To provide support to small businesses hit by the second coronavirus wave, banks have initiated the process of
restructuring of loans up to Rs 25 crore in line with the COVID-19 relief measures announced by the
Reserve Bank earlier this month. Many lending institutions have got board approval for the resolution framework and eligible borrowers are being contacted.
For example, Bank of India has sent messages to its eligible customers to submit their willingness to debt recast online.
“In these trying times, we offer you a helping hand by extending relief as per RBI Resolution Framework 2.0 dated May 5, 2021. If you are under financial stress caused by the COVID second wave, you may opt for restructuring of your account,” the message said.
Another public sector lender Punjab & Sind Bank said its debt recast plan as specified by the RBI has been approved by the board.
“We will be reaching out to our customers including through BCs…we will get a fair idea about how many customers want to avail the restructuring in the next few days or so,” Punjab & Sind Bank managing director S Krishnan said.
SBI Chairman Dinesh Kumar Khara said for the resolution framework 2.0 announced by the RBI on May 5, all public sector banks have come out with a formulated templated approach for restructuring of loans to individuals, small businesses, MSMEs up to Rs 25 crore.
“The idea behind this is that those who are involved in the implementation of the resolution framework, they should not have any hardship in terms of any implementation,” Khara added.
When asked about the size of the restructuring pool banks are expecting this time, IBA Chairman and Union Bank of India‘s Managing Director and Chief Executive Officer Rajkiran Rai G said it was too early to put a number for potential recasts, as banks are only sending messages to eligible borrowers.
“Last time also we saw that the number of customers opting for this (restructuring) was not that high. So, we need to get some feedback and it is difficult to crystallise a number at this point in time,” he said.
The SBI chairman, Khara, said during the previous restructuring scheme, SBI had about 8.5 lakh SME customers who were eligible for restructuring but only 60,000 borrowers availed it.
The resurgence of the fresh COVID-19 wave has put many MSME, individuals and small businesses under stress. Taking cognisance of the prevailing situation, the RBI announced Resolution Framework 2.0 under which individuals and small businesses having exposure up to Rs 25 crore can opt for loan restructuring if they had not availed the earlier scheme.
In the case of those who had availed the loan restructuring under the earlier scheme, the RBI permitted the banks and lending institutions to modify the plans and increase the period of the moratorium to help alleviate the potential stress.
“In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc,” RBI Governor Shaktikanta Das had said while announcing steps to deal with the impact of the second wave of the COVID-19.
This is a one-time loan restructuring scheme under which the loan would remain standard despite recast and banks would not have to make additional provision in such cases.
This is the second restructuring scheme announced by the central bank in less than one year, with the first unveiled in August last year when the first COVID-19 wave had battered the Indian economy with a contraction of 8 per cent during the financial year ended March 2021.
Borrowers who were classified as “standard” as of March 31, 2021, will be eligible to be considered under Resolution Framework 2.0.
Restructuring under the proposed framework may be invoked up to September 30, 2021, and would have to be implemented within 90 days after invocation. DP MKJ MKJ