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India allows banks to restructure 'stressed' small business loans

India's central bank allowed banks to restructure stressed loans to micro, small and medium enterprises, or MSMEs, subject to certain conditions.

The Reserve Bank of India said it would allow a one-time restructuring of existing stressed loans to MSMEs that are classified as standard as of Jan. 1, provided that banks' and nonbanking financial companies' aggregate exposure to a borrower does not exceed 250 million rupees. The policy applies to accounts that are in default but are classified as standard assets as of Jan. 1.

The policy requires banks to restructure such loans on or before March 31, 2020. The restructuring will not result in a downgrade in the asset classification, the central bank said. Further, banks will need to make an additional provision equal to 5% of the restructured loans.

The announcement came after the central bank said it will consider a scheme for the restructuring of stressed standard assets of MSME borrowers.

As of Jan. 1, US$1 was equivalent to 69.46 Indian rupees.