Canara Bank Resolution Framework for Mid Corporate, MSME, & Large Corporate Credit – FAQs

Updated on: 02 Jan 2024 // 7 min read // Business Loans // Personal Loans
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After Reserve Bank of India’s (RBI) announcement regarding loan restructuring, Canara Bank has released a set of detailed Frequently Asked Questions (FAQs) regarding its Resolution Framework for Loans/Advances due to COVID-19-related Stress. The FAQs cover Personal Loans as well as corporate loans.

Below are the detailed FAQs for Canara Bank’s Resolution Framework for Mid Corporate, MSME, and Large Corporate Credit.

FAQs for Mid Corporate Credit  

✅ Is Resolution Framework for COVID – 19 related stress applicable to all?

No. The framework will be applicable only to eligible borrowers, i.e., corporate persons or otherwise, subject to certain conditions.

✅ Which types of borrower accounts are eligible for resolution under the framework?

Only those borrower accounts will be eligible for resolution under the framework which were classified as standard, but were not in default for over 30 days with any lending institution as on 01.03.2020. Also, the accounts must continue to remain standard till the invocation date.

✅ How will the bank treat resolution process if the borrower has exposure with multiple lending institutions?

If the borrower is exposed to multiple lending institutions, the resolution process will be treated as invoked in respect of the borrower if lending institutions represent 75% by value of the total outstanding credit facilities (fund based and non fund based) and not less than 60% of lending institutions by number agree to invoke the same.

✅ Is there any last date to invoke the resolution under the framework?

Resolution under this framework can be invoked not later than 31.12.2020 and must be implemented within 180 days from the invocation date.

✅ When will this resolution process be treated as lapsed?

In the cases where the resolution process is invoked but lending institutions representing 75% or above by value of the total outstanding credit facilities (fund as well as non-fund based) and not below 60% of lending institutions by number, do not sign the ICA in 30 days from the invocation date, the invocation will be treated as lapsed. For such borrowers, the resolution process cannot be invoked again within this framework.

✅ Is there any timeline for signing ICA?

Yes. The ICA must be signed within 30 days from the invocation date (last date is 31.12.2020). If ICA is not signed within this stipulated time, the invocation will automatically be lapsed. For such borrowers, the resolution process cannot be invoked again under the framework.

If any of the timelines mentioned above is breached at any point, the resolution process will stop to apply immediately for the concerned borrower. Any resolution plan implemented in breach of the timeline stipulated above will be fully governed by the Prudential Framework or relevant instructions as applicable to specific category of lending institutions wherein the Prudential Framework does not apply, as if the resolution process was never invoked under this framework.

FAQs for Micro, Small and Medium Enterprise Credit (MSME)

✅ What does Distressed Asset Fund – Subordinated Debt for Stressed MSMEs mean?

It is a scheme framed by Ministry of MSME, Government of India (GOI) under which the promoters of the stressed MSMEs will be provided with the credit facility for infusing the same as equity/ quasi equity/ sub-debt in the unit.

✅ What are the eligibility criteria for MSMEs to get the benefit of this Scheme?

All MSME borrowers/ entities who are stressed (SMA2 and NPA accounts) and are eligible for restructuring as per the guidelines of RBI and are also commercially viable as per the assessment done by lending institutions, subject to MSME accounts which have been standard as on 31.03.2018 and have been in regular operation, either as standard or as NPA accounts during financial year 2018-2019 and financial year 2019-2020 are eligible under this Scheme. The Scheme is valid for MSME units that are stressed, viz. SMA2 and NPA accounts as on 30.04.2020.

✅ I was running my business and my account turned into NPA because of certain reasons. However, my business is currently not running and is closed. Am I eligible under this Scheme?

No. For availing this sub-debt, your unit must be in running condition and should be currently operational.

✅ What is the maximum sub-debt amount available under the Scheme?

Under this Scheme, Promoters of MSME units will be given credit facility equal to 15% of their stake in the MSME entity (equity + debt) or Rs. 75 Lakhs, whichever is lower as per recent audited Balance Sheet.

✅ Is there any margin money required to be brought in by the promoters to avail of the sub-debt facility?

Yes. The promoters need to bring in 10% of the sub-debt amount as collateral.

✅ What is the security on credit facility extended under this Scheme?

The credit provided under the scheme will be ranked second charge on all the existing assets.

