RBI unveils debt rework guidelines for SMEs

The Reserve Bank of India (RBI) today issued detailed guidelines on the debt restructuring mechanism for small and medium enterprises (SMEs) with outstandings of up to Rs 10 crore.

RBI said banks could decide the acceptable viability benchmark, consistent with the unit becoming viable in seven years and the repayment period for restructured debt not exceeding 10 years. Accounts classified by banks as "loss assets" would not be eligible for restructuring.

The Central bank said additional finance would be treated as a 'standard asset' in all accounts up to a period of one year after the date when first payment of interest or of principal, whichever is earlier, was due.

If the restructured asset does not qualify for upgrade at the end of the above period, additional finance shall be placed in the same asset classification category as the restructured debt.

The RBI will issue guidelines for funded and non-funded outstanding of above Rs 10 crore separately. It has asked banks to formulate a debt restructuring scheme for SMEs.

While framing the scheme, banks must ensure that the scheme is simple to comprehend and includes parameters indicated in the guidelines.

The RBI said every restructuring would follow a receipt of a request to that effect from the borrowing units and every restructuring package must be implemented within a maximum period of 60 days from date of receipt of requests.

Each bank will have to display on its website the debt restructuring scheme for SMEs and also forward it to SIDBI for placing on their web site. Banks will also have to disclose in their published annual balance sheets, under 'Notes on Accounts', information in respect of restructurings undertaken during the year for SME accounts.