Impact Of One-Time Loan Restructuring On MSMEs And Corporates

Impact Of One-Time Loan Restructuring On MSMEs And Corporates

November 09, 2020 Admin
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With the surge in the number of cases, the pandemic has taken a toll over our lives. Nearly all the aspects of our life, such as social and economic, have been affected or put to a halt by it. The aspect that has been most severely hit by this sudden outbreak of the coronavirus has been the economic sector. Every industry, whether big or small, has been affected by this outbreak. For example the tourism sector which contributes about 9.2% to the overall GDP of a country like India has come to a standstill. Hence one-time loan restructuring has been recommended to help businesses in distress.


In order to curb the situation and prevent it from getting worse, the government has introduced a relief package of 20 lakh crores, but this has so far not delivered the results to the extent desired. Though the rate of deceleration has reduced to a certain extent, some sectors still experienced negative growth in their business.


In order to prevent the economic condition from getting more critical, the RBI has initiated a  policy of one-time loan restructuring for the financial stress caused by the Covid pandemic. Earlier the MSMEs/corporates with a turnover of up to 25 crores were covered under the existing one-time loan restructuring scheme but under this new scheme the MSME’s having exposure of over 25 crores were also covered. The term of the scheme has been extended up to one year till the start of the next financial year.


It has proved to be a sigh of relief for those businesses that have been affected severely and are unsure as to when the financial situation improves. Here are a few attributes of the policy:


  • The provisions of the policy have been modified from the previous guidelines. The account shall not be downgraded by virtue of restructuring.
  • It applies only to those borrowers whose businesses have been affected by the stress caused by the pandemic.
  •  The ultimate decision is to be taken by the lenders keeping in view the eligibility criteria,financial parameters and ratios as suggested by the expert committee.A credit evaluation would be done by the credit rating agencies of those MSME’S having exposure of over 100 crores.
  • Permission would be required for procuring funds from additional sources such as interim funding after due consent of lenders for implementation of RP.
Impact Of One-Time Loan Restructuring On MSMEs And Corporates

The eligibility criteria to obtain one-time loan restructuring for the MSME’s/Corporates under the scheme is that the account should be a “standard asset” and must remain so until an invocation, i.e. permission from the lenders and borrower to carry out one-time loan restructuring is obtained. The restructuring procedure needs to be completed within a stipulated period. Still, more time is taken than expected for completing the required steps such as assessment by the credit rating organisation and evaluation by the committee of experts. A committee composed of members who have expertise in their fields is included by the RBI whose role would be to give suggestions about the guidelines of this financial scheme which would further be instilled in the final resolution plan. Putting the review of these guidelines in the hands of an expert committee who come with relevant skill sets and years of experience would bring  fairness in decision making.


Taking into consideration the amount of one-time loan restructuring proposals received by the banks and other agencies, sometimes it may also lead to negligence in reviewing and implementation aspects and may lead to a haphazard decision. But overall, the guidelines have been made with such precision so as to ensure clarity and effective implementation of policies by the branch/zonal heads etc. Overall the plan aspires to reduce the financial stress of the business without affecting much of their balance sheets and giving adequate powers to the lenders as well so that these policies can be executed and implemented without any hassles.

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