Following a demand from the government for a debt recast package for micro, small and medium enterprises (MSMEs), the Reserve Bank of India (RBI) has relaxed the provisioning norms for lenders for restructuring loans of up to ₹25 crore.
According to the guidelines released on Tuesday, the RBI has allowed one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019. Banks have to make only 5% provisioning for restructuring the loans as compared to 15-20%, which is the provision that restructured loans typically attract.
The government has been asking for such a package for a long time for the MSME sector which was severely hit due to demonetisation exercise and implementation of the Goods and Services Tax (GST).
Enabling environment
“Considering the importance of MSMEs in the Indian economy, it is considered necessary at this juncture to take certain measures for creating an enabling environment for the sector,” RBI said. The issue of restructuring of MSME accounts was discussed by the RBI board on November 19, 2018 . The issue also figured during RBI’s recent interactions with the lenders.
“The above issue has been examined in RBI and a view has been taken to facilitate meaningful restructuring of MSME accounts that have become stressed,” RBI said.
The restructuring has to be implemented by March 31, 2020, the RBI said.
“A provision of 5%, in addition to the provisions already held, shall be made in respect of accounts restructured under this scheme,” the RBI said, adding that each bank or non-bank should formulate a policy for this scheme with the board’s approval.
