COVID impact: RBI unveils loan restructuring scheme for small businesses

Mumbai: In a bid to provide succor from scourge of COVID-19 pandemic, the Reserve Bank on Wednesday came out with Resolution Framework 2.0 under which individuals and small businesses having exposure up to Rs 25 crore can opt for loan restructuring if they had not availed the earlier scheme.

In case of those who had availed the loan restructuring under the earlier scheme, RBI permitted the banks and lending institutions to modify the plans and increase the period of moratorium.

"In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc," said RBI Governor Shaktikanta Das while announcing steps to deal with the impact of the second wave of COVID-19 pandemic.

This is one-time loan time loan restructuring scheme under which the loan would remain standard despite recast and banks would not have to make additional provision in such cases.

This is the second restructuring scheme announced by the central bank in less than one year time with the first unveiled in August last year when the first COVID-19 wave had battered Indian economy with contraction of 8 per cent during financial year ended on March 31, 2021.

The resurgence of COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape, Das noted.

Noting that most vulnerable category of borrowers are individual borrowers, small businesses and micro, small and medium enterprises (MSMEs) in this environment, he said, borrowers who were classified as 'standard' as on March 31, 2021 would be eligible to be considered under Resolution Framework 2.0.

Restructuring under the proposed framework may be invoked up to September 30, 2021, and would have to be implemented within 90 days after invocation.

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

The RBI on August 6, 2020 permitted one-time restructuring of both corporate and retail loans without getting classified as a non-performing asset (NPA) under the



Resolution Framework for COVID-19-related Stress scheme.

Restructuring benefits were for those whose accounts were standard on March 1, 2020.

Besides, K V Kamath committee identified 26 sectors included automobiles, power, tourism, cement, chemicals, gems and jewellery, logistic, mining, manufacturing, real estate, and shipping, among others.

While the resolution under this framework was invoked till December 31, 2020, the lending institutions were encouraged to strive for early invocation in eligible cases, particularly for personal loans.

With a view to incentivise credit flow to the MSME borrowers, in February 2021 banks were 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), he said.

In order to further incentivise inclusion of unbanked MSMEs into the banking system, he said, this exemption currently available for exposures up to Rs 25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, is being extended till December 31, 2021.

With the objective to mitigate the pandemic related stress on banks and as a measure to enable capital conservation, the governor said banks are being allowed to utilise 100 per cent of floating provisions/countercyclical provisioning buffer held by them as on December 31, 2020 for making specific provisions for nonperforming assets with prior approval of their boards.

Such utilisation is permitted with immediate effect and up to March 31, 2022, he added.

Observing that India is set to emerge as one of the fastest growing economies in the world, he said, "Today, we have taken some steps and we will continue to be proactive throughout the year taking small and big steps to deal with the evolving situation. We must remain resolutely focused on a post pandemic future of strong and sustainable growth with macroeconomic and financial stability."

Das assured all stakeholders that RBI stands in battle readiness to ensure that financial conditions remain congenial and markets continue to work efficiently.

"We will work in close co-ordination with the Government to ameliorate the extreme travails that our citizens are undergoing in this hour of distress. We are committed to go unconventional and devise new responses as and when the situation demands," he said.