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Everything You Need to Know About SBI's New Rules for Restructuring Corporate Loans

A man checks his mobile phones in front of State Bank of India (SBI) branch in Kolkata. (Reuters)

A man checks his mobile phones in front of State Bank of India (SBI) branch in Kolkata. (Reuters)

The purpose of this framework is to provide relief to units who otherwise have a good track record, but whose operations have been adversely affected by the Covid-19 pandemic.

State Bank of India has now necessitated that promoters of corporate firms would have to either furnish personal guarantees or pledge their shares if they are seeking a loan recast under Reserve Bank of India's August 6 circular.

Addressing doubts, SBI released a statement on restructuring of non-personal loans and said that apart from the upfront processing fee of 0.25 per cent, non-personal loans seeking restructuring would be priced 100 basis points above their current pricing on working capital loans.

Here's the list of FAQs on non-personal loan restructuring released by SBI on its website.

What is the purpose of this Resolution Framework?

The purpose of this framework is to provide relief to units who otherwise have a good track record, but whose operations have been adversely affected by the Covid-19 pandemic and their debt burden becoming disproportionate relative to their cash flow generation abilities.

What are the eligibility conditions for my unit to qualify for relief under the framework?

To be eligible under the Framework, the following eligibility conditions need to be fulfilled:

i. Your loan should be a “Standard Account” as on date of application and should have been ‘Standard’ and also not in default for more than 30 days as on 01.03.2020.

ii. Your unit’s operations should have been affected due to Covid-19 pandemic as a result of which your cash flows or revenues have declined significantly and you are not in a position to service your loan instalments or debt.

What documents do I need to provide along with application for being considered for relief under this Framework?

You need to submit the following documents:

i. Board Resolution (in case of Companies) stating that the Company’s operations are under stress on account of Covid-19. In case of other applicants, an undertaking, that unit’s operations are under stress on account of Covid-19.

ii. GST returns from April 2020 till the latest available month and also for the corresponding period of the previous year.

iii. In case of listed companies, the latest financials filed with Stock Exchanges to be submitted.

iv. Cash budget and projected financials for the period of loan.

v. Any other document as advised by your Branch/Relationship Manager.

Which are the Loans not covered under this Framework of RBI?

The following loans are not covered under this Framework:

i. MSME borrowers whose aggregate exposure to lending institutions collectively, is Rs 25 crore or less as on March 1, 2020. (Covered under separate scheme of RBI).

ii. Farm credit

iii. Loans to Primary Agricultural Credit Societies (PACS), Farmers' Service Societies (FSS) and Large-sized Adivasi Multi-purpose Societies (LAMPS) for on-lending to agriculture.

iv. Exposures to financial service providers including NBFCs. v. Exposures to Central and State Governments, Local Government bodies (e.g. Municipal Corporations) and body corporates established by an Act of Parliament or State Legislature.

How to apply for relief under above Framework?

You can submit your request at the Branch where your account is maintained or alternatively contact your Relationship Manager and submit your request.

What is the last date to apply for relief under the Framework?

i. For loans with aggregate exposure of Rs 1500 crore and above from the banking system, last date is 15th November.

ii. For others, the last date to apply for relief under the Framework is 30th November. (However, it is advisable to submit the applications by 15th November).

What is the process of availing relief if I am banking with a consortium?

If there are multiple lending institutions in a consortium with exposure to the borrower, the resolution process shall be treated as invoked in respect of any borrower if lending institutions representing 75 per cent by value of the total outstanding credit facilities (fund based as well non-fund based) and not less than 60 per cent of lending institutions by number agree to invoke the same.

What is the timeline for implementation of resolution plan?

The Resolution Plan to be implemented within maximum 180 days from the date of invocation. If the above timeline is breached at any point, the resolution process ceases to apply immediately in respect of the borrower concerned. Any resolution plan implemented in breach of the above stipulated timelines shall be fully governed by the extant Prudential Framework of RBI, as if the resolution process was never invoked under this resolution framework for Covid-19 related stress.

What are the relief/relaxations available under the Framework in case of Term Loans?

The following relief and relaxations are available in case of Term Loans, subject to compliance of bank norms:

i. Moratorium of up to 2 years for repayment of instalments of principal.

ii. Extension in the tenor of the loan by up to a maximum of 2 years.

iii. Interest moratorium upto a maximum of 6 months. The interest accrued during the moratorium period to be capitalized.

What are the relief/relaxations available under the framework in case of working capital loans?

The following relief/relaxations are available in case of working capital loans, subject to compliance of bank norms:

i. Interest moratorium of up to 6 months which is repayable within a maximum period of 2 years.

ii. Need based additional funding may be provided which shall be repayable in not more than 5 years.

Whether moratorium mentioned above will be in addition to the moratorium already granted by the Bank earlier on account of Covid-19 related stress?

Yes, the moratorium sanctioned under this Framework will be in addition to the moratorium granted, if any, by the Bank earlier.

Whether there will be any change in loan instalments?

Yes. On account of moratorium granted, the tenure of your loan can be extended by upto a maximum of 24 months and the instalments payable after the moratorium will be recalculated and advised to you.

If additional loan facilities are sanctioned by the Bank, whether any capital has to be infused by the promoters?

Minimum Promoter’s Contribution (capital infusion) of 10- 15% of the additional loan facilities sanctioned has to be brought in.

Will any Processing Fee need to be paid?

Processing fee/Upfront fee at 0.25 percent of the aggregate limits will be payable.

Will there be any change in pricing of my loans?

Yes, there will be change in pricing to offset cost of additional provisions that the Bank is required to make for extending the benefits under this Resolution Framework. The pricing would be as under:

i. FITL/WCTL/WCDL sanctioned under the Framework: 100 bps above your current pricing on Working Capital Loans. Any concessions provided during the resolution period shall result in right of recompense.

Whether any additional security will have to be furnished in case relief under the framework is sanctioned?

The following additional security will have to be furnished: i. In case of unlisted entities, Personal Guarantee of the promoters will have to be furnished. ii. In case of listed companies, promoters will have to pledge their shares.

Is Independent Credit Evaluation (ICE) of the Resolution Plan (RP) by External Credit Agencies mandatory?

Independent Credit Evaluation(ICE) of the Resolution Plan (RP) by any one RBI accredited Rating Agency under the Prudential Framework will be required in respect of accounts where aggregate exposure exceeds Rs.100 crores from lending institutions. Only such RPs (resolution plans) which get a credit opinion of RP4 or better shall be considered for implementation.

What ratios have been prescribed by RBI constituted Expert Committee for various industries?

The ratios prescribed by RBI that are intended as floors or ceilings, as the case may be.


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