The decision will help the micro, small and medium enterprises (MSMEs) which are facing cash crunch in the wake of demonetisation and GST implementation.
The RBI's board in its crucial meeting held on November 19, 2018 had advised the central bank examine a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability.
To facilitate meaningful restructuring of MSME accounts that have become stressed, the RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but 'standard' as on January 1, 2019, without an asset classification downgrade, the central bank said in a statement.
To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed Rs 25 crore as on January 1, 2019, and the restructuring has to be implemented by March 31, 2020.
Restructuring package for MSME was one of the sore points of the tussle between the RBI and the government.
There was a detailed presentation by Financial Services Secretary Rajiv Kumar on the cash crunch being faced by the MSME sector at the crucial November 19 board meeting.
The government had suggested several steps to help the sector which contributes 50 per cent to the manufacturing sector.
"A major step for MSMEs with a total liability up to 25 cr suffering from past issues and illiquidity, though delayed. Congratulations RBI for the restructure circular," Swadeshi ideologue and RBI board member S Gurumurthy tweeted.
Gurumurthy was pushing for a relief to the MSME sector which provides 12 crore employment, the second largest after the agriculture sector.
"MSMEs are vital for India's economic ascension. Several initiatives including customised products and strategies as per their needs and automated loan processing have been introduced to achieve faster turnaround and accelerate MSMEs' growth," Kumar had said last year.
As per the notification, "A provision of 5 per cent in addition to the provisions already held, shall be made in respect of accounts restructured under this scheme. Each bank/NBFC should formulate a policy for this scheme with board approval which shall, inter alia, include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts."
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, it said.
According to the notification, banks and NBFCs adopting this scheme will put in place a board approved policy on restructuring of MSME advances under these instructions within a month from the date of this circular.
The policy will include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.
"It is clarified that accounts classified as NPA can be restructured; however, the extant asset classification norms governing restructuring of NPAs will continue to apply," it said.