By Sudhakar Atre,
RBI has permitted to all banks and NBFCs restructuring of advances to Micro, Small and Medium Enterprises (MSME) sector stressed MSME accounts with aggregate exposure upto Rs 25 crore without downgrading the asset to substandard (NPA) category vide its circular dated January 1, 2019. Even though, RBI has not issued any detailed framework regarding it and advised that individual boards of lenders (banks/NBFCs) should approve policy in this regard for implementation of the scheme. Hence, restructuring framework may differ from lender to lender.
It is advisable to go through the policy of the particular lender while approaching for restructuring. However, as per prevailing practice, it may be inferred that these frameworks will be in accordance with the guidelines issued by RBI from time to time in this regard, more particularly on the lines of Framework for Revival and Rehabilitation of MSMEs issued by RBI vide its Master Circular No RBI/2015-16/338 dated March 17, 2016. 1) Common causes of stress: The local and global economic recession, change in Government policies, change in market conditions etc., are generally attributed for stress in industry in general and MSMEs in particular as they are more vulnerable to such factors. However, making unachievable projections at the time of availing credit facilities is most common cause of the stress in case of MSMEs.
Most of the MSMEs invest heavily in enhancing capacities by availing huge term loans in anticipation of orders from big industrial houses who generally get large contracts (because of their size and access to power centres) and then they outsource works to MSMEs. Because of the poor bargaining capacity most of the MSMEs supply their products on credit and at a very low margin to these big corporate. However, it is a bitter truth that in spite of various legal provisions the payments from these corporate and Government departments also get inordinately delayed. The situation further worsens when to maintain their term loan accounts regular MSMEs pump in money from their reserves, sometimes by borrowing from friends and relatives or in certain cases diverting funds from working capital accounts and thus causing a liquidity crisis for MSMEs.
There is no denying of the fact that some entrepreneurs have attitude to become rich overnight by diverting funds from units to tempting sectors like real estate, share markets etc., and thus adversely affecting their own units. But this disease of wilful defaults and frauds by borrowers is not restricted to MSMEs only and needs to be dealt sternly for all. 2) Concept of restructuring: Restructuring is an act of lender to grant concessions to the borrower for overcoming financial stress which may have arisen because of factors beyond the control of the borrower. Restructuring would normally involve modification of terms of repayment period/repayable amount/ the amount of installment/ rollover of credit facilities/ sanction of additional credit facility/enhancement of existing credit limits etc. However, RBI has stressed in its policy that no account will be taken up for restructuring by the lender unless the financial viability of the unit after restructuring is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package. The viability should be determined based on the acceptable viability norms determined by the lender which may be applied on a case to case basis, depending on the merit of each case. RBI has also stressed the importance of regular monitoring of the restructured accounts so that they become viable within stipulated time. Hence, the borrowers must discuss the terms of restructuring with their lenders in detail and should accept it if they are abundantly sure of achieving all the projections made and also ensure strict compliance of agreed terms.
Any ambiguity in this regard will cause great harm to borrowers in future. 3) Eligibility: a) The RBI guidelines on restructuring of advances to MSMEs are applicable to all accounts of MSMEs as defined in MSMED Act 2006 which are either registered under GST and/or exempted from GST registration. As per IBA circular dated February 18, 2019 the guidelines are applicable to MSME registered units related to agriculture, food processing and cold storage etc. b) The aggregate exposure, including non-fund based facilities, of the borrower does not exceed of Rs 25 crore as on January 1, 2019. c) The borrower’s account is in default but is a ‘Standard Asset’ as on January 1, 2019 and will continue to be classified as a ‘Standard Asset’ till the date of implementation of the restructuring.
Default will mean non-payment of advance when whole or any part or installment of the amount of advance has become due and payable and is not repaid by the borrower. For revolving facilities like cash credit/overdrafts, default would also mean the outstanding balance remaining continuously in excess of the sanctioned limit or drawing limit, whichever is lower, for more than 30 days. All accounts with cumulative period of irregularity of 30 days and above but not more than 90 days as on January 1, 2018 can be considered for restructuring, where the stress is due to extraneous reasons and of temporary nature but the units are prima facie viable. Willful defaulters, cases involved in fraud and malfeasance will not be eligible for the restructuring. The eligible stressed MSME borrowers should approach their respective lenders at the earliest as RBI has stated that it is one time measure. (The author is a freelance writer on banking and may be reached at [email protected])