**Executive Summary:**
This Reserve Bank of India circular addresses the resolution of Covid-19 related stress for Micro, Small, and Medium Enterprises (MSMEs). It extends the restructuring facility for existing loans without downgrading asset classification, subject to specific conditions. Restructuring must be invoked by September 30, 2021, and implemented within 90 days of invocation.
**Key Points / Main Content:**
* **Eligibility Criteria for Restructuring:**
* Borrower must be classified as an MSME as of March 31, 2021.
* Borrowing entity must be GST-registered, unless exempt as of March 31, 2021.
* Aggregate exposure of all lending institutions to the borrower must not exceed ₹25 crore as of March 31, 2021.
* Borrower's account must be a standard asset as of March 31, 2021.
* Borrower's account must not have been previously restructured under specified MSME restructuring circulars.
* **Restructuring Process and Timelines:**
* Restructuring must be invoked by September 30, 2021. Invocation occurs when the lender and borrower agree to proceed with a restructuring plan.
* Lending institutions must communicate decisions on restructuring applications within 30 days of receipt.
* Restructuring must be implemented within 90 days of invocation.
* Udyam Registration is required before implementation if the borrower is not already registered.
* **Provisioning and Asset Classification:**
* Lending institutions must provision 10% of the residual debt upon implementation of the restructuring plan.
* Asset classification of standard accounts can be retained; accounts that slipped into NPA between April 1, 2021, and implementation can be upgraded to standard.
* **Policy and Review:**
* Lending institutions must have a Board-approved policy on MSME restructuring within one month of this circular.
* All other instructions from the August 6, 2020 circular remain applicable.
* **Working Capital Reassessment:**
* Lenders can review and reassess working capital limits/drawing power for previously restructured MSME accounts without it being considered a restructuring.
* Decision regarding this reassessment must be taken by September 30, 2021.
* Reassessed limits are subject to at least half-yearly review and annual renewal/reassessment.
* **Contingency:**
* The measures are contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from Covid-19.
**Impact Analysis**
**Lending Institutions (Commercial Banks, Small Finance Banks, Local Area Banks, Regional Rural Banks, Primary Urban Cooperative Banks, State Cooperative Banks, District Central Cooperative Banks, All-India Financial Institutions, and Non-Banking Financial Companies including Housing Finance Companies):**
* *Impact:* Need to implement the resolution framework, assess borrower eligibility, and adhere to the specified timelines and provisioning requirements. They are also permitted to review and reassess the working capital sanctioned limits and drawing power for previously restructured MSME accounts.
* *Action Required:* Formulate a Board-approved policy on MSME restructuring, evaluate restructuring requests, ensure compliance with the guidelines, and make sure that the measures taken are due to economic fallout from Covid-19.
**MSMEs (Micro, Small, and Medium Enterprises):**
* *Impact:* Eligible MSMEs facing financial stress due to Covid-19 can avail of loan restructuring without asset classification downgrade.
* *Action Required:* Assess eligibility, apply for restructuring before September 30, 2021, and comply with Udyam Registration requirements, if applicable.
Key Entities Referenced
Reserve Bank of India: The central bank of India, the primary regulatory body for banks in India.
Covid-19: Coronavirus disease 2019, a global pandemic that caused economic stress
Micro, Small and Medium Enterprises: A classification of businesses based on investment and turnover, often abbreviated as MSMEs.
Goods and Services Tax: An indirect tax used in India on the supply of goods and services, often abbreviated as GST.
Udyam Registration Portal: An online platform for registering MSMEs in India.
Small Finance Banks: A type of bank in India that caters to the financial needs of small businesses, farmers, and other unorganized sectors.
Regional Rural Banks: Regional Rural Banks are financial institutions in India that operate at the regional level.
Manoranjan Mishra: Chief General Manager at Reserve Bank of India.
