One Time Loan Restructuring

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Impact Of One Time Loan Restructuring On MSMEs
And Corporates

• With the surge in the number of cases, the
  pandemic has taken a toll over our lives. Nearly
  all the aspects of our life, such as social and
  economic, have been affected or put to a halt by
  it. The aspect that has been most severely hit by
  this sudden outbreak of the coronavirus has been
  the economic sector. Every industry, whether big
  or small, has been affected by this outbreak. For
  example the tourism sector which contributes
  about 9.2 to the overall GDP of a country like
  India has come to a standstill. Hence one-time
  loan restructuring has been recommended to help
  businesses in distress. 
• In order to curb the situation and prevent it
  from getting worse, the government has introduced
  a relief package of 20 lakh crores, but this has
  so far not delivered the results to the extent
  desired. Though the rate of deceleration has
  reduced to a certain extent, some sectors still
  experienced negative growth in their business. 

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• In order to prevent the economic condition from
  getting more critical, the RBI has initiated a 
  policy of one-time loan restructuring for the
  financial stress caused by the Covid pandemic.
  Earlier the MSMEs/corporates with a turnover of
  upto 25 crores were covered under the
  existing one-time loan restructuring scheme but
  under this new scheme the MSMEs having exposure
  of over 25 crores were also covered. The term of
  the scheme has been extended upto one year till
  the start of the next financial year.
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• It has proved to be a sigh of relief for those
  businesses that have been affected severely and
  are unsure as to when the financial situation
  improves.
• Here are a few attributes of the policy

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• The provisions of the policy have been modified
  from the previous guidelines. The account shall
  not be downgraded by virtue of restructuring.
• It applies only to those borrowers whose
  businesses have been affected by the stress
  caused by the pandemic.
•  The ultimate decision is to be taken by the
  lenders keeping in view the eligibility criteria,
  financial parameters and ratios as suggested by
  the expert committee. A credit evaluation would
  be done by the credit rating agencies of those
  MSMES having exposure of over 100 crores.
• Permission would be required for procuring funds
  from additional sources such as interim funding
  after due consent of lenders for implementation
  of RP.

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• The eligibility criteria to obtain one-time loan
  restructuring for the MSMEs/Corporates under the
  scheme is that the account should be a standard
  asset and must remain so until an invocation,
  i.e. permission from the lenders and borrower to
  carry out one-time loan restructuring is
  obtained. The restructuring procedure needs to be
  completed within a stipulated period. Still, more
  time is taken than expected for completing the
  required steps such as assessment by the credit
  rating organisation and evaluation by the
  committee of experts. A committee composed of
  members who have expertise in their fields is
  included by the RBI whose role would be to give
  suggestions about the guidelines of this
  financial scheme which would further be instilled
  in the final resolution plan. Putting the review
  of these guidelines in the hands of an expert
  committee who come with relevant skill sets and
  years of experience would bring  fairness in
  decision making.

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• Taking into consideration the amount of one-time
  loan restructuring proposals received by the
  banks and other agencies, sometimes it may also
  lead to negligence in reviewing and
  implementation aspects and may lead to a
  haphazard decision. But overall, the guidelines
  have been made with such precision so as to
  ensure clarity and effective implementation of
  policies by the branch/zonal heads etc. Overall
  the plan aspires to reduce the financial stress
  of the business without affecting much of their
  balance sheets and giving adequate powers to the
  lenders as well so that these policies can be
  executed and implemented without any hassles.

Orignal Source - https//www.resurgentindia.com/im
pact-of-one-time-loan-restructuring-on-msmes-and-c
orporates