In recognition of the need for continued support for viable Micro Small and Medium Enterprises (MSMEs), on 6th August, 2020 RBI has extended the scheme provided in its Circular dated 11th February, 2020. The primary reason for this extension is the economic fallout of the COVID-19 pandemic and the necessity of aligning existing guidelines with Resolution framework announced for other advances.
Consequently, existing ‘standard’ loans to MSMEs must be restructured without a downgrade in the asset classification, subject to the following conditions:
- The aggregate exposure, including non-fund based facilities, of banks and Non- Banking Financial Companies (NBFCs) to the borrower does not exceed ₹25 crore as on March 1, 2020.
- The borrower’s account was a ‘standard asset’ as on March 1, 2020.
- The restructuring of the borrower account is implemented by March 31, 2021.
- The borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration.
- Asset classification of borrowers classified as standard may be retained, whereas the accounts which may have slipped into Non- Performing Asset (NPA) category between 2nd March, 2020 and date of implementation may be upgraded as ‘standard asset’, as on the date of implementation of the restructuring plan. The asset classification benefit will be available only if the restructuring is done as per provisions of this circular.
- For accounts restructured under these guidelines, banks shall maintain the additional provision of 5% over and above the provision already held by them.
