With a view to tackle the second wave of the pandemic, the Reserve bank of India (RBI) on 05.05.2021, announced ‘Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses and MSMEs’ (“ResFra 2.0”) which is an extended version of the “Resolution Framework for COVID-19-related Stress” (“ResFra 1.0”).MSMEs whose aggregate exposure with lending institutions is up to Rs 25 crore and who were classified as standard as on 31.03.2021 can avail this restructuring scheme without being downgraded to another category of asset and thereby can retain the prestigious “Standard” quality. The time frame for implementation of the plan is required to be 90 days and the specific window for the upgradation of the accounts which may have slipped into NPA classification between 01.04.2021 and date of implementation to “Standard” quality might incentivize the MSME sector.

Invocation and Implementation

It is to be noted here that only those MSME beneficiaries who have not availed the restructuring under ResFra 1.0-MSME and RBI circulars dated 11.02.2020 and 01.01.2019 on ‘MSME sector – Restructuring of Advances’ are eligible for invocation of this scheme before 30.09. 2021. Since framework is meant specifically for covid induced stress, the eligibility/decision of restructuring are required to be taken independently by each lending institution within 30 days in consonance with their upcoming board approved policies which thereby will widen the arena or scope of restructuring.

Review of sanctioned working capital limit and drawing power

The fascinating feature of the scheme for the beneficiaries who have already availed the restructuring under earlier MSME circulars is that they can apply for one time-review or reassessment of the sanctioned working capital limits without being casted the restructuring shadows though the reassessed limits would be subjected to periodical reviews and renewals.

Credit reporting

Since the relaxations in the CIBIL score or the other exemptions in relation to credit rating agencies are heavily pushed by small business sector in the wake of Pandemic, the framework brings a breather to some extent as the accounts restructured under the scheme shall carry a status as “Restructured due to COVID19” for the purpose of transmission of information to credit rating agencies.

Boon of ResFra 2.0

The efforts made in line with the current situation by introducing such reliefs for MSMEs, the RBI will undoubtedly fortify and strengthen the Indian economy as MSMEs paly a commendable role in contributing towards building our economy. It will provide a motivation to small businesses and MSMEs to scale up their business without worrying about financial destitution caused to them due to the pandemic. By reviewing and reassessing the existing working capital facilities, the eligible borrowers can aim to invest and continue their operation without the fear of losing in terms of finance. Such efforts are made with an aim of quicker resolution of stress by providing specific timeline for invocation, implementation and even for delivering the decision to the interested borrowers.

Small Businesses Other Than MSMEs

The ResFra 2.0 vide separate notification also provides certain reliefs to the small business entities, including those engaged in retailing and wholesale trade but excluding those classified as MSMEs as on 31.03.2021, to implement resolution plans in respect of their credit exposures. The entities who have not availed the ResFra 1.0 and where, as on 31.03.2021, they were classified as ‘Standard’ and had aggregate exposure of not more than Rs.25 crore can avail of the ResFra 2.0.

However, whose resolution plans had been implemented in terms of the ResFra1.0, lending institutions are permitted, as a one-time measure, to review the working capital sanctioned limits and the drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without classifying it as restructuring and can also modify their restructuring plans by increasing the period of moratorium or extending the residual tenure up to two years.

The eligible borrowers in respect to whom resolution plan has been invoked, the lending institutions can grant them interim finance by way of additional credit. The credit history of the borrowers’ account shall not be degraded as, while reporting such accounts to credit information companies they shall also carry a status “Restructured due to COVID19”.

The small businesses can now restructure their existing loans without a downgrade in their asset classification, they shall remain under STANDARD classification. In addition, where the borrower whose account slips into NPA during date of invocation and implementation can also be upgraded to STANDARD as on the date of implementation of the restructuring plan.

CONCLUSION

However, the RBI is definitely considerate to the exigencies of small business sector but the real time situation demands new exclusive criterion for asset classification for MSMEs so that the deeming stress of NPA classification can bring honour to government support in these sordid times.