Eligibility criteria for restructuring of advances
Banks may restructure the accounts classified under ‘standard’, ‘substandard’ and ‘doubtful’ categories.
Banks cannot reschedule / restructure / renegotiate borrowal accounts with retrospective effect. While a restructuring proposal is under consideration, the usual asset classification norms would continue to apply. The process of reclassification of an asset should not stop merely because restructuring proposal is under consideration. The asset classification status as on the date of approval of the restructured package by the competent authority would be relevant to decide the asset classification status of the account after restructuring/ rescheduling/ renegotiation. In case there is undue delay in sanctioning a restructuring package and in the meantime the asset classification status of the account undergoes deterioration, it would be a matter of supervisory concern.
Normally, restructuring cannot take place unless alteration / changes in the original loan agreement are made with the formal consent / application of the debtor. However, the process of restructuring can be initiated by the bank in deserving cases subject to customer agreeing to the terms and conditions.
No account will be taken up for restructuring by the banks unless the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package. Any restructuring done without looking into cash flows of the borrower and assessing the viability of the projects / activity financed by banks would be treated as an attempt at ever greening a weak credit facility and would invite supervisory concerns / action. Banks should accelerate the recovery measures in respect of such accounts.
The viability should be determined by the banks based on the acceptable viability benchmarks determined by them, which may be applied on a case-by-case basis, depending on merits of each case.
Illustratively, the parameters may include
the Return on Capital Employed.
Debt Service Coverage Ratio.
Gap between the Internal Rate of Return.
Cost of Funds and
the amount of provision required in lieu of the diminution in the fair value of the restructured advance.
The viability should be determined by the banks based on the acceptable viability parameters and benchmarks for each parameter determined by them. The benchmarks for the viability parameters adopted by the CDR Mechanism are given in the Appendix to Part – B of this Master Circular and individual banks may suitably adopt them with appropriate adjustments, if any, for specific sectors while restructuring of accounts in non-CDR cases.
The borrowers indulging in frauds and malfeasance will continue to remain ineligible for restructuring.
Banks may review the reasons for classification of the borrowers as willful defaulters, especially in old cases where the manner of classification of a borrower as a willful defaulter was not transparent, and satisfy itself that the borrower is in a position to rectify the willful default. The restructuring of such cases may be done with Board’s approval, while for such accounts the restructuring under the CDR Mechanism may be carried out with the approval of the Core Group only.
BIFR cases are not eligible for restructuring without their express . CDR Core Group in the case of advances restructured under CDR Mechanism, the lead bank in the case of SME Debt Restructuring Mechanism and the individual banks in other cases, may consider the proposals for restructuring in such cases, after ensuring that all the formalities in seeking the approval from BIFR are completed before implementing the package.