FM tells banks to frame loan recast scheme for all viable units by Sept 15

Lenders told to put in place FAQs on recast on their websites in multiple languages

Finance Minister Nirmala Sitharaman on Thursday told banks to put in place by September 15 loan restructuring schemes to rescue all viable business units affected by the Covid-19 pandemic. She was holding a review meeting with heads of scheduled commercial banks and non-banking financial companies (NBFCs) through videoconferencing.

Top bank executives suggested key changes to the Reserve Bank of India’s (RBI’s) loan restructuring scheme to accommodate borrowers who faced stress for a longer period of time, besides lowering the provisioning requirements for restructuring housing loans, the chief executive officer of a bank said, requesting anonymity. 

Finance ministry officials told bankers the ministry was in touch with the RBI to ensure that the regulator provided assistance to them in the resolution process.

“During her interaction, the finance minister focused on lenders immediately putting in place a board-approved policy for resolution, identifying eligible borrowers and reaching out to them, and the quick implementation of a sustained resolution plan by lenders for the revival of every viable business,” the finance ministry said in a statement.

Banks have to approve their own loan restructuring scheme, which was allowed by the RBI in August for all types of borrowers – corporate, MSME, and personal loan segments.

The meeting was held to “review their state of preparedness for implementation of the loans resolution framework for Covid-19 related stress”.

“During the meeting, Sitharaman impressed upon the lenders that as and when the moratorium on loan repayments is lifted, borrowers must be given support and Covid-19 related distress must not impact the lenders’ assessment of their creditworthiness,” the ministry said.

Stressed industries that have defaulted for more than 30 days should also get an opportunity to restructure their loan accounts, according to suggestions by the bank executives. For non-MSME account holders, such restructuring can be sought till December 31, provided that the borrower should not be in default for more than 30 days as of March 1, 2020. Banks have to implement the resolution framework within 180 days of agreeing upon the restructuring proposal.

For MSMEs, the RBI has allowed all the three types of stressed assets to avail of restructuring, provided their total exposure is not more than Rs 25 crore. But for others, including MSMEs with loan of more than Rs 25 crore, the restructuring window will not be available if they fall under the SMA-1 (31-60 days of default) or SMA-2 (61-90 days default) categories.

The RBI requires banks to make a 10 per cent provisioning for restructured accounts. “For housing loan accounts, there was a suggestion that the provisioning requirements can be reduced,” the bank chief executive cited above said.