✅ What will be the tenure of loans provided under DAF-SDSM?

The tenure of sub-debt facility offered under DAF-SDSM will be as per the repayment schedule defined by the Canara Bank, subject to a maximum tenure of 10 years.

✅ Is there any moratorium period mentioned under DAF-SDSM?

Yes. There can be a moratorium of up to a maximum of 7 years for the payment of principal. Till the 7th year, borrower has to pay only interest. While the interest on the credit facility offered under the scheme will be required to be serviced regularly (on monthly basis), the principal will have to be repaid within a maximum of 3 years after completing the moratorium period.

✅ What does the Credit Guarantee Scheme for Subordinate Debt (CGSSD) mean?

Credit facility provided under DAF-SDSM will be covered under CGSSD operated by Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE).

✅ Will the bank charge any guarantee fee under the Scheme?

Yes. There is a fee of 1.50% p.a. on the guaranteed amount on outstanding basis, that has to be borne by the borrower.

✅ What is One Time Restructure Schemes (OTR) for MSMEs as per RBI Circular dated 06.08.2020?

For continued need to support the viable MSMEs on account of the fallout of COVID-19 pandemic, RBI vide their notification dated 06.08.2020 has extended OTR scheme to MSME loans under Standard asset category as on 01.03.2020 with exposure up to Rs. 25 Crores, to be implemented by 31.03.2021, without any downgrade in the asset classification.

✅ Who is eligible for OTR?

Borrowers whose account is classified as Standard asset as at 01.03.2020 are eligible for the OTR scheme. The aggregate exposure (including Non Fund based facilities), of Banks and Non-Banking Financial Companies (NBFCs) to the borrower should not exceed Rs. 25 Crores as on 01.03.2020. The borrower entity must be GST-Registered on the restructuring implementation date. However, this condition does not apply to MSMEs that are exempt from GST registration. This will be determined on the basis of exemption limit obtained as on 01.03.2020.

✅ What is the validity of the scheme?

Restructuring of the eligible borrower accounts has to be implemented by 31.03.2021.

✅ I don’t have GST. Will the OTR be considered?

The borrower entity should be GST-Registered on the restructuring implementation date. However, this condition does not apply to MSMEs that are exempt from GST registration. It will be determined on the basis of exemption limit obtained as on 01.03.2020.

✅ What are the advantages of restructuring?

Depending on the MSME unit’s Techno-Economic viability, restructuring process normally includes modification of terms of the advance which will generally include among others alteration of the repayment period, rephrasing or rescheduling the repayment for an outstanding term loan with/ without any change in balance repayment period/ instalments, Rescheduling the interest outstanding payment, Fresh Finance, if envisaged as per restructuring plan, etc.

FAQs for Large Corporate Credit

✅ Whether MSME units are eligible under this scheme?

Only those MSME units are eligible under this scheme that have an aggregate exposure of more than Rs. 25 Crores to all lending institutions.

✅ Which other corporate credit categories are ineligible?

Lending institutions to Central & State governments, financials service providers, local government bodies, body corporates (established by act of Parliament), and housing finance companies are also ineligible.

✅ Are all accounts irrespective of their asset classification eligible for resolution under this scheme?

Accounts that are classified as Standard and have not been in default for over 30 days as on 01.03.2020 are eligible.

✅ How to avail of the relief under the package?

You can approach the concerned branch if dealing exclusively with the Canara Bank, or respective branches of various banks if you are dealing with more banks under consortium/MBA.

✅ What is the timeline to approach the banks?

The resolution under this framework has to be invoked not before 31.12.2020. Borrowers have to approach the lenders early enough so as to enable them to take a decision and frame the resolution package.

✅ What are the features of this resolution package?

Features of the package are:

  • Extension of remaining tenure of the credit facilities by a period of not more than 2 years (with or without moratorium).
  • Sanction of additional credit facilities (if deemed necessary) to address financial stress.
  • Conversion of a part of the debt into equity or other marketable, non-convertible debt securities.

✅ What will be the asset classification after resolution restructuring?

In case the resolution plan is implemented within this facility’s provision, Standard asset accounts will be retained as such, post implementation. A standard asset that subsequently slips to NPA between invocation and implementation could be upgraded as standard, as on the implementation date of the package. Additional finance provided will be classified as standard asset till implementation regardless of the actual performance during interim.