• These guidelines would be applicable to the following entities, which are viable or potentially viable:
• All non-corporate SMEs irrespective of the level of dues to the Bank.
• All corporate SMEs, which are enjoying banking facilities under sole banking arrangement from the Bank, irrespective of the level of dues to the Bank.
• All corporate SMEs, which have funded and non-funded outstanding up to Rs 10 crore under multiple/ consortium banking arrangement.
• Accounts involving willful default, fraud and malfeasance will not be eligible for restructuring under these guidelines. The identification of accounts involving willful default and fraud should be on the basis of guidelines issued by RBI.
• Accounts classified as "Loss Assets" will not be eligible for restructuring.
• In respect of BIFR cases, completion of all formalities in seeking approval from BIFR should be ensured before implementing the package.

With the debt restructuring, the unit should become viable in 7 years and the repayment period for restructured debt should not exceed 10 years. The viability benchmark levels on the following illustrative parameters may be applied on a case-by-case basis, based on the merits of each case:

• Return on Capital Employed (ROCE) : 10% (Average over the Tenor)
• Debt Service Coverage Ratio (DSCR) : 1.20 (Average)

Any deviation from the above parameters should be recorded in the appraisal note with proper justifications.

• Treatment of 'standard' accounts subjected to restructuring
• A rescheduling of the installments of principal alone, would not cause a standard asset to be classified in the sub-standard category, provided the borrower's outstanding is fully covered by tangible security. However, the condition of tangible security may not be made applicable in cases where the outstanding is up to Rs 5 lacs, since the collateral requirement for loans up to Rs 5 lacs has been dispensed with for SSI/tiny sector.
• A rescheduling of interest element would not cause an asset to be downgraded to sub-standard category subject to the condition that the amount of sacrifice, if any, in the element of interest, measured in present value terms, is either written off or provision is made to the extent of the sacrifice involved.
• In case there is a sacrifice involved in the amount of interest in present value terms, as at (b) above, the amount of sacrifice should either be written off or provision made to the extent of the sacrifice involved.
• Treatment of 'sub-standard' / 'doubtful' accounts subjected to restructuring
• A rescheduling of the installments of principal alone, would render a 'sub-standard' / 'doubtful' asset eligible to continue in the 'sub-standard' / 'doubtful' category for the specified period (as defined in paragraph 6 below), provided the borrower's outstanding is fully covered by tangible security. However, the condition of tangible security may not be made applicable in cases where the outstanding is up to Rs 5 lacs, since the collateral requirement for loans up to Rs 5 lacs has been dispensed with for SSI / tiny sector.
• A rescheduling of interest element would render a sub-standard / 'doubtful' asset eligible to be continued to be classified in sub-standard / 'doubtful' category for the specified period subject to the condition that the amount of sacrifice, if any, in the element of interest, measured in present value terms, is either written off or provision is made to the extent of the sacrifice involved.
• Even in cases where the sacrifice is by way of write off of the past interest dues, the asset should continue to be treated as sub-standard / 'doubtful'.

In certain cases there may be requests for additional finance. Such additional finance should be need-based. The additional finance, if sanctioned, may be treated as 'standard asset' in all accounts viz; standard, sub-standard, and doubtful accounts, up to a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due under the approved restructuring package. If the restructured asset does not qualify for upgradation at the end of the above period, additional finance shall be placed in the same asset classification category as the restructured debt.

The sub-standard / doubtful accounts at para 4 (ii) (a) & (b) above, which have been subjected to restructuring, whether in respect of principal installment or interest, by whatever modality, would be eligible to be upgraded to the standard category after the specified period, i.e., a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due under the rescheduled terms, subject to satisfactory performance during the period.

During the specified one-year period, the asset classification status of rescheduled accounts will not deteriorate if satisfactory performance of the account is demonstrated during the period. In case, however, the satisfactory performance during the one-year period is not evidenced, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre-restructuring payment schedule. The asset classification would be based on record of recovery with our bank, as per the existing prudential norms.

The special dispensation for asset classification as available in terms of paragraphs 3, 4 and 5 above, shall be available only when the account is restructured for the first time.

• The restructuring would follow a receipt of a request to that effect from the borrowing units.
• In case of eligible SMEs which are under consortium/multiple banking arrangements, if we have the maximum outstanding we may work out the restructuring package, along with the bank having the second largest share.
• If other banks have worked out the restructuring package, we may accept the package if it is in accordance with this policy.

The restructuring package should be worked out and implemented within a maximum period of 60 days from date of receipt of requests provided the unit has submitted all information and terms of sanction are complied with.

• We may consider investment in equity in deserving cases, in terms of Corporate Credit Policy.
• The right of recompense/conversion of debt to equity may be considered on a case-to-case basis.
• We may insist on opening of Trust and Retentions Account wherever possible.

• Return on Capital Employed (ROCE)
  ROCE is a good indicator of overall profitability. The profits are measured in terms of total capital employed, irrespective of the source of capital (debt or equity).
  
  This ratio gives a good understanding of the financial viability and also helps to take decisions on further investments in the light of returns earned. The ROCE of a company should be higher than the cost of capital for the company.


Formula
The ratio (in %) is worked out by dividing the profit before interest and tax with average capital employed.
P B I T x 100 / Average capital employed
• Capital employed = Tangible net worth + Long term total borrowings
• Average capital employed = Average of capital employed last year and current year
• For banks, NBFCs and other financial institutions, PBT instead of PBIT may be used.
• DSCR (Debt Service Coverage Ratio)
  This ratio measures the capacity of the company to service its debt i.e. repayment of principal and interest. DSCR measures the number of times a company's earnings cover its total long-term debt-servicing requirement, including interest and principal repayments in term loans, over a period of one year.
  
  This ratio will help to evaluate whether adequate cash flow will be available to meet debt obligation and also for providing margin of safety to lenders. This ratio also helps to determine the time when repayment should commence and the payback period of the loan. This ratio is a good indicator of the long-term solvency of a company.
  
  Formula
  The profit before depreciation and interest (PBDI) is divided by instalments due during the year plus interest.
  P B D I / Instalments for the year + interest
  
  Do not calculate this ratio for banks, NBFCs and other financial institutions
• How to Calculate Interest Sacrifice?
  
  The methodology for calculation of interest sacrifice as per the RBI clarification vide their letter no. DBS.FID No. C-10/01.02.00/2001-02 dated 1.1.2002 is as under:
  The calculation for the interest sacrifice should be done in case of
• Deferment of repayment schedule after restructuring
• Change in interest rate after restructuring

The amount of interest provision should be calculated as follows:
• The interest to be payable as per the original repayment schedule and as per the original interest rate should be calculated.
• The interest to be payable as per the revised repayment schedule and as per the revised interest rate, if applicable, should be calculated. In case the interest rate has not changed but there is deferment of repayment, the interest payable is to be calculated as per the original interest rate.
• The Net Present Value (NPV) of the total interest payable as per (a) and (b) above should be calculated.
• d) The discounting factor to be used for calculation of NPV as above in (c) will be the indicative pricing given in the latest Corporate Credit Policy considering the balance tenure of the loan and rating of the account post restructuring.
  For e.g. If a loan having a rating of UB-A is restructured and the balance tenure (repayment schedule) of the loan is 60 months then the discounting rate would be BPLR-1.25 i.e. 10.75%.

Interest sacrifice involved = NPV of total interest payable as per (a) above - NPV of total interest payable as per (b) above.