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Daily News Analysis

Restructuring of Loans

8th December, 2021 Economy

Figure 2: No Copyright Infringement Intended


  • Public sector banks (PSBs) effected restructuring of 9.8 lakh accounts of micro, small and medium enterprises, due to the impact of the COVID-19 pandemic, amounting to ₹58,524 crore.
  • About 8.5 lakh accounts of individual borrowers, accounting for ₹60,000 crore have also been restructured.

About Loan Restructuring:

  • When a borrower is facing financial stress, the banks can modify the terms of the loan by a practice called restructuring/ recasting.
  • This is done to prevent the borrower being declared a defaulter and the loan being classified as an NPA (non-performing asset).
  • If the loan is classified as NPA, the banks stand to lose their profits as they have to make provisions towards it by setting aside money.


Loan Restructuring of MSME:

  • The Reserve Bank of India’s (RBI’s) restructuring package for small businesses announced last month will help recast Rs 1 lakh crore of loans for 7 lakh eligible micro, small and medium enterprises (MSMEs).

The scheme:

  • The scheme announced by RBI is a one-time scheme wherein a loan tenor and interest rate can be revised without classifying the asset as a NPA.
  • The facility is available for standard advances of up to Rs 25 crore only.
  • The scheme will help free up additional resources which will fuel demand and create further opportunities in the industry.
  • The restructuring must be implemented by March 31, 2020. Banks will need to make a provision of 5% towards these restructured loans. Each bank/NBFC should formulate a policy for this scheme with board approval. Those MSMEs that are not exempt from GST will need to be registered on the GSTN on the date on restructuring.
  • Later, RBI had extended the scheme in the wake of Covid Crisis.


Micro, Small and Medium Enterprises Classification 2020

Size of the Enterprise

Investment and Annual Turnover


Investment less than Rs. 1 crore

Turnover less than Rs. 5 crore


Investment less than Rs. 10 crore

Turnover up to Rs. 50 crore


Investment less than Rs. 20 crore

Turnover up to Rs. 100 crore


Importance of MSMEs for Indian Economy

  • Employment:It is the second largest employment generating sector after agriculture. It provides employment to around 120 million persons in India.
  • Contribution to GDP:With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities.
  • MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India becomes a $5 trillion economy.
  • Exports: It contributes around 45% of the overall exports from India.
  • Inclusive growth:MSMEs promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society.
  • For example: Khadi and Village industries require low per capita investment and employs a large number of women in rural areas.
  • Financial inclusion:Small industries and retail businesses in tier-II and tier-III cities create opportunities for people to use banking services and products.
  • Promote innovation:It provides opportunity for budding entrepreneurs to build creative products boosting business competition and fuels growth.