating an enabling environment for the sector,” it said.

The issue of restructuring of MSME accounts, RBI added, was discussed in the RBI board meeting  on 19 November and also during RBI’s recent interactions with banks and other stakeholders.

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