6-Feb-2020: RBI extends one-time restructuring Scheme for MSME loans to December 31, 2020

The Reserve Bank of India (RBI) has extended the deadline for one-time debt recast for firms in the micro, small and medium enterprises (MSME) sector that are in default but have not been classified as non-performing.

It has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST-registered MSMEs that were in default as on January 1, 2020. The original scheme was applicable for standard MSME accounts as of January 1, 2019, while the restructuring was to be implemented by March 31, 2020.

The restructuring under the scheme has to be implemented latest by December 31, 2020. This will benefit the eligible MSME entities which could not be restructured under the provisions of the circular dated January 1, 2019 as also the MSME entities which have become stressed thereafter.

The central bank has also asked commercial banks to link pricing of loans for the medium-sized enterprises to an external benchmark effective April 1, 2020. The step was taken with a view to further strengthening monetary transmission.

Under the scheme, accounts in the micro, small and medium enterprises segment which are in default but are still standard, can be restructured once, without any downgrade on their asset classification. A provision of 5 percent in addition to the provisions already held, shall be made in respect of accounts restructured under this scheme.

The micro, small and medium enterprises (MSMEs) sector plays an important role in the growth of the Indian economy, contributing over 28% of the gross domestic product (GDP), more than 40% of exports, while creating employment for about 110 million people.