The Reserve Bank of India (RBI) said it will allow banks to restructure loans to small and medium sized-companies that are in default but standard as of the beginning of the year. The dispensation is “one time”, the RBI said in a circular on Tuesday.
The decision was taken at the central bank’s board meeting in November to support small and medium sized companies who have been struggling to repay their loans.
Many of the firms were hit by the economic impact of Prime Minister Narendra Modi’s banning of then existing higher denomination bank notes in late 2016 and the introduction of a new goods and services tax in the middle of 2017.
The relief followed the government’s persistent pressure on the central bank to relax its loan policies as Modi aims to boost small businesses ahead of a general election, which has to be held by May this year.
The RBI also asked banks to make a provision for an additional 5 percent of the loans they restructure under the new policy and directed the lenders to implement the scheme by the end of March 2020.
The policy applies to loans not exceeding 250 million rupees as of January 1, 2019, the RBI said.