Ease of Doing Business for MSMEs: With a view to tackling the second wave of the pandemic, the Reserve Bank of India on May 5, 2021, announced ‘Resolution Framework 2.0 for COVID-related stressed assets of individuals, small businesses, and MSMEs which is an extended version of the Resolution Framework for COVID-19-related stress. MSMEs whose aggregate exposure with lending institutions is up to Rs 25 crore and who were classified as standard as of March 31, 2021, can avail this restructuring scheme without being downgraded to another category of asset and thereby can retain the prestigious “Standard” quality.
Invocation and Implementation
MSME beneficiaries who have not availed the restructuring under Framework 1.0 as per RBI circulars dated 11.02.2020 and 01.01.2019 on ‘MSME sector – Restructuring of Advances’ are eligible for invocation of this scheme just before 30.09.2021. An really brief time frame of 90 days is granted for the implementation of the program which is probably detrimental to the interests of SMEs. Yet an additional feature enabling the upgradation of the accounts which could have slipped into NPA classification involving 01.04.2021 and the date of implementation to “Standard” top quality could incentivise the MSME sector. But at the identical time, the 10 per cent provisioning mandate for the lenders could dissuade them from harnessing the scheme.
Prerogative of MSMEs
Since the framework is meant especially for Covid-induced strain, the eligibility/choice of restructuring is essential to be taken independently by each and every lending institution inside 30 days in consonance with their upcoming board authorized policies which thereby will widen the arena or scope of restructuring as the lenders are anticipated to take individualistic choices irrespective of invocation choices taken by other lenders. Multi-faceted restructuring of loans from diverse lenders could be assumed to be a profitable portion of the framework.
Review of Limits
The beneficiaries who have availed the restructuring below earlier MSME circulars are also gifted a goodie in the context that they can apply for one time-critique or reassessment of the sanctioned working capital limits or drawing energy without the need of becoming casted the restructuring shadows although the reassessed limits would be subjected to periodical reviews and renewals.
Credit Reporting
Since the relaxations in the CIBIL score or the other exemptions in relation to credit rating agencies are heavily pushed by the compact company sector in the wake of the pandemic, the framework brings a breather to some extent as the accounts restructured below the scheme shall be titled as “restructured due to COVID19” for the objective of transmission of information and facts to credit rating agencies. By reviewing and reassessing the current working capital facilities, the eligible borrowers can for that reason aim to invest and continue their operation without the need of the worry of losing in terms of finance.
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Small Businesses other than MSMEs
Certain reliefs to the compact company entities, which includes these engaged in retailing and wholesale trade but excluding these classified as MSMEs are supplied to implement resolution plans in respect of their credit exposures. The entities who have not availed the Framework 1. and exactly where, as of 31.03.2021, they had been classified as ‘Standard’ and had aggregate exposure of not more than Rs.25 crore can avail of the Framework 2..
However, whose resolution plans had been implemented in terms of the Framework 1., lending institutions are permitted, as a one-time measure, to critique the working capital sanctioned limits and can also modify their restructuring plans by growing the period of moratorium or extending the residual tenure up to two years. The compact firms can now restructure their current loans without the need of a downgrade in their asset classification, they shall stay below Typical classification and even the interim finances could be supplied to these SMEs by way of extra credit in contrast to the case of MSMEs.
Road Not Taken
Though these efforts are made with an aim of faster resolution of strain by delivering a distinct timeline for invocation, implementation, and even for delivering the choice to the interested borrowers. RBI is unquestionably considerate of the exigencies of the compact company sector but the genuine-time scenario demands some extra measures for addressing the sensible challenges. In this context, a new exclusive criterion for asset classification for MSMEs or provision for interim financing or credit facility accounts for specific eligible MSME borrowers or facilitation for extension of new finances to distressed accounts, and so forth. can bring honour and respect towards governmental methods in these sordid occasions.
Conclusion
The efforts made in line with the present scenario by introducing such reliefs for MSMEs, the RBI will undoubtedly fortify and strengthen the Indian economy as MSMEs play a commendable part in contributing towards developing our economy. It will provide motivation to compact firms and MSMEs to scale up their company without the need of worrying about economic destitution triggered to them due to the pandemic.
Anjali Jain is the Partner at law firm Areness. Views expressed are the author’s personal.