IDBI Bank Restructuring Policy for MSME

In line with the RBI’s Restructuring Scheme launched for one-time loan restructuring for COVID-19 related stress, IDBI Bank has explained their MSME restructuring or rehabilitation policy in detail on their website.

Below are the details of the bank’s announcement in different sections:

1. Preamble

a. IDBI’s MSME restructuring/rehabilitation policy aims at a transparent and timely mechanism for restructuring the debts of Micro, Small and Medium (MSME) entities that are potentially viable, but facing issues and to maintain the economic value of assets. The framework, in particular, aims at preserving viable MSMEs that are impacted by any internal and external factors and minimise the losses of the creditors and other stakeholders via an orderly and coordinated restructuring or rehabilitation programme.

b. The restructuring process involves modification of terms of the advance and securities (which are generally included among others), alteration of repayment period/ repayable amount/ interest rate (due to reasons other than competitive), etc.

c. Rehabilitation will involve process to ensure that the sick MSMEs become viable. A unit will be considered as Sick, if:

• Any of the borrowal accounts of the enterprise remains non-performing asset (NPA) for 3 months or more

OR

• There is reduction in the net worth of the enterprise due to accumulated losses to the extent of 50% of its net worth during the previous accounting year.

2. Scope

a. The policy will be applicable to the following entities that are viable or potentially viable:

• All corporate MSMEs that are enjoying any banking facilities from a single bank, irrespective of the level of dues to the bank.
• All non-corporate MSMEs, irrespective of the level of dues to bank.
• All corporate MSMEs, having funded & non-funded outstanding of up to Rs. 10 Crores under multiple or consortium banking arrangement.
• All corporate MSMEs, having funded & non-funded outstanding of above Rs. 10 Crores under multiple or consortium banking arrangement will be restructured as per CDR Mechanism. In BIFR cases, an approval from BIFR will be obtained prior to implementation of the restructuring or rehabilitation package.

b. Accounts not eligible for Restructuring or Rehabilitation

• Accounts involved in wilful default or mismanagement, fraud & malfeasance, unauthorised diversion of funds, dispute among partners or promoters, etc.
• Accounts classified as “Loss Assets” by the bank.

3. General Principles for Restructuring of Advance

a. Restructuring will be applicable for those accounts which are classified under ‘standard’, ‘sub-standard’, & ‘doubtful’ categories.

b. IDBI Bank will generally not reschedule/ restructure/ renegotiate the borrowal account with retrospective effect. Also, the bank will not consider the funding of unrecovered interest as retrospective restructuring.

c. The asset classification norms according to the extant RBI guidelines will continue to be applied while a restructuring proposal is under consideration.

d. Restructuring will be carried out with the formal consent or based on the request submitted by the borrower.

e. Restructuring of advances can be allowed at the following stages:

• Before the beginning of commercial production/ operation;
• Post commencement of commercial production/ operation, but prior to the asset has been classified as ‘sub-standard’;
• After beginning the commercial production/ operation and the asset being classified as ‘sub-standard’ or ‘doubtful’.

f. Restructuring will be taken up by the bank only when the financial viability of the MSME unit is established and if there is a reasonable certainty of repayment by the borrower, as per the terms of the restructuring package.

4. General Principles for Rehabilitation of Sick MSEs

a. The bank will start rehabilitation process when early sign of sickness will be detected. This stage is termed as Handholding Stage.

b. An account will be treated to have achieve the ‘handholding stage’; if any of the below-mentioned events are triggered:

• There is delay in commencement of commercial production by more than six months for reasons beyond the control of the promoters;
• The company incurs losses for two years or cash loss for one year, beyond the accepted timeframe;
• The capacity utilization is less than 50% of the projected level in terms of quantity or the sales are less than 50% of the projected level in terms of value during a year.

c. IDBI Bank will undertake timely remedial action, including an enquiry into the operations of the units & proper scrutiny of accounts, providing guidance or counselling services, timely financial assistance as per the need, and helping the unit in sorting out non-financial difficulties or issues that require assistance from other agencies. The remedial action will be undertaken within a maximum period of 2 months of identification of such units.

d. The bank will classify the MSE units (which could not be revived at the ‘handholding stage’ after intervention by banks ) as sick, subject to complying with any one of the 2 conditions laid down in Paragraph (iii) under point 1 above and based on a viability study, the viable or potentially viable units will be offered rehabilitation package.

e. The bank will take the decision on viability of the unit at the earliest, but normally not later than 3 months of becoming sick or receiving application for restructuring.

f. The bank will declare a unit as unviable only after ascertaining the viability of the unit by a suitable viability study. However, for micro (manufacturing) enterprises, those have investment in plant & machinery of up to Rs. 5 Lakhs and micro (service) enterprises having investment in equipment of up to Rs. 2 Lakhs, the Branch Manager will decide on viability and record the same, with the justification.

g. If a MSE unit is declared unviable, it will be given an opportunity to present its case before the bank’s competent authority under 1 month after receiving communication by the bank to this effect.

h. A decision on the representation of unit as above will normally be taken within 2 months.

5. Time Frame for Implementing Restructuring/Rehabilitation Proposal

The Restructuring package will be implemented in 90 days from the date of receiving the borrower’s request for restructuring, while the rehabilitation package will be entirely implemented within 6 months from the date the unit gets declared as viable/potentially viable. During the 6 months period of identifying & implementing rehabilitation package, IDBI Bank will permit “Holding Operation” which will allow the sick MSE unit to draw funds from the cash credit account at least to the extent of deposit of sale proceeds.

6. Classification of Asset after Restructuring

Income recognition, classification of asset, and provisioning in respect of restructured accounts should be in line with applicable guidelines of RBI issued from time to time.

7. Reliefs & Concessions

The reliefs & concessions that may be extended by the bank under the restructuring/ rehabilitation package will depend on the viability of the individual account and can vary from case to case.

8. Restructuring Fee

As per the norms of the IDBI Bank.

9. Approach to Rehabilitation or Restructuring

The bank will consider the restructuring or rehabilitation package, depending on the viability of the unit and will, inter alia, have the following rights:

• Right to appoint a special concurrent auditor
• Right to seek induction of strategic investors or co-promoters
• Right to change the statutory auditors
• Right to appoint Lenders’ Engineer or Monitoring Agency
• Right to accelerate repayment or revoke package
• Right to appoint nominee directors
• Right of recompense
• Right of converting Bank’s dues into equity in case of default
• Right to avail additional security (including personal guarantees, pledge of shares of the promoters, etc.)