Reserve Bank expands resolution framework 2.0 coverage to Rs 50 crore

By Ankur Mishra

Banks and non-banking financial companies (NBFCs) can restructure loans up to Rs 50 crore under the resolution framework 2.0, as the Reserve Bank of India (RBI) on Friday doubled the limit an earlier threshold of Rs 25 crore exposure. On May 5, RBI had announced resolution framework 2.0 for debt restructuring of stressed individuals, small businesses and MSMEs having aggregate exposure of up to Rs 25 crore. With the ceiling now doubled, MSMEs with a ‘standard’ classification as of March 31, 2021, can approach the lenders to help ease the parameters of repayment.

The RBI on May 5 had allowed lenders to carry out a fresh round of restructuring of retail and MSME accounts. The resolution process will be invoked in 30 days and the last day for invocation will be September 30, 2021. Thereafter, the resolution plan will be implemented within 90 days or latest by December 31, 2021. The moratorium period on loans will be a maximum of two years, starting soon after invocation.

Last week, Indian Banks’ Association (IBA) had said public sector banks have formulated a templated approach for restructuring of loans under resolution framework 2.0. The IBA chairman and MD & CEO of Union Bank of India, Rajkiran Rai G, on Friday said that enhancement of the exposure thresholds under resolution framework for MSMEs, non-MSMEs, small businesses and individuals was one of the demands of the industry. He also said that move by RBI provides a much-needed relief, as with the enhanced threshold significant number of the borrowers will be eligible under the framework.

Subodh Rai, chief ratings officer and senior director, Crisil Ratings said, “The relaxation in eligibility criteria for resolution framework 2.0 is timely because it increases the coverage of stressed companies under the scheme.” Rai added that almost two-thirds of the Crisil-rated mid-sized companies in the corporate sector (standard accounts as on March 31, 2021) has now come under its ambit, compared with only half as per the previous threshold.

“Three out of four companies eligible for restructuring have sub-investment category ratings, which indicates their relatively lower ability to manage liquidity shocks, ” Rai further said, adding that rescheduling of repayments under the scheme will help to mitigate this issue.