RBI Reopens Covid-19 Restructuring Scheme For Retail, Small Business Borrowers
Shaktikanta Das, governor of the Reserve Bank of India (RBI), reacts during a news conference in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

RBI Reopens Covid-19 Restructuring Scheme For Retail, Small Business Borrowers

The Reserve Bank of India reopened a one-time debt restructuring scheme as the economy braces for the impact of a renewed surge in Covid-19 cases. Retail borrowers and small businesses will be permitted to recast their loans, without being downgraded to non performing category, under the scheme.

  • The one-time restructuring scheme will be available for borrowers with aggregate outstanding dues of up to Rs 25 crore.
  • Only accounts which are classified as standard as of March 31, 2021 can be restructured.
  • Borrowers who have received relief under previous restructuring schemes, including that announced last year, would not be eligible.
  • As part of the scheme, lenders can extend the tenor of the loan by up to two years and also offer a moratorium for this period.
  • The RBI also said that any accounts restructured last year under the one-time restructuring scheme can be given a moratorium of up to two years, if not already provided.
  • Further, the banking regulator allowed lenders to review the working capital limits for small businesses that had restructured their dues in 2020 as a one-time measure.

The scheme would have to be invoked by Sept. 30 and implemented within 90 days of invocation, RBI Governor Shaktikanta Das said during a media briefing on Wednesday.

The resurgence of Covid-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape. In this environment the most vulnerable category of borrowers are individual borrowers, small businesses and MSMEs.  
Shaktikanta Das, Governor, RBI

Last week, BloombergQuint had reported that the RBI had started the groundwork for extension of the restructuring scheme for borrowers. This had followed demands from bankers for further relief.

The banking regulator will allow banks to utilise their floating provisions or countercyclical provisions held as of Dec. 31, 2020, to make specific loan loss provisions till March 31, 2022.

According to Sunil Mehta, chief executive, Indian Banks’ Association, the limit of restructuring loans up to Rs 25 crore will cover a wide universe of borrowers. “This will address the localised nature of the stress. Certain states have had no lockdown announcements and certain borrower segments have not seen their businesses being impacted at all. Banks will be in a better place to address those in need for support.”

According to Mehta, a blanket moratorium would have been a short term measure, which would not have helped borrowers much. “Under this restructuring scheme banks have the ability to provide more time and easier repayment terms in a customised manner.”

International rating agency Moody’s Investor Services noted that the restructuring scheme is a milder measure than announcing a blanket loan moratorium, which was used last year. The proportion of restructured loans are expected to be lower, said Srikanth Vadlamani, vice president, Moody’s said in a statement.

“Nevertheless, the need for this measure highlights the reemergence of downside risks to banks’ asset quality,” Vadlamani said.

PN Prasad, former deputy managing director, State Bank of India, said implementing the restructuring scheme is likely going to be a time consuming exercise for most lenders.

“Last year there were fewer borrowers who went into restructuring because of the various other support measures available to them. This time if a lot more borrowers come in, it will be a complex exercise. The need for each borrower is different and banks will have to work with each of them individually,” Prasad said. However, MSMEs have seen multiple rounds of restructuring already, which would mean that borrowers eligible to seek any support now may be fewer in number, he added.

Also read: RBI Asks Banks To Create ‘Covid Loan Book’ To Support Health Sector

Also read: Small Finance Banks Get Rs 10,000-Crore Facility For On-Lending To Small Businesses

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