Debt Restructuring Mechanism for SMEs

DEBT RESTRUCTURING MECHANISM FOR SMEs

Essential for All Upcoming Bank Exams

Introduction: 

Reserve Bank of India (RBI) issued detailed guidelines on 8th September, 2005 to ensure restructuring of debt of all eligible Small and Medium Enterprises (SME) at terms which are, at least as favorable as the Corporate Debt Restructuring Mechanism in the banking sector, which are provided here under. 

Eligibility Criteria: 

The following entities, which are viable or potentially viable – 

All Corporate SMEs – 

It which are enjoying banking facilities from a single bank, irrespective of the level of dues to the bank. 

All Non-Corporate SMEs – 

It is not the level of the level of the bank. 

All Corporate SMEs – 

It means and Rs. 10 crore under non-funding banking system (for Rs. 10 crore or more, guidelines separate). 

Wilful default and loss accounts: 

Accounts involving wilful default, fraud and malfeasance and those classified as Loss Assets will not be eligible for restructuring under these guidelines. 

BIFR cases: 

Before implementation of the package, banks should complete all formalities to get the approval of the buffer. 

Viability criteria: 

The bank can set standards of acceptance, consistent with the implementation of the unit within 5 years and the tenure of the loan to review is not more than 10 years. 

Time Frame: 

Work or implement in the maximum period of 90 days from the date of receipt of the package. 

Additional Finance: 

Accounts which can be considered as 'Standard Association' on account of which interest or Principal's first payment date, any time before, additional finance, if any, account, standard, sub-standard, suspicious accounts, standards, sub-standards, due to the approval rebuild package is due. 

If the qualification for the upgrade does not qualify for the end of the above mentioned period of the repatriated property, the additional finance will be considered as a loan for rebuilding the same asset classified class category. 

All restructured accounts classified as non-performing assets upon restructuring, can be upgrade to standard category after satisfactory performance during a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium, under the terms of restructuring package. 

Incentive for quick implementation: 

As an incentive for quick implementation of the approved package, as per the following time scheduled, the asset classification status may be restored to the position which existed when the bank in non-CDR cases within 120 days from the date receipt of application by bank. 

RBI clarified that the incentive would not be available on 1st April, 2015.