Mumbai: In a bid to provide succour from the scourge of COVID-19 pandemic, the Reserve Bank Wednesday came out with Resolution Framework 2.0 under which individuals and small businesses having exposure up to Rs 25 crore can opt for loan restructuring if they had not availed the earlier scheme.
In case of those who had availed the loan restructuring under the earlier scheme, RBI permitted the banks and lending institutions to modify the plans and increase the period of moratorium.
“In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc,” said RBI Governor Shaktikanta Das while announcing steps to deal with the impact of the second wave of the COVID-19 pandemic.
This is one-time loan time loan restructuring scheme under which the loan would remain standard despite recast and banks would not have to make additional provision in such cases.
This is the second restructuring scheme announced by the central bank in less than one year, with the first unveiled in August last year when the first COVID-19 wave had battered the Indian economy with contraction of 8 per cent during financial year ended March 31, 2021.
The resurgence of COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape, Das noted.
Noting that most vulnerable category of borrowers are individual borrowers, small businesses and micro, small and medium enterprises (MSMEs) in this environment, he said, borrowers who were classified as ‘standard’ as on March 31, 2021 would be eligible to be considered under Resolution Framework 2.0.
Restructuring under the proposed framework may be invoked up to September 30, 2021, and would have to be implemented within 90 days after invocation.
“In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc,” he said.
Later in a notification, RBI said individuals who have availed of personal loans, loans for business purposes and small businesses, including those engaged in retail and wholesale trade, other than those classified as micro, small and medium enterprises, are eligible for the recast.
It directed lending institutions to frame board approved policies at the earliest or latest by June 4 pertaining to implementation of viable resolution plans for eligible borrowers under this framework, ensuring that the resolution under this facility is provided only to the borrowers having stress on account of COVID-19.
The board approved policy should detail the eligibility of borrowers for availing the relief, and shall lay down the due diligence considerations to be followed by the lending institutions to establish the necessity of implementing the resolution plan in respect of the concerned borrower as well as the system for redressing the grievance of borrowers.
The resolution plans implemented under this window may include rescheduling of payments, conversion of any interest accrued or to be accrued into another credit facility, revisions in working capital sanctions, granting of moratorium etc based on an assessment of income streams of the borrower, the RBI circular said.
However, it said compromise settlements are not permitted as a resolution plan for this purpose.
The resolution plan may also provide for conversion of a portion of the debt into equity or other marketable, non-convertible debt securities issued by the borrower, wherever applicable, it added.
Any resolution plan implemented in breach of the stipulations of this circular would be fully governed by the Prudential Framework for Resolution of Stressed Assets issued on June 7, 2019.
Commenting on the measures taken by the RBI, Capital India Finance chairman Harsh Kumar Bhanwala said this will provide much needed relief to small business when some of the segments of the economy have been hit by local lockdowns.
With regard to MSMEs, the RBI said the borrowing entity should be GST-registered on the date of implementation of the restructuring.
The RBI had on August 6, 2020 permitted one-time restructuring of both corporate and retail loans without getting classified as a non-performing asset (NPA) under the Resolution Framework for COVID-19-related Stress scheme.
Restructuring benefits were for those whose accounts were standard on March 1, 2020.
Besides, the K V Kamath committee identified 26 sectors included automobiles, power, tourism, cement, chemicals, gems and jewellery, logistic, mining, manufacturing, real estate, and shipping, among others.
While the resolution under this framework was invoked till December 31, 2020, the lending institutions were encouraged to strive for early invocation in eligible cases, particularly for personal loans.
With a view to incentivise credit flow to the MSME borrowers, in February 2021 banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR), he said.
In order to further incentivise inclusion of unbanked MSMEs into the banking system, he said, this exemption currently available for exposures up to Rs 25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, is being extended till December 31, 2021.
With the objective to mitigate the pandemic related stress on banks and as a measure to enable capital conservation, the governor said banks are being allowed to utilise 100 per cent of floating provisions/countercyclical provisioning buffer held by them as on December 31, 2020 for making specific provisions for non-performing assets with prior approval of their boards.
Such utilisation is permitted with immediate effect and up to March 31, 2022, he added.
Observing that India is set to emerge as one of the fastest growing economies in the world, he said, “Today, we have taken some steps and we will continue to be proactive throughout the year – taking small and big steps – to deal with the evolving situation. We must remain resolutely focused on a post pandemic future of strong and sustainable growth with macroeconomic and financial stability.”
Das assured all stakeholders that RBI stands in battle readiness to ensure that financial conditions remain congenial and markets continue to work efficiently.
“We will work in close co-ordination with the Government to ameliorate the extreme travails that our citizens are undergoing in this hour of distress. We are committed to go unconventional and devise new responses as and when the situation demands,” he said.
PTI