Mumbai, Jan 23 (KNN) The Reserve Bank of India (RBI) has announced new guidelines giving more flexibility to the non-banking finance companies (NBFCs) to deal with restructuring of loans extended to the small and medium enterprises.

"Special asset classification benefit will be made available to CDR and consortium cases including SME debt restructuring mechanism, apart from infrastructure and non-infrastructure project loans subject to certain conditions," RBI said in a notification.

The benefit will however be withdrawn with effect from April 1, 2015 with the exception of provisions related to changes in DCCO in respect of infrastructure as well as non-infrastructure project loans, it added.

RBI said instructions on restructuring of advances by NBFCs have been reviewed on the lines of the recommendations of the Mahapatra committee report on prudential guidelines for banks and financial institutions.

Meanwhile, similar kind of flexibility has been given to the other segments as well. RBI yesterday issued norms for loans restructured by NBFCs, bringing them in line with guidelines applicable to commercial banks.

The norms give more flexibility to NBFCs to deal with their stressed loans but make it mandatory for them to set aside a substantial amount of provisions to cover restructured loans.

Until now, there were no specific guidelines laying down the rules of restructuring for NBFCs.

Under the new norms, NBFCs, like banks, will have to set aside a 5 per cent provision against restructured loans. For existing stock, the provisions will go up to 5 per cent in a phased manner by March 2017.

“NBFCs being part of the financial institutions that lend to various sectors, also undertake restructuring of advances, either as part of a consortium or otherwise. It has therefore been decided to harmonize the guidelines on restructuring of advances with that of banks. All NBFCs other than primary dealers shall hereafter follow the directions,” the notification said.

For NBFCS, RBI said, mere extension of Date of Commencement of Commercial Operations (DCCO) up to a specified period, will not tantamount to restructuring for infra, non-infra and CRE (Commercial Real Estate) projects.

In its second quarter monetary policy review on 29 October, the central bank indicated it would issue norms on restructuring for NBFCs based on the recommendations of an RBI panel chaired by executive director B Mahapatra.

The central bank has been increasingly trying to strengthen regulations for NBFCs, due to the significant exposure banks have to these companies and the rising systemic importance of such institutions.

Most of the NBFCs are not allowed to accept public deposits and they approach the commercial banks for funds. (KNN/SD)