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Garima Khetan

RBI Circular On Regulatory Framework On COVID-19 Stress

The Reserve Bank of India (“RBI”) on 07th September 2020 issued a circular directed to all Banks and NBFCs wherein the RBI has issued some key ratios which all the lending institutions shall consider while finalizing the resolution plans in respect of eligible borrowers.

The Key Ratios defined are:

  • Total Outside Liabilities/Adjusted Tangible Net Worth
  • Total Debt/EBITDA
  • Current Ratio
  • Debt Service Coverage Ratio
  • Average Debt Service Coverage Ratio

Sector-specific ratio thresholds (ceilings or floors, as applicable) have also been outlined by RBI for about 26 sectors.

Sectors for which thresholds have not been specified, lending institutions are advised to make their own assessments regarding “Total Outside Liabilities/Adjusted Tangible Net Worth” and “Total Debt/EBITDA”. However, the Current Ratio” and “Debt Service Coverage Ratio” shall, in all cases, be 1.0 and above, and “Average Debt Service Coverage Ratio” shall be 1.2 and above. In spite of providing the specific ratios, lending institutions are advised that the resolution plans shall take into account the pre-COVID-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance at the time of finalizing the resolution plan, to assess the cash flows in subsequent years, while stipulating appropriate ratios in each case.

Lending institutions have also been allowed to consider other financial parameters along with these key ratios and sector-specific thresholds.

Lending institutions are expected to ensure compliance with TOL/ATNW agreed as per the resolution plan at the time of implementation itself.

To read the full detail, please find the link to the RBI Circular.

Clarification On Extension In Holding AGM

MCA has via its circular dated 17 August 2020 issued a clarification on the extension of the Annual General Meeting for the year ended 31 March 2020. This circular is an extended clarification to the General Circular dated 05 May 2020 regarding holding of Annual General Meeting through video conferencing or other audio-visual means for the calendar year 2020.

The Ministry has hereby re-iterated that companies that are unable to hold their AGM even through video conferencing or any other audiovisual means can file applications for extension of time for holding the AGM, in e-form GNL-1, for the financial year ended 2020. The applications are to be submitted with the concerned Registrar of Companies on or before 29 September 2020.

The Ministry has also advised the Registrar to consider the applications liberally and grant an extension for the period applied by the company, up to a maximum of 3 (three) months.

Link to Circular

Investment And Turnover Calculation Criteria For MSMEs Notified

Ministry of Micro, Small, and Medium Enterprises on 26th June 2020 has officially notified the criteria for calculation of Investment and Turnover for MSMEs. The notification outlines the new classification of MSME that was introduced on 1st June 2020, which is as per the table below along with a detailed plan of registration and other requirements.

MSME investment

Msme Investment

Registration as an MSME:

  1. New registrations:
    1. The notification clarifies that in order to establish an MSME, Udyam Registration has to be filed online on the Udyam Registration Portal, based on self-declaration with no documentary requirements. No fee shall be applicable for registration.
    2. Aadhar number shall be required for registration:
      1. of the proprietor in case of Proprietorship
      2. of the managing partner in case of Partnership Firm
      3. of the karta in case of an HUF
    3.  For any other registered organisation like Company, LLP, Co-operative Society or Trust – GSTIN and PAN shall also be required along with the Aadhar Number
    4. Upon registration, the enterprise will be allotted an ‘Udyam Registration Number’.
    5. An e-certificate – ‘Udyam Registration Certificate’ shall be allotted to the enterprise on completion of the registration process.
    6. No enterprise shall file more than 1 (one) Udyam Registration, whether having one or more than one business activity i.e. complete disclosure of all the business activities to be specified in a single Udyam Registration.
  2.  Registration of existing enterprises:
    1. All existing enterprises registered under EM–Part-II or UAM shall register again on the Udyam Registration portal on or after the 1st July 2020.
    2. All enterprises registered till 30th June 2020, shall be re-classified in accordance with this notification.
    3.  The existing enterprises registered prior to 30th June 2020, shall continue to be valid only for a period up to the 31st March 2021.
    4. An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.


Composite criteria of investment and turnover for classification:

  1. The notification has clarified that a composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium i.e. if an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category. No enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
  2. All units with GSTIN listed against the same PAN shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.


  1. The calculation of investment in plant and machinery or equipment will be linked to the ITR of the previous years filed under the Income Tax Act, 1961.
  2. In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
  3. The expression “plant and machinery or equipment” of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
  4. The purchase (invoice) value of a plant and machinery or equipment, whether purchased first-hand or second-hand, shall be taken into account excluding GST, on self-disclosure basis, if the enterprise is a new one without any ITR.
  5. The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.

Calculation of TURNOVER:

  1. Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise.
  2. Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act and the GSTIN.
  3. Turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March 2021 and thereafter, PAN and GSTIN shall be mandatory.

