The Reserve Bank of India (RBI) in August last year throughout its second bi-month-to-month monetary meet had extended provisions of restructuring MSME loans classified as common as of March 1, 2020. The move was intended to help Covid-hit MSMEs and to align the restructuring suggestions with the Resolution Framework for Covid-connected pressure announced for other loans. However, the resurgence of the pandemic post-mid-February and following lockdowns across the nation had additional necessitated help to the most vulnerable borrower class – MSMEs.
Consequently, the RBI had in early May announced Resolution Framework 2. to permit people, modest enterprises, and MSMEs — with loans up to Rs 25 crore and who have not availed restructuring beneath Resolution Framework 1. and other individuals and had been classified as ‘Standard’ as on March 31, 2021 — avail one-time restructuring beneath the proposed framework till September 30, 2021. The “restructuring has to be implemented within 90 days after the invocation,” RBI Governor Shaktikanta Das had stated in a statement. However, for borrowers who had availed restructuring beneath Resolution Framework 1., Das had permitted lenders to modify their plans to enhance the period of the moratorium and/or extend the residual tenor up to a total of two years. Borrowers had been permitted a moratorium of much less than two years beneath the 1st framework.
“The industry has welcomed RBI’s framework 2.0 as it provides the much-needed relief to select borrowers who have been impacted in the second wave. It aims to provide liquidity to the borrowers, at reasonable costs, in these tough market conditions. It can benefit them in the long run by restructuring the account without classifying it as an NPA. Further, there is also an option for small businesses who had availed benefits under framework 1.0 to avail additional borrowings which could provide them another chance,” Maulik Sanghavi, Partner – Resolution Advisory, BDO India told TheSpuzz Online.
For MSMEs and modest enterprises restructured earlier, RBI had permitted lenders to evaluation the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, and so on. as a one-time measure. Meanwhile, there had been other situations laid down by the Central bank for MSME borrowers to get their loans restructured beneath the 2. framework. For instance, even though the borrower has to be GST-registered on the date of implementation of the restructuring, the very same does not apply for MSMEs that are exempted from GST registration. “It must be ensured that only credible businesses as provided the benefit under this framework to ensure long term benefits of the framework to the economy. Further, the RBI also may need to consider providing an extended period for other companies as well since the previous one-time restructuring windows may need more time for coming to a combined resolution,” Karan Mitroo, Partner, L&L Partners told TheSpuzz Online
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Another essential ask by RBI was that if the borrower is not registered on the new Udyam Registration portal, they would have to receive the registration ahead of the date of implementation of the restructuring program. TheSpuzz Online had reported last month that as of May 16, 2021, 30,00,822 MSMEs had been registered on the Udyam Registration portal, which had replaced the erstwhile approach of filing for Udyog Aadhaar Memorandum (UAM), as per the on the internet information readily available with the MSME Ministry. Before the Udyam portal, India had 1.02 crore registered MSMEs beneath UAM involving September 2015 and June 2020 apart from practically 22 lakh units registered beneath EM II involving 2007 and 2015, as per the FY21 annual report of the MSME Ministry.
This indicates that only amongst these 30 lakh borrowers registered with the Udyam portal would be eligible for restructuring if at all they want to opt for it. For other individuals, new registration is a must. On the other hand, the quantity of SMEs searching for restructuring may well not be as a great deal as assumed. For instance, according to the credit rating agency Crisil, the quantity of SMEs rated by Crisil opting for the restructuring window could be a great deal decrease than these who are eligible. “Crisil believes that the impact of the pandemic could be contained over the next 2-3 months. Therefore, the actual number of companies opting for restructuring could be much lower than that are eligible,” it stated in a statement last month. Around 3,500 organizations rated by Crisil are SMEs with bank loan exposure of up to Rs 25 crore even though about 3,400 of them are common accounts, which tends to make them eligible for the restructuring scheme.
“As future is full of uncertainty, it is highly recommendatory to opt for the available restructuring scheme under resolution framework 2.0 as the revival of the market shall take its own time and till then in order to ensure the ease of the entity cash-flow, the alignment of the existing debt ought to be as per the available entity cash-flow. An availment of restructuring scheme shall not only ensure to curb the future uncertainty of entity cash-flow but also ensure the minimum reduction in credit score of the promoter and entity as compared to the classification of the account as non-performing asset,” Jyoti Prakash Gadia, Managing Director, Resurgent India told TheSpuzz Online.