COVID impact: RBI unveils loan restructuring program for individuals and small businesses

In a bid to alleviate the scourge of the COVID-19 pandemic, the Reserve Bank on Wednesday released a resolution 2.0 framework under which individuals and small businesses with exposure of up to Rs 25 crore can opt for a loan restructuring if they had not taken advantage of the previous scheme. In the case of those who had benefited from loan restructuring under the previous regime, the RBI allowed banks and lending institutions to modify plans and extend the moratorium period. “ With regard to small businesses and previously restructured MSMEs, credit institutions are also allowed as a one-off measure, to review the limits sanctioned by working capital, based on a reassessment of the fund cycle. turnover, margins, etc. said RBI Governor Shaktikanta Das announced measures to deal with the impact of the second wave of the COVID-19 pandemic. This is a one-time loan restructuring program under which the loan would remain standard despite the overhaul and banks would not have to make additional provisions in such cases. This is the second restructuring plan announced by the central bank in less than a year, the first unveiled in August last year when the first wave of COVID-19 hit the Indian economy with an 8% contraction during the fiscal year ended March 31, 2021. The resurgence of the COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at the local / regional levels have created new uncertainties and have had an impact on the nascent economic recovery taking shape, Das noted. Noting that the most vulnerable category of borrowers are individual borrowers, small businesses and micro, small and medium enterprises (MSMEs) in this environment, he said, borrowers classified as “ standard ” in the March 31, 2021 would be eligible to be considered. under Resolution Framework 2.0. Restructuring under the proposed framework can be invoked until September 30, 2021 and is expected to be implemented within 90 days of invocation. “ With regard to small businesses and MSMEs restructured earlier, credit institutions are also allowed as a one-off measure, to review the limits sanctioned by working capital, based on a reassessment of the business cycle. working capital, margins, etc. mentionned. Later in a notification, RBI said that people who have used personal loans, business loans and small businesses, including those engaged in retail and wholesale trade, other than those classified as micro, small and medium enterprises, were eligible for the overhaul. It ordered credit institutions to develop policies approved by the board of directors no earlier than or no later than June 4 regarding the implementation of viable resolution plans for eligible borrowers in this framework, ensuring that resolution under this facility be provided only to borrowers under stress due to COVID. -19. The policy approved by the board of directors should detail the eligibility of borrowers to benefit from the relief and define the due diligence considerations to be followed by lending institutions in establishing the need to implement the resolution plan in the event. ‘regard to the borrower concerned as well as to the system. to redress the grievance of borrowers. Resolution plans implemented under this window may include rescheduling payments, converting any accrued or accrued interest into another credit facility, revisions to working capital penalties, granting of a moratorium, etc. based on an assessment of the borrower’s income streams, from the RBI. circular said. However, he said compromise settlements are not allowed as a resolution plan for this purpose. The resolution plan may also provide for the conversion of part of the debt into shares or other negotiable and non-convertible debt securities issued by the borrower, if applicable, he added. Any resolution plan implemented in violation of the stipulations of this circular would be fully governed by the prudential framework for the resolution of stressed assets published on June 7, 2019. Commenting on the measures taken by the RBI, the president of Capital India Finance, Harsh Kumar Bhanwala Said: Will provide much needed relief to small businesses when certain segments of the economy have been hit by local lockdowns. Regarding MSMEs, the RBI said the borrowing entity should be registered with the GST on the date of implementation of the restructuring. On August 6, 2020, the RBI authorized the one-time restructuring of business and personal loans without being classified as a non-performing asset (NPA) under the resolution framework for the COVID-19 stress system. The benefits of the restructuring were for those with standard accounts as of March 1, 2020. In addition, the KV Kamath committee identified 26 sectors including automotive, energy, tourism, cement, chemicals, gemstones and jewelry, logistics, mining, manufacturing, real estate and shipping. , among others. While resolution in this context has been invoked until December 31, 2020, credit institutions have been encouraged to fight for early invocation in eligible cases, in particular for personal loans. In an effort to encourage the flow of credit to MSME borrowers, in February 2021, banks were allowed to deduct credits disbursed to new MSME borrowers from their net demand and time commitments (NDTL) for the period. calculating the cash reserve ratio (CRR), he said. In order to further encourage the inclusion of unbanked MSMEs in the banking system, he said, this exemption currently available for exposures up to Rs 25 lakh and for loans disbursed until the fortnight ending on October 1, 2021, is extended until December 31, 2021.. In an effort to alleviate the pandemic stress on banks and as a measure to enable capital conservation, the governor said banks are allowed to use 100% of the floating provisions / countercyclical provisioning cushion that as of December 31, 2020, they held specific provisions for non-performing assets with the prior approval of their boards of directors. Such use is authorized with immediate effect and until March 31, 2022, he added. Observing that India is poised to become 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 of the year – taking measures big and small – to deal with the changing 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 the RBI is ready to fight to ensure financial conditions remain favorable and markets continue to operate efficiently. “We will work in close coordination with the government to improve the extreme hardships our citizens are facing in this hour of distress. We are committed to staying unconventional and devising new responses as the situation demands, ” he said.

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