Points to Note:

  1. Enterprises having Udyam Registration Number shall have to update its information online on Udyam Registration portal along with its ITR and GST Returns and other required details.
  2. Failure to update such information poses a threat of suspension of the enterprise status.
  3. Based on the submission of documents, the enterprise classification shall be updated.
  4. Any graduation or reverse graduation shall be communicated to the enterprise.
  5. Facilitation and Grievance Redressal measures have been outlined in the notification, refer link.

Link to the Circular

New Scheme Introduced For Helping Distressed MSMEs

Ministry of Micro, Small and Medium Enterprises (“MoSME”) on 24th June 2020 has launched another funding scheme to help the distressed MSME sector. The Scheme is named as ‘Distressed Assets Fund – Subordinate Debt for Stressed MSMEs’. The Scheme will be operationalized through a Trust called Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Purpose: The purpose of the Scheme is to provide guarantee coverage to provide sub-debt support in respect of the restructuring of MSMEs. It shall provide personal loans through banks to the promoters of stressed MSMEs for infusion as equity/quasi-equity in the business eligible for restructuring.

Duration: The Scheme would be applicable for a maximum period of 10 years from the guarantee avail ment date or 31 March 2021, whichever is earlier; or till an amount of Rs. 20,000 crores of guarantee is approved.

Key Highlights of the Scheme:

  • The Scheme seeks to extend support to the promoter(s) of the operational MSMEs which are stressed and have become NPA as on 30th April 2020.
  • Promoter(s) of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower.
  • Any guarantee approved under this Scheme shall be over and above the existing loan or guarantee sanctioned.
  • Promoter(s) in turn will infuse this amount in the MSME unit as equity and thereby enhance the liquidity and maintain the debt-equity ratio.
  • Lending institutions to undertake due diligence to assess the viability, need, and requirement of the sub-debt facility and shall also ensure that the sub-debt/credit given to the promoters are infused into the MSME unit.
  • The sub-debt shall have a repayment schedule as defined by the lender, subject to a maximum of 10 years from the guarantee availment date or 31 March 2021, whichever is earlier.
  • There will be a moratorium of 7 years on payment of principal whereas maximum tenor for repayment will be 10 years; where the principal has to be repaid within a maximum of 3 years after completion of the moratorium and the interest shall be serviced monthly.
  • The sub-debt will have a second charge on the assets.
  • A non-refundable guarantee fee of 1.50% per annum on the outstanding guarantee amount shall be borne by the borrowers.
  • 90% guarantee coverage for this sub-debt will be given under the Scheme and 10% would come from the concerned promoters.

Points to Note:

  1. Exceptions – Fraud and Wilful Defaulter accounts will not be considered under this Scheme.
  2. MSME can be a Proprietorship, Partnership, Private or any other Registered company, etc.
  3. Responsibilities of the lending institutions, returns, and inspections have all been covered by the Ministry, refer link for details.

 Link to the Circular

RBI Circular On Digital Lending


The Reserve Bank of India (“RBI”) on 25th June 2020 issued a circular directed to all Banks and NBFCs regarding Digital Lending Platforms, wherein RBI has emphasized adherence to Fair Practices Code and Outsourcing Guidelines.

The circular points out the existence of “digital-only” lending institutions registered with the RBI along with the ones having a “brick and mortar” presence. The borrowers securing loans from such “digital-only” platforms have been dealing with grievance redressal issues due to undisclosed names of such Banks/NBFCs on the lending platforms, non-transparent methods of interest calculation, exorbitant interest rates, harsh recovery methods, unauthorized use of personal data, etc., by such platforms.

In order to curb such uninvited practices by the lending institutions, RBI has issued the circular re-emphasizing the importance of adherence to Fair Practices Code and Outsourcing Guidelines issued to Banks and NBFCs, whether they lend directly through their own digital lending platform or through an outsourced lending platform, as applicable. The Banks and NBFCs have also been advised to meticulously follow regulatory instructions on the outsourcing of financial services and IT services.

Attention has also been drawn to the fact that outsourcing of any activity does not relieve the Banks/NBFCs of their compliance obligations i.e. the onus of compliance with regulatory instructions still rests in them.


Through the circular, the Banks and NBFCs have also been advised to follow a set of specific instructions while engaging digital lending platforms as their agents to source borrowers and/or to recover dues, which are as follow:

  1. Names of digital lending platforms engaged as agents shall be disclosed on the website of Banks/NBFCs.
  2. Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the Bank/NBFC on whose behalf they are interacting with him.
  3. Immediately after sanction but before the execution of the loan agreement, the sanction letter shall be issued to the borrower on the letterhead of the Bank/NBFC concerned.
  4. A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/disbursement of loans.
  5. Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the Banks/NBFCs.
  6. Adequate efforts shall be made towards the creation of awareness about the grievance redressal mechanism.

It has also been specified that any violations to the above, by the Banks and NBFCs, shall be viewed seriously by the RBI.

Points to Note

  1. Applicability – The circular shall be applicable to all the Scheduled Commercial Banks and all the Non-Banking Finance Companies (including Housing Finance Companies).
  2. ExceptionsThe circular shall not be applicable to Regional Rural Banks.

 Link to the Circular 

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