Reserve Bank extends coverage of resolution framework 2.0 to Rs 50 crore
By Ankur Mishra
Banks and non-bank financial corporations (NBFCs) can restructure loans up to Rs 50 crore under resolution 2.0, as the Reserve Bank of India (RBI) on Friday doubled the limit from an earlier threshold of exposure of Rs 25 crore. On May 5, RBI announced the 2.0 resolution framework for restructuring the debt of stressed individuals, small businesses and MSMEs with aggregate exposure of up to Rs 25 crore. With the cap now doubled, MSMEs with a “standard” classification as of March 31, 2021, can approach lenders to help them relax repayment parameters.
The May 5 RBI allowed lenders to reorganize retail and MSME accounts. The resolution process will be invoked in 30 days and the last invocation day will be September 30, 2021. Thereafter, the resolution plan will be implemented within 90 days or no later than December 31, 2021. The period of moratorium on loans will be a maximum of two years, starting soon after the invocation.
Last week, the Association of Indian Banks (IBA) said public sector banks have formulated a model approach to loan restructuring under Resolution 2.0. IBA Chairman and Managing Director of Union Bank of India Rajkiran Rai G said on Friday that improving exposure thresholds under the resolution framework for MSMEs, non-MSMEs, small businesses and individuals was one of the requirements of the sector. He also said the RBI’s decision provides much needed relief, as with the improved threshold, a significant number of borrowers will be eligible under the framework.
Subodh Rai, Rating Director and Senior Director of Crisil Ratings, said: “The relaxation of the eligibility criteria for Resolution Framework 2.0 is timely as it increases the coverage of troubled companies under the program. Rai added that almost two-thirds of Crisil-rated midsize companies in the corporate sector (standard accounts as of March 31, 2021) now fall under its jurisdiction, compared to only half under the previous threshold.
“Three out of four companies eligible for restructuring have investment sub-category ratings, indicating their relatively weaker ability to deal with liquidity shocks,” Rai added, adding that the rescheduling of repayments under the program would help alleviate this problem.