What changed
RBI has extended the restructuring facility for MSME loans, originally introduced in August 2020, to address renewed Covid-19 disruptions. Key new conditions include borrower classification as MSME as of March 31, 2021, GST registration (unless exempt), aggregate exposure cap of ₹25 crore, and standard asset status on that date. Restructuring must be invoked by September 30, 2021 and implemented within 90 days, with a mandatory 10% provision on residual debt.
What it means for you
Banks can now offer restructuring to MSME borrowers hit by the second Covid wave without downgrading their asset classification, provided the account was standard as of March 31, 2021. This helps lenders manage NPAs while supporting viable MSMEs. However, the 10% provision requirement will impact profitability, and banks must have a board-approved restructuring policy within one month.
What you must do
- Ensure borrower meets MSME classification as per March 31, 2021 Gazette Notification and is GST-registered (or exempt) on implementation date.
- Verify aggregate exposure across all lenders does not exceed ₹25 crore as of March 31, 2021.
- Confirm account was standard as of March 31, 2021 and not previously restructured under earlier MSME circulars.
- Invoke restructuring by September 30, 2021 and implement within 90 days; communicate decisions within 30 days of application.
- Create a board-approved restructuring policy within one month and maintain 10% provision on residual debt post-implementation.
Who it affects
All Commercial Banks including Small Finance Banks, Local Area Banks, RRBs, Primary (Urban) Co-operative Banks, State Co-operative Banks, DCCBs, All-India Financial Institutions, NBFCs including Housing Finance Companies, MSME borrowers with aggregate exposure up to ₹25 crore
What is the deadline for invoking restructuring under this framework?
Restructuring must be invoked by September 30, 2021. Invocation means the lender and borrower agree to proceed with finalising a plan. Lenders must communicate decisions within 30 days of receiving applications.
What provision is required after implementing the restructuring plan?
Lending institutions must keep a provision of 10% of the residual debt of the borrower upon implementation of the restructuring plan.
Can accounts that slipped into NPA after March 31, 2021 be upgraded?
Yes, accounts that became NPA between April 1, 2021 and the date of implementation can be upgraded to 'standard asset' as on the implementation date, provided the restructuring plan is implemented as per conditions.