भारतीय �रजव र् बक�
__________________RESERVE BANK OF INDIA _________________
www.rbi.org.in
RBI/2021-22/32
DOR.STR.REC.12/21.04.048/2021-22 May 5, 2021
All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural
Banks)
All Primary (Urban) Co-operative Banks/State Co-operative Banks/ District Central Co-
operative Banks
All All-India Financial Institutions
All Non-Banking Financial Companies (including Housing Finance Companies)
Madam / Dear Sir,
Resolution Framework 2.0 – Resolution of Covid-19 related stress of Micro, Small and
Medium Enterprises (MSMEs)
Please refer to the circular DOR.No.BP.BC/4/21.04.048/2020-21 dated August 6, 2020 on
restructuring of advances to the MSME borrowers.
2. In view of the uncertainties created by the resurgence of the Covid-19 pandemic in India in
the recent weeks, it has been decided to extend the above facility for restructuring existing
loans without a downgrade in the asset classification subject to the following conditions:
(i) The borrower should be classified as a micro, small or medium enterprise as on March 31,
2021 in terms of the Gazette Notification S.O. 2119 (E) dated June 26, 2020.
(ii) 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. This
shall be determined on the basis of exemption limit obtaining as on March 31, 2021.
(iii) The aggregate exposure, including non-fund based facilities, of all lending institutions to
the borrower does not exceed ₹25 crore as on March 31, 2021.
(iv) The borrower’s account was a ‘standard asset’ as on March 31, 2021.
(v) The borrower’s account was not restructured in terms of the circulars
DOR.No.BP.BC/4/21.04.048/2020-21 dated August 6, 2020;
DOR.No.BP.BC.34/21.04.048/2019-20 dated February 11, 2020; or
DBR.No.BP.BC.18/21.04.048/2018-19 dated January 1, 2019 (collectively referred to as
MSME restructuring circulars).
(vi) The restructuring of the borrower account is invoked by September 30, 2021. For this
purpose, the restructuring shall be treated as invoked when the lending institution and the
borrower agree to proceed with the efforts towards finalising a restructuring plan to be
implemented in respect of such borrower. The decisions on applications received by the lendinginstitutions from their customers for invoking restructuring under this facility shall be
communicated in writing to the applicant by the lending institutions within 30 days of receipt
of such applications. The decision to invoke the restructuring under this facility shall be taken
by each lending institution having exposure to a borrower independent of invocation decisions
taken by other lending institutions, if any, having exposure to the same borrower.
(vii) The restructuring of the borrower account is implemented within 90 days from the date of
invocation.
(viii) If the borrower is not registered in the Udyam Registration portal, such registration shall
be required to be completed before the date of implementation of the restructuring plan for the
plan to be treated as implemented.
(ix) Upon implementation of the restructuring plan, the lending institutions shall keep provision
of 10 percent of the residual debt of the borrower.
(x) It is reiterated that lending institutions shall put in place a Board approved policy on
restructuring of MSME advances under these instructions at the earliest, and in any case not
later than a month from the date of this circular.
(xi) All other instructions specified in the circular DOR.No.BP.BC/4/21.04.048/2020-21 dated
August 6, 2020 shall remain applicable.
3. In respect of restructuring plans implemented as per Clause 2 above, asset classification of
borrowers classified as standard may be retained as such, whereas the accounts which may
have slipped into NPA category between April 1, 2021 and date of implementation may be
upgraded as ‘standard asset’, as on the date of implementation of the restructuring plan.
4. In respect of accounts of borrowers which were restructured in terms of the MSME
restructuring circulars, lending institutions are permitted, as a one-time measure, to review the
working capital sanctioned limits and / or drawing power based on a reassessment of the
working capital cycle, reduction of margins, etc. without the same being treated as
restructuring. The decision with regard to above shall be taken by lending institutions by
September 30, 2021. The reassessed sanctioned limit / drawing power shall be subject to review
by the lending institution at least on a half yearly basis and the renewal / reassessment at least
on an annual basis. The annual renewal/reassessment shall be expected to suitably modulate
the limits as per the then-prevailing business conditions.
5. The above measures shall be contingent on the lending institutions satisfying themselves that
the same is necessitated on account of the economic fallout from Covid-19. Further, accounts
provided relief under these instructions shall be subject to subsequent supervisory review with
regard to their justifiability on account of the economic fallout from Covid-19.
Yours faithfully,
(Manoranjan Mishra)
Chief General Manager
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