MSMEs loans classified as ‘standard’ may be restructured without downgrading

Existing loans to MSMEs classified as ‘standard’ may be restructured without a downgrade in the asset classification

Micro, Small and Medium Enterprises (MSME) sector – Restructuring of Advances

To support the MSME entities on account of the fallout of Covid-19 pandemic RBI has decided that existing loans to MSMEs classified as ‘standard’ may be restructured without a downgrade in the asset classification.

Conditions for restructuring MSME loans are as under:

1. The aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower does not exceed ₹25 crore as on March 1, 2020.

2. The borrower’s account was a ‘standard asset’ as on March 1, 2020.

3. The restructuring of the borrower account is implemented by March 31, 2021.

4. The borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration. This shall be determined on the basis of exemption limit obtaining as on March 1, 2020.

5. Asset classification of borrowers classified as standard may be retained as such, whereas the accounts which may have slipped into NPA category between March 2, 2020 and date of implementation may be upgraded as ‘standard asset’, as on the date of implementation of the restructuring plan. The asset classification benefit will be available only if the restructuring is done as per provisions of this circular.

6. As hitherto, for accounts restructured under these guidelines, banks shall maintain additional provision of 5% over and above the provision already held by them.

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