MSME

Resolution Framework 2.0: RBI allows Restructuring of MSME Loans up to Rs 50 Cr

Intending to provide relief amidst second wave of the Covid-19 pandemic, the Reserve Bank of India notified about loan restructuring limits for MSMEs and small borrowers to 50 crore rupees. The RBI announced on 4^th June 2021 that the maximum aggregate exposure threshold has been enhanced from 25 crore rupees to 50 crore rupees (Resolution Framework 2.0) for MSMEs, non-MSME small businesses & loans to individuals for business purposes.

Background: Resolution Framework 2.0

In the month of May, the Reserve Bank had announced the second round of restructuring of loans for individuals and small businesses and MSME borrowers who didn’t avail of the facility in the previous round. Under the Resolution Framework 2.0, individuals and businesses may opt for the option of loan restructuring for up to 25 crore rupees dues. Now the RBI decided to hike the threshold to 50 crore rupees.  

Eligibility for availing benefits under Resolution Framework 2.0

It may be noted that borrowers with an aggregate exposure of up to 50 crore rupees and those who have not availed restructuring under any of the previous restructuring framework and who were classified as Standard as on 31^st March 2021 will be eligible to be considered under the Resolution Framework 2.0.

It signifies that any person and any small businessman may avail of the relief. Any MSME loan up to 50 crore rupees is eligible as per revised protocols. As stated earlier, according to the last months’ resolution framework policy, this limit was 25 crore rupees. However, only those borrowers are eligible whose loan account was standard as on 31^st March 2021.

Now here we need to understand the meaning of Standard account. Sometimes it’s confused with an overdue account. A standard account is any loan that is not a NPA. A NPA means a loan in which there have been overdues for last 90 days. On the 91^st day of overdue, the account is called an NPA^[1] or a bad debt. So if an account was not an NPA on 31^st March 2021, it shall be eligible for resolution framework 2.0.

Who can avail of the newly announced benefits?

It can be availed by:

• Individuals who availed of loans and advances for business purposes and to whom the lending institutions have aggregate exposure of up to 50 crore rupees as on 31 March.
• Small businesses, including those that are engaged in retail as well as wholesale trade, other than those classified as MSME as on 31 March and to whom the lending institutions have aggregate exposure of up to 50 crore rupees as on 31 March.

What is last day of applying for loan restructuring?

Banks, as well as lending institutions, can invoke restructuring under the proposed framework until 30^th September. The loan moratorium should be implemented within 90 days after the invocation.

As per the experts, the expansion of the resolution framework 2.0 to 50 crore rupees shall extend the credit coverage to a large number of individuals and businesses. Considering the contribution of MSMEs to the GDP, the relief measures will catalyze MSME recovery and stimulate financial stability further into the economy.

For those who took the option of one-time loan restructuring earlier

Banks and lenders can provide the loan restructuring option for up to 2 years for those who opted to moratorium in the earlier round. The RBI said that the Small business owners and individuals could avail of this option to pay their dues.

Conclusion

According to credit rating agency Crisil, nearly two-thirds of mid-sized firms are now eligible for loan restructuring after the increase in the maximum aggregate exposure threshold to 50 crore rupees. Crisil rates around 6800 midsized companies, of which close to 4700 are SMEs. These SMEs with a bank loan exposure of up to 50 crore rupees and standard accounts as on Mar 31, 2021, makes them eligible for restructuring.

Read our article: Pre-pack Insolvency Resolution Process Regulations for MSMEs