Restructuring 2.0: RBI Starts Groundwork To Support Retail And MSME Borrowers

According to three bankers in the know, the regulator is considering relief for retail and small business borrowers and mulling the option to open the restructuring window until Sept. 30. The discussions between the RBI and bankers are still in early stages with no certainty on which way the final decision will go, they said on the condition of anonymity.

Should the RBI permit another round of restructuring, the scheme would be available to borrowers who are not in default. Borrowers who have already restructured their loans once may not be allowed to avail further relief under these measures, the bankers said.

The support is essential for small borrowers who have been impacted by localised lockdowns announced by a number of states.

Micro, small and medium enterprises, which received liquidity support last year through the emergency credit linked guarantee scheme, did not recast loans in large numbers. However, this time around, these companies do not have the support needed to help them through business disruptions, making it necessary to provide a restructuring option, the bankers quoted above said.

According to the first of the three bankers quoted above, the regulator has now acknowledged that the impact of the second wave may be significant enough to warrant support to borrowers.

Emails sent to the RBI and the IBA on Friday were not immediately answered.

System-wide data for the extent of restructuring concluded last year is not yet available but disclosures made by large banks as part of the fourth-quarter earnings suggest that a number of retail borrowers did recast loans. While the of restructured loans may not be large, the number of accounts who availed of the relief is significant. Fewer corporate borrowers recast loans than earlier anticipated.

Earlier this month, in a meeting with RBI Governor Shaktikanta Das, bankers had argued that small businesses will once again need support.

While addressing the press on April 7 after the monetary policy review, Das had said the regulator is in constant talks with banks on asset quality conditions. “We are always keeping a watch on asset quality, but a regulator cannot take a knee-jerk reaction which may backfire. Our decisions are based on the analysis of the depth of the problem and the extent to which it can impact the economy,” Das had told reporters over video conference.

Apart from the bankers’ lobby, non-bank lenders’ association Finance Industry Development Council, real estate industry body Credai and the small and medium enterprises group at Assocham have all sought extended restructuring.

The one-time restructuring scheme, which was announced in August 2020, was aimed at providing relief to borrowers who had seen their incomes getting impacted by the pandemic. It allowed lenders to extend repayment schedules for borrowers by up to two years, allowing for more time to repay dues. Moreover, accounts restructured under the scheme did not need to be downgraded to the non-performing category and required a 10% provision against the 15% which would normally apply.