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TO APPROVE THE POLICY ON RESOLUTION FARMEWORK DUE TO COVID 19-2.0: RBI has vide circular No. RBI/2021-22/31 DOR.STR.REC.11/21.04.048/2021-22 and No. RBI/2021-22/32 DOR.STR.REC.12/21.04.048/2021-22 dated May 5, 2021, directed all lending institutions, including NBFC’s should put in place a Board approved policy within 4 weeks from the date of circular to implement Resolution Framework 2.0 to Covid-19 related stress of Individuals, Small Businesses and Micro, Small and Medium Enterprises (MSMEs) Part 1: Resolution Framework – 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses Section A Background This part is per the RBI notification dated: 5th May 2021. On circular No: RBI/2021-22/31 DOR.STR.REC.11/21.04.048/2021-22 named “Resolution Framework – 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses” The directive had two parts to it as mentioned below (1,&2)

  1. Advances to individuals and small business (aggregate loan exposure of not more than Rs.25 crore)
  • Auto loans
  • Loan against immovable Property
  • Loans sanctioned for creation/enhancement of immovable assets (e.g., housing, ,)
  • Small businesses, including those engaged in retail and wholesale trade, other than those classified as micro, small, and medium enterprises as of March 31, 2021.

2. working capital support for small businesses. (aggregate loan exposure of not more than Rs.25 crore) 3. Approach:

  • HFL will re-assess and establish certainty of repayment from the borrower post restructure after appropriate due diligence, with the following factors being of paramount importance:
    1. Affordability
    2. Valuation of the asset
    3. intent

4. Types of Restructuring –  Can be either or combination of the following:

a. EMI deferment with or without interest

b. EMI reduction with tenure increase

c. In Working capital support for small businesses, to review the working capital sanctioned limits and/or drawing power based on a  reassessment of the working capital cycle, reduction of margins, etc. as a one-time measure

Section B: Eligibility conditions:

1. Only those borrowers that were classified as Standard, as of March 31, 2021, will be eligible. Such borrower accounts should continue as “Standard” till the date of invocation of resolution under this framework. “Invocation” shall be deemed as applicable; when both the borrower and HFL have agreed to proceed with a resolution plan.

2. Invocation of the resolution plan cannot be later than September 30, 2021, and must be implemented within 90 days from the date of invocation.

3. Implementation will be deemed to have been completed only if all of the following conditions are met:

a. All related documentation, including the execution of necessary agreements and collaterals provided if any, are completed by                    HFL and borrower

b. The changes in the terms & conditions of the advances get fully reflected in the books of HFL and

c. Borrower is not in default with HFL as per the revised terms.

d. Written request from borrower has to be received by the Company.

Documents for Salaried individual borrowers:

– Latest 3 Months Bank statement is mandatory.

– KYC, if a change in address or if KYC norms have changed from the time of original booking

– Application and acceptance of Terms and Conditions prerequisite to Restructuring

Documents for Non-Salaried individual borrowers and Small businesses:

– Six (Jan 21, Feb 21 & Mar 21 and latest 3 months) months’ Bank statement is mandatory

– KYC, if a change in address or if KYC norms have changed from the time of original booking

– Application and acceptance of Terms and Conditions prerequisite to Restructuring

Part 2: Resolution Framework 2.0 – Resolution of Covid-19 related stress of Micro, Small and Medium Enterprises (MSMEs)” Section A:

Background

This part as per the RBI notification dated: 5th May 2021. On circular No: RBI/2021-22/32 DOR.STR.REC.12/21.04.048/2021-22 named “Resolution Framework 2.0 – Resolution of Covid-19 related stress of Micro, Small and Medium Enterprises (MSMEs)” 1)  Approach:

  • HFL will re-assess and establish certainty of repayment from the borrower post restructure after appropriate due diligence, with the following factors being of paramount importance:
    1. Affordability
    2. Valuation of the asset
    3. intent

2)  Types of Restructuring -Can be either or both of the following:

a. EMI deferment with or without interest b. EMI reduction with tenure increase Section

B: Eligibility Conditions

1. The aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower does not exceed Rs.25 crore as of March 31, 2021.

2. The borrower’s account may be in default but should be ‘Standard Asset’ as on March 31, 2021

3. Invocation of the resolution plan cannot be later than September 30, 2021, and must be implemented within 90 days from the date of invocation.

4. The borrowing entity is GST registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST registration. This shall be determined based on the exemption limit obtained as on March 31, 2021.

5. The borrower should be classified as a micro, small or medium enterprise as on March 31, 2021 in terms of the Gazette Notification S.O. 2119 (E) dated June 26, 2020.

6. Written request from borrower has to be received by the Company

Classification Composite Criteria Micro Small Medium
Manufacturing Enterprises and Enterprises rendering Services Investment in Plant and Machinery or Equipment Not More than Rs.1 Crore Rs.10 Crore Rs.50 crore
Annual Turnover Not More than Rs. 5 crore Rs. 50 crore Rs. 250 crore

6. Asset classification of borrowers as on March 31, 2021, will be retained as such even if the account would have slipped into the NPA category between April 1, 2021, and the date of implementation of the restructuring plan. This benefit however will be available only if the plan is done as per the conditions laid herein.

7. If the borrower is not registered in the Udyam Registration portal, such registration shall be required to be completed before the date of implementation of the restructuring plan for the plan to be treated as implemented

Section C:

Documents: – The borrower to submit CA & self-certified projected financials including funds flow estimates for the entire period of repayment of interest and principal and details of capital infusion if part of the plan. Bank statements for 6months prior to March 31, 2021, & 6 months prior to September 30, 2021, both a mandatory requirement.

– KYC, if a change in address or constitution or if KYC norms have changed from the time of original booking

– Application and acceptance of Restructuring and revised terms & conditions

– Also any document that will help establish the viability

Part 3: General instructions

Section A: Credit Bureau Reporting:

The credit bureau reporting by HFL in respect of borrowers where the resolution plan is implemented under this facility shall reflect the “restructured” status of the account if the resolution plan involves re-negotiation that would be classified as “restructuring” under the Prudential Framework.

Section B: Provisions

Upon implementation of the restructuring plan, HFL needs to keep a provision of 10 percent of the residual debt of the borrower.

Section C:Other

Circulars considered for this policy are,

1)      DBR.No.BP.BC.100/21.04.048/2017-18 named “Relief for MSME Borrowers registered under Goods and Services Tax (GST)” on February 07, 2018,

2)      DBR.No.BP.BC.108/21.04.048/2017-18 named “Encouraging formalisation of MSME sector” on June 6, 2018,

3)      DBR.No.BP.BC.18/21.04.048/2018-19 named “Micro, Small and Medium Enterprises (MSME) sector – Restructuring of Advances” January 1, 2019,

4)      DOR.No.BP.BC.34/21.04.048/2019-20 named “Micro, Small and Medium Enterprises (MSME) sector – Restructuring of Advances” on February 11, 2020,

5)      DOR.No.BP.BC/4/21.04.048/2020-21 named “Micro, Small and Medium Enterprises (MSME) sector – Restructuring of Advances” on August 6, 2020,

6)      DOR.STR.REC.12/21.04.048/2021-22 named “Resolution Framework 2.0 – Resolution of Covid-19 related stress of Micro, Small and Medium Enterprises (MSMEs)” on May 5, 2021

7)      DOR.STR.REC.11/21.04.048/2021-22 named “Resolution Framework – 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses” on May 5, 2021. Implementation of this policy will also consider the directives issued by RBI from time to time.