Loan restructuring allowed only for borrowers in financial difficulty due to Covid-19

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By Ankur Mishra

In a move that will provide relief to banks and borrowers, the Reserve Bank of India (RBI) has allowed lenders to restructure loans that are strained solely due to the pandemic. “Resolution under this facility is only provided to borrowers under stress due to Covid-19,” RBI Governor Shaktikanta Das said on Thursday.

The rules allow lenders to extend the terms of loans, sanction additional credit and also provide for a moratorium of up to two years. The RBI will also allow the conversion of debt into securities. Business and personal loans can be recast, the central bank said while tweaking rules to allow more MSMEs to take advantage of an existing restructuring program.

To be eligible, a client must not have had more than 30 days of contributions as of March 1. While banks can classify these recast exposures as standard assets, they must establish a capital provision of 10%; any bank that does not sign the intercreditor agreement must provide 20%. Lenders must invoke a resolution plan by December 31 and implement it within 180 days from the date it is invoked.

A committee headed by former banker KV Kamath, will help RBI finalize rule and regulations for debt overhaul and verify resolution plans when debt is above Rs 1,500 crore.

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