RBI says farm loans excluded from resolution framework; lists out loan categories eligible for scheme

The Reserve Bank of India today clarified that the farm credit exposures of all lending institutions, including NBFCs, are excluded from the scope of the resolution framework. However, the Reserve Bank added that the loans to allied activities, such as dairy, fishery, animal husbandry, poultry, bee-keeping, and sericulture would be eligible for the resolution scheme. It further said that the loans given to farmer households would be eligible for resolution if they do not meet any other conditions for exclusions listed in the resolution framework. RBI today released FAQs on the resolution framework for Covid-19 related stress. 

In further clarifications, the central bank said that loans that have remained standard without any defaults as of 1 March 2020, will be eligible for restructuring. Also, the actual debt that may be considered for resolution will be outstanding as of the date of invocation. The clarification also said the new definition of micro, small and medium enterprises (MSMEs) effective June 26, will not impact their eligibility for resolution but will be based on the definition that existed as of March 1, 2020.

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The loan restructuring scheme announced by the RBI is aimed at giving some relief to the borrowers after the end of the moratorium. It is also expected to provide some cushion to the rising NPAs in India’s banking industry. The FY21 GNPA numbers would move significantly ahead from the current 8.5 per cent level, but would be lower due to the one-time restructuring scheme, said a report by Care Ratings. 

Meanwhile, all microfinance institutions and self-help group loans meeting the basic eligibility criteria are eligible for resolution unless covered by the specific exclusions but personal loans from these categories will not be recast. The central bank added that for the realty sector, the requirement of the inter-creditor agreement is a basic feature of the prudential framework for resolution.