Debt Restructuring – reduction in interest rate and deferment of instalment

Debt restructuring is a process used by companies facing cash flow problems or financial distress to avoid the risk of default. It can be carried out by reducing the interest rates on loans or by extending the payment term. It can also include a debt for equity swap which means that company’s creditors may agree to cancel some or all of the debt in exchange for equity in the company. It can also involve a bond haircut where the company may negotiate to write off certain portion of interest or capital. Restructuring debt can be a win-win for both entities as the company avoids bankruptcy and the lenders typically receive more than what they would through a bankruptcy proceeding.

RBI Guidelines 

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                                                            भारतीय �रजव बक _______________________RESERVE BANK OF INDIA___________________


            DOR.No.BP.BC.34/21.04.048/2019-20                                                                                                                           February 11, 2020

All banks and NBFCs regulated by the Reserve Bank of India

Dear Sir/ Madam,

Micro, Small and Medium Enterprises (MSME) sector  Restructuring of Advances

Please refer to the circular DBR.No.BP.BC.18/21.04.048/2018-19 dated January 1,

2019. It has been decided to extend the one-time restructuring of MSME advances

permitted in terms of the aforesaid circular. Accordingly, a one-time restructuring of

existing loans to MSMEs classified as ‘standard’ without a downgrade in the asset

classification is permitted, subject to the following conditions:

i.      The aggregate exposure, including non-fund based facilities, of banks and

NBFCs to the borrower does not exceed ₹25 crore as on January 1, 2020.

ii.      The borrower’s account was in default but was a ‘standard asset’ as on January

1, 2020 and continues to be classified as a ‘standard asset’ till the date of

implementation of the restructuring.

iii.      The restructuring of the borrower account is implemented on or before December 31, 2020.

iv.      The borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration. This shall be determined on the basis of exemption limit obtaining as on January 1, 2020.

2. It is clarified that accounts which have already been restructured in terms of the

circular dated January 1, 2019 shall be ineligible for restructuring under this circular.


3. All other instructions specified in the circular dated January 1, 2019 shall be


Yours faithfully,

(Saurav Sinha)

Chief General Manager-in-Charge