MSMEs with bank loans due up to Rs.50 crore can get their loans restructured

• The Reserve Bank of India (RBI) has doubled the exposure threshold for MSMEs looking to apply for restructuring their business.
• The limit was earlier locked in at ₹25 crore, but has been expanded to ₹50 crore in the latest iteration of the monetary policy.
• However, only businesses that have not already exercised the option during the original Resolution Framework are eligible to apply.

In a bid to provide some relief to the economy, the Reserve Bank of India (RBI) has increased the exposure threshold of micro, small and medium enterprise (MSMEs) to ₹50 crore for them to participate in its Resolution Framework 2.0.

The second iteration of RBI’s restructuring offer was originally introduced in early May but was limited to small businesses with loans upto ₹25 crore.

With the ceiling now doubled, MSMEs with a ‘standard’ classification — no defaults and no schemes to back it up — as of 31 March 2021 can approach the bank to help ease the parameters of repayment even if they have a bigger loan hanging overhead.

Restructuring of a loan includes measures like extending the moratorium, increasing the tenure of the loan and other changes to terms of payments.

“With a view of enabling a larger set of borrowers to avail of the benefits under Resolution Framework 2.0, it has been decided to expand the coverage of borrowers under the scheme by having the maximum aggregate exposure threshold from ₹25 crore to ₹50 crore for MSMEs, non-MSME small businesses and loans to individuals for business purposes,” RBI governor, Shaktikanta Das, told the press on June 4.

Why do MSMEs need their loans to be restructured?

The sale of consumer durables took a big hit during the second wave of COVID-19 in India while regional and state-wide lockdowns disrupted economic activity.

While some believe that many businesses will not need to go in for restructuring as the second wave of COVID-19 in India subsides, but as things stand, lockdowns are still in effect in many parts of the country. "The availment of this restructuring scheme will not only ensure smooth flow of liquidity, at reasonable costs but will also benefit the MSME’s in long run by restructuring the account without classifying it as an NPA. Further, it will act as an opportunity for lenders like us to grant surplus financial support that will empower small and medium businesses (SMBs) to progress without obstacles,” Pallavi Shrivastva, co-founder of credit score evaluation company Progcap, said in a statement.

The increase in the exposure threshold is also good news for banks, which can now try and save some of the clients on its balance sheets from going under. However, the caveat is the RBI mandate for MSMEs to be registered on the new Udyam portal.

This severely restricts the numbers of businesses that can apply for restructuring. According to the Udyog Aadhaar Memorandum (UAM), India has an estimated 1.02 crore MSMEs. However, only 30 lakh are registered with the Udyam portal.

In its bi-monthly monetary policy announcement, the RBI also decided to extend a special liquidity facility of ₹16,000 crore to the Small Industries Development Bank of India (SIDBI) for refinancing through novel. "The impact will be visible in ensuring sustained credit flow in the real economy," said Shachindra Nath, executive chairmand managing director of small business lending fintech platform U GRO Capital.

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