As the second wave poses more challenges than the first, the Reserve Bank of India (RBI) has offered to rescue retail and small business borrowers with loans of up to Rs 25 crore. The banker’s bank has also allowed lenders to restructure their debt and offer some break or interval from the stress induced by the second wave of the covid-19 pandemic.
The small borrowers falling under categories such as consumer credit, education loan, loans given for creation or enhancement of immovable assets such as housing, and loans for investment in financial assets such as shares and debentures can avail the loan. It also covers loans taken by individuals for business purposes. Small businesses engaged in retail and wholesale trade other than those classified as micro, small and medium enterprises (MSMEs) will also be eligible to avail the benefit. In a separate notification, the central bank also allowed MSMEs with loans of up to Rs 25 crore to be eligible for restructuring their businesses under, Resolution Framework 2.0.
The last round of debt restructuring under a special window ended on December 31, 2020 and banks and non-banking financial companies (NBFCs) have been requesting RBI for another round of such benefits.
For MSMEs, restructuring or modifications will have to be invoked by September 30 and banks and non-bank financiers will get another 90 days to implement the plan. RBI said that the resolution process will be treated as invoked when the lender and the borrower agree to proceed towards finalising a resolution plan. Once invoked, borrowers will also be eligible for additional loans.
Apart from the exposure limit of Rs 25 crore, another crucial eligibility criterion is that the borrower’s loans should have been classified as standard as on March 31. Standard loans are those that are being regularly serviced although loans continue to remain standard up to 90 days of delay, beyond which it becomes sub-standard or a bad loan.
The central bank had directed lenders to frame board-approved policies within four weeks from May 05, 2021 on implementation of viable resolution plans for eligible borrowers. The policy, RBI said, should detail the eligibility of borrowers for whom lenders will consider the resolution, and lay down the due diligence considerations to establish the necessity of implementing a resolution plan. Lenders will have to set aside 10 per cent of the renegotiated debt exposure as provision buffers for each loan.
The RBI said that lenders will have to assess recast requests from borrowers and the decision communicated in writing within 30 days of receipt of the proposal. Moreover, each lender will independently decide on the recast for borrowers who have loans from multiple lenders.
Not only can lenders provide a moratorium of up to two years but can also use this new framework to tweak old recast contracts only to the extent of modifying moratorium and residual tenors.
The Finance Minister Nirmala Sitaraman had earlier said that the RBI moves are targeted accordingly: a one-time restructuring for individual borrowers and MSMEs; and allowing lenders to offer a more supportive repayment structure under last year’s restructuring package.