(ii) Accounts
involving wilful default, fraud and malfeasance will not be eligible
for restructuring under these guidelines.
(iii) Accounts classified by banks
as "Loss Assets" will not be eligible for restructuring.
(iv) In respect of BIFR cases banks should
ensure completion of all formalities in seeking approval from BIFR before implementing
the package.
4. Viability criteria
Banks may decide on the acceptable viability
benchmark, consistent with the unit becoming viable in 7 years and the repayment
period for restructured debt not exceeding 10 years.
5. Prudential Norms for restructured
accounts
i) Treatment of ‘standard’ accounts subjected
to restructuring
a) A rescheduling of the instalments of
principal alone, would not cause a standard asset to be classified in the sub-standard
category, provided the borrower’s outstanding is fully covered by tangible security.
However, the condition of tangible security may not be made applicable in cases
where the outstanding is up to Rs.5 lakh, since the collateral requirement for
loans up to Rs 5 lakh has been dispensed with for SSI / tiny sector.
b) A rescheduling of interest element would
not cause an asset to be downgraded to sub-standard category subject to the
condition that the amount of sacrifice, if any, in the element of interest,
measured in present value terms, is either written off or provision is made
to the extent of the sacrifice involved.
c) In case there is a sacrifice involved
in the amount of interest in present value terms, as at (b) above, the amount
of sacrifice should either be written off or provision made to the extent of
the sacrifice involved.
ii) Treatment of ‘sub-standard’ / ‘doubtful’
accounts subjected to restructuring
a) A rescheduling of the instalments of principal
alone, would render a ‘sub-standard’ / ‘doubtful’asset eligible
to continue in the ‘sub-standard’ / ‘doubtful’ category for the
specified period ( as defined in paragraph 7 below), provided the
borrower’s outstanding is fully covered by tangible security. However, the
condition of tangible security may not be made applicable in cases where the
outstanding is up to Rs.5 lakh, since the collateral requirement for loans up
to Rs 5 lakh has been dispensed with for SSI / tiny sector.
b) A rescheduling of interest element would
render a sub-standard / ‘doubtful’ asset eligible to be continued to be classified
in sub-standard / ‘doubtful’ category for the specified period subject to the
condition that the amount of sacrifice, if any, in the element of interest,
measured in present value terms, is either written off or provision is made
to the extent of the sacrifice involved.
c) Even in cases where the sacrifice is by
way of write off of the past interest dues, the asset should continue to be
treated as sub-standard / ‘doubtful’.
iii) Treatment of Provision
a) Provision made towards interest sacrifice
should be created by debit to Profit & Loss account and held in a distinct
account. For this purpose, the future interest due as per the current BPLR in
respect of an account should be discounted to the present value at a rate appropriate
to the risk category of the borrower (i.e., current PLR + the appropriate term
premium and credit risk premium for the borrower-category) and compared with
the present value of the dues expected to be received under the restructuring
package, discounted on the same basis.
b) Sacrifice may be re-computed on each balance
sheet date till satisfactory completion of all repayment obligations and full
repayment of the outstanding in the account, so as to capture the changes in
the fair value on account of changes in BPLR, term premium and the credit category
of the borrower. Consequently, banks may provide for the shortfall in provision
or reverse the amount of excess provision held in the distinct account.
c) The amount of provision made for NPA,
may be reversed when the account is re-classified as a ‘standard asset’.
6. Additional finance
Additional finance, if any, may be treated as
‘standard asset’ in all accounts viz; standard, sub-standard, and doubtful accounts,
up to a period of one year after the date when first payment of interest or
of principal, whichever is earlier, falls due under the approved restructuring
package. If the restructured asset does not qualify for upgradation at
the end of the above period, additional finance shall be placed in the same
asset classification category as the restructured debt.
7. Upgradation of restructured accounts
The sub-standard / doubtful accounts at para
5 (ii) (a) & (b) above, which have been subjected to restructuring,
whether in respect of principal instalment or interest, by whatever modality,
would be eligible to be upgraded to the standard category after the specified
period, i.e., a period of one year after the date when first payment of interest
or of principal, whichever is earlier, falls due under the rescheduled terms,
subject to satisfactory performance during the period.
8. Asset classification status
During the specified one-year period, the asset
classification status of rescheduled accounts will not deteriorate if satisfactory
performance of the account is demonstrated during the period. In case, however,
the satisfactory performance during the one year period is not evidenced, the
asset classification of the restructured account would be governed as per the
applicable prudential norms with reference to the pre-restructuring payment
schedule. The asset classification would be bank-specific based on record
of recovery of each bank, as per the existing prudential norms applicable to
banks.
9. Repeated restructuring
The special dispensation for asset classification
as available in terms of paragraphs 5, 6 and 7 above, shall be available only
when the account is restructured for the first time.
10. Procedure
(i) Based on these guidelines, banks may
formulate, with the approval of their Board of Directors, a debt restructuring
scheme for SMEs. While framing the scheme, banks may ensure that the scheme
is simple to comprehend and will, at the minimum, include parameters
indicated in these guidelines.
(ii) The restructuring would follow a receipt
of a request to that effect from the borrowing units.
(iii) In case of eligible SMEs which are under
consortium/multiple banking arrangements, the bank with the maximum outstanding
may work out the restructuring package, along with the bank having the second
largest share.
11. Time frame
Banks should work out the restructuring package
and implement the same within a maximum period of 60 days from date of receipt
of requests.
12. Review
Banks may review the progress in rehabilitation
and restructuring of SME accounts on a quarterly basis and keep the Board informed.
13. Disclosure
The Debt Restructuring Scheme for SMEs should
be displayed on the bank’s website and also forwarded to SIDBI for placing on
their web site.
Banks should also disclose in their published
annual Balance Sheets, under 'Notes on Accounts', the following information
in respect of restructuring undertaken during the year for SME accounts:
a. Total amount of assets of SMEs subjected
to restructuring.
[(a) = (b)+(c)+(d)]
b. The amount of standard assets of SMEs subjected
to restructuring.
c. The amount of sub-standard assets of SMEs
subjected to restructuring.
d. The amount of doubtful assets of SMEs subjected
to restructuring.
14. Please acknowledge receipt.
Yours faithfully,
sd/-
(Anand Sinha)
Chief General Manager-in-Charge