Restructuring, not Moratorium for MSMEs; RBI Offers Fresh Lifeline till March 31, 2021

Restructuring, not Moratorium for MSMEs; RBI Offers Fresh Lifeline till March 31, 2021

RBI Governor Shaktikanta Das issued a fresh lifeline to stressed small and medium units with advances up to Rs 25 crore as on March 1, 2020. In bi-monthly monetary meet today the central bank has decided to offer provision for one time loan restructuring to millions of stressed small businesses till March 31, 2021.

All the stressed or in default MSMEs, that were still “standard” as on January 1, 2020 are eligible to use the loan recast facility.

The RBI Governor said: Amidst cash flow disruption due to COVID-19, RBI will allow stressed MSME borrowers to restructure their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020. But this restructuring will have to be implemented by March 31, 2021.

Besides, the central bank also maintained status quo on the repo rate and reserve repo rate during the MPC meet. Further, the LTV for credit against Gold has been extended to 90% from current 75%.

Here are the highlights of the announcement re loan restructuring for stressed MSMEs:

  • The aggregate liability from all lenders should not exceed Rs 25 crore as on March 1, 2020.
  • The loan account must be ‘standard’ as on March 1, 2020.
  • The loan restructuring should be implemented by March 31, 2021.
  • The unit should be GST-registered, if applicable. This eligibility for the same shall be assessed on the basis of exemption obtained as on March 1, 2020.
  • Asset classification of borrowers should be retained as on the date of implementation of the restructuring plan.
  • The accounts restructured shall maintain additional provision of 5%.
  • As for Personal Loans, the RBI has asked banks to invoke the resolution plan till December 31, 2020. They can implement restricting within 90 days till March 30 2021.
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