It is a revolutionary step by RBI to allow MSMEs to restructure their existing loans that have defaulted but not fall in the NPA category as on 1st January 2019.
Since MSME is more vulnerable to disruptive changes after the Covid-19 outbreak, this step will provide great help to them. It is being appreciated by not only the sector but across all businesses. Looking at the situation of npa in india, this step will support the economy.
The key elements of this guideline about loan restructuring are:
- The most notable feature is that the loan account that wants restructuring should not be declared as Non-Performing Asset. Thus, it will not add to the already overburdened NPA situation in the country.
- The third criterion says that the eligible borrower has to be classified as standard on 1st January 2019. It will exclude companies that were affected by demonetization or GST implementation. Experts feel that a lot of ties has elapsed since these two events happened, the majority of the potentially viable enterprises are not eligible to be cored as per this condition.
- Repairs and maintenance
Since the policy does not entertain businesses that are already NPA, there is no adverse impact on the npa recovry process. Similarly, there is no adverse impact on the economy as well.
The move will not add any the burden on nclt lawyers Mumbai and the tribunal as it considers only non-NPA cases. This exercise will revive stressed businesses. It is a policy support for loan restructuring, which is a good thing for sure.
This move is quite good for the MSME sector. Now, the government runs an awareness program for banks and other lenders so that they make restructuring a part of lending program for MSME. Thus, it will come into the mainstream.
The severely impacted MSME sector will have some relief by this step at least.