Banks can restructure loans of covid-hit MSMEs without asset downgrade

Existing loans to MSMEs facing stress due to Coronavirus-related restrictions could be restructured without a downgrade in the asset classification.

The Reserve Bank of India has come out with a resolution framework for MSME entities facing stress due to Coronavirus pandemic.

However, only those loans will be eligible for such restructuring which are classified as standard, and that the exposure of the lender should not exceed Rs 25 crore (including including non-fund based facilities) as on 1 March 2020.

For an MSME to avail this facility, it has to be a GST-registered entity on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration. This will be determined on the basis of exemption limit obtaining as on 1 March 2020.

The restructuring of the borrower account could be implemented by 31 March 31 2021.

While loans which are classified as standard are automatically eligible for the facility, those accounts which may have slipped into NPA category between March 2, 2020 and date of implementation may be upgraded as ‘standard asset’ on or before the date of implementation of the restructuring plan.

Banks will have to make an additional provision of 5% over and above the provisions already made for accounts restructured under the new framework.