What changed
Previously, special regulatory asset classification benefits for restructured accounts required full security. Now, for standard MFI accounts restructured by March 31, 2011, this security condition is waived. The relaxation is temporary and aimed at addressing environmental factors affecting MFIs, not credit weakness.
What it means for you
Banks can now restructure MFI loans without demanding full collateral, preserving asset quality and avoiding downgrades. This provides immediate liquidity support to MFIs, enabling a 'holding on' operation until the Malegam Committee's recommendations. Banks must recycle collections to MFIs to sustain this arrangement.
What you must do
- Identify standard MFI accounts eligible for restructuring under this temporary relaxation.
- Prefer a consortium approach for restructuring, coordinating with other banks financing the same MFI.
- Ensure restructuring is completed by March 31, 2011, to avail special asset classification benefits.
- Recycle collections from MFIs back to them to support the 'holding on' operation.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Micro Finance Institutions (MFIs), Borrowers of MFIs, especially in Andhra Pradesh
What is the key relaxation in this circular?
Standard MFI accounts restructured by March 31, 2011, can get special asset classification benefits even if the loans are not fully secured, unlike the usual requirement.
Why was this temporary measure introduced?
Due to severe collection deterioration in Andhra Pradesh and contagion risks, RBI aimed to provide liquidity support to MFIs until the Malegam Committee submits its report.
Do banks need to follow any specific approach for restructuring?
Yes, a consortium approach is preferred, where all banks financing an MFI unit should jointly decide on the restructuring plan.