When a borrower starts missing payments, banks do not immediately move to classify the account as a non-performing asset (NPA). There is a window — defined both by regulation and by commercial wisdom — where lenders evaluate whether the borrower's stress is temporary and the underlying business is still viable. This is where loan restructuring becomes relevant.
The word "restructuring" often creates confusion. It is not a loan waiver, nor is it a bailout. It is a formal modification of loan terms — repayment schedule, interest rate, tenure, or principal moratorium — that gives a distressed but viable borrower space to recover without triggering NPA classification. For banks and NBFCs in India, how this process is conducted, and the quality of credit assessment supporting it, determines whether restructuring actually works or simply delays recognition of a bad loan.
Loan restructuring can take several forms: a limited loan repayment holiday, rescheduling of repayments, or reduction in interest rates. All public, private, foreign, cooperative, rural, small finance, and local area banks can offer restructuring, as can NBFCs and All-India Financial Institutions. At the borrower level, the most common modifications include:
RBI Circular Note: RBI guidelines are explicit that restructuring provisions arise from the bank's action in changing contractual loan terms and reflect financial concessions — they are distinct from provisions linked to NPA classification. The central bank has also emphasised that restructuring guidelines are aimed at preserving the economic value of business units and should not be used to evergreen advances. (Source: RBI/2023-24/26, DOR.STR.REC.14/21.04.048/2023-24)
The overarching regulation governing how Indian banks handle stressed assets is the RBI (Prudential Framework for Resolution of Stressed Assets) Directions, 2019, issued on June 7, 2019. This framework applies to scheduled commercial banks, all-India term financial institutions, and large systemically important NBFCs, and creates an enabling structure for restructuring outside the Insolvency and Bankruptcy Code (IBC) while also encouraging use of IBC as a resolution tool.
Key Trigger: A single-day default acts as the triggering point for the framework's provisions to apply. Lenders have 30 days to review the account and decide on a resolution approach.
For a resolution plan to go through in consortium lending, the numbers are demanding. Consent of lenders holding 60 per cent by number and 75 per cent by value of the aggregate exposure is required for a resolution plan to be approved. This is where the independent credit evaluation (ICE) mandate becomes critical.
One of the most consequential provisions of the 2019 Prudential Framework is the mandatory independent credit evaluation (ICE) for larger accounts. Resolution plans involving restructuring or change in ownership for accounts where the aggregate lender exposure is 100 crore and above require an ICE of the residual debt by credit rating agencies (CRAs) specifically approved by RBI.
For accounts with aggregate exposure exceeding n500 crore, two such ICEs are required. Only resolution plans with a credit rating of RP4 or better for the residual debt are considered eligible for implementation. The onus and cost of appointing credit rating agencies has been placed on the lenders. (Source: RBI Prudential Framework, IIBF Reference, June 2019)
CRISIL on surveillance: A bank loan rating is not a one-time exercise — it remains under continuous surveillance over the life of the rated facility. For entities that have requested restructuring, CRISIL expects them to continue meeting interest and principal obligations on time until lenders formally approve the restructured terms. (Source: CRISIL Bank Loan Ratings Methodology, June 2020)
This surveillance aspect is significant. A rating obtained at the time of restructuring is not static. If the borrower's cash flows deteriorate post-restructuring, the rating gets reviewed, which can affect the bank's provisioning requirements and asset classification.
The quality of credit assessment during restructuring separates banks that recover value from those that simply defer a loss. In practice, a well-structured credit assessment covers several layers:
The bank needs to determine whether the borrower's stress is temporary — caused by a cyclical downturn, a one-time disruption, delayed receivables — or structural, meaning the business model itself cannot generate adequate cash flows. Restructuring a structurally unviable account is precisely what the RBI has warned against.
Projected cash flows post-restructuring must demonstrate that the borrower can service the restructured debt. Banks typically look at DSCR (debt service coverage ratio) projections over the resolution period, stress-tested for conservative scenarios.
3. Collateral review and security position
Since restructuring often changes the repayment timeline and sometimes the interest rate, banks revisit the adequacy of existing collateral. Per RBI guidelines, the erosion in fair value should be computed as the difference between the present value of cash flows before and after restructuring, discounted at the bank's BPLR plus appropriate term premium and credit risk premium.
A comprehensive view of the borrower's credit history across lenders — bureau data, GST filings, bank account transaction patterns — is increasingly essential. Platforms such as ScoreMe's Bureau Data Analyzer process CIBIL, Experian, and Equifax reports to extract and summarise critical information for risk evaluation, enabling faster and more accurate credit decisions.
In corporate restructuring, the bank's view on promoter intent and capability is a significant input. A promoter who is cooperative, providing fresh equity or collateral as part of the resolution, is a different risk profile from one who is being coercive or withholding financial information.
Many borrowers — particularly mid-market companies facing restructuring — treat credit rating as something that happens to them rather than something they can prepare for. This is a costly misunderstanding.
Credit rating advisory, as a formal function, involves working with a borrower to:
India has seven SEBI-registered credit rating agencies: CRISIL, ICRA, CARE Ratings, India Ratings and Research, Acuite Ratings and Research, Brickwork Ratings, and INFOMERICS Valuation and Rating. All are regulated under the SEBI (Credit Rating Agencies) Regulations, 1999. For RBI-mandated ICE assignments under the Prudential Framework, only CRAs specifically approved by RBI are eligible to conduct evaluations. (Source: SEBI CRA Regulations; bondscanner.com verified list, April 2026)
CRISIL has noted that for corporate loans, given the requirements of 75 per cent lender participation by value and 60 per cent by number, along with mandatory independent credit assessment and stringent timelines, banks tend to be selective in extending restructuring. On the retail side, well-capitalised banks may choose to recognise stressed loans as NPAs rather than restructure. (Source: CRISIL, Business Today, September 2020)
When restructured accounts slip — which happens when post-restructuring cash flow projections prove over-optimistic — the consequences for banks are significant. Slippages from restructured books require higher provisioning, affect capital adequacy, and raise questions about the quality of the original credit assessment.
• Engage proactively with your bank before default, not after. The 30-day review period is tight.
• Be prepared with detailed, audited financial projections. Vague assumptions in the resolution plan are a red flag for both bank and rating agency.
• Understand that restructuring typically impacts CIBIL and credit scores negatively. Even if one loan is restructured, lenders may report all facilities as restructured.
• Consider engaging a credit rating advisor early in the process to understand how your resolution plan will be assessed.
Loan restructuring by banks is a legitimate and necessary instrument for managing credit stress in any economy. Used properly — backed by rigorous credit assessment and credible rating advisory — it can preserve the economic value of businesses that are temporarily distressed but fundamentally viable. Used loosely, it becomes a tool for deferring losses and distorting a bank's balance sheet. The RBI's Prudential Framework has attempted to close the gap between these two outcomes through mandatory independent credit evaluation, tight timelines, and clear provisioning norms. What makes the difference in practice is the quality of the underlying credit assessment — the willingness to look at borrower data objectively, use the right tools, and form a clear view of viability before terms are restructured. For banks, NBFCs, and fintechs, this is not just a compliance obligation. It is fundamentally about the quality of credit decisions.
