Debt Restructuring – Capitalise relaxed regulations

Debt restructuring is important to overcome the distress especially during the pandemic. However one should exercise caution while seeking initial moratorium and revising repayment schedule

Recently we came across a case wherein the borrower sought debt restructuring under RBI guidelines on the resolution of stressed debt due to the COVID 19 pandemic. The loan was recast at the appropriate time and the bank was very responsive to that. However, upon perusal of the detailed term and conditions, it was awful to note that the moratorium taken was at just three months though the RBI guidelines have given flexibility for two years. The unit remains stressed because the business revival did not happen rather deteriorated  due to the second wave of Covid 19

RBI regulations on Restructuring  of the debt:

RBI is magnanimous in framing the regulations to accommodate the needs of the enterprises to seek course correction to the revival of the business. Businesses are vulnerable to internal failures and external shocks. It is very pronounced in the MSME segment as the margin of error is obviously thin the segment.

In recent time the Covid 19 pandemic and immediate policy responses to contain the spread brought in a sudden surge of disruptions and none of the businesses- big or small -escaped the stress barring a few select sectors such as healthcare.

It is heartening to note that RBI responded well by creating a window of opportunity and setting simplified parameters to restructure the loans. This will enable the enterprises to relook at the business and also seek debt restructuring to weather the storm.

Quick resolution is necessary to protect the value of the enterprise:

No business can wish away the stressed situations in the life cycle. It is endemic. The sources of stress may vary at different points in time. The persisting stressed situation may affect the organisation built assiduously over the years. Enterprise value which is the reflection of not only tangible assets but also network and reputation, intellectual assets etc may see deterioration unless we take timely corrective measures to reduce the stress.

To revive the business from the stressed situation,  resolution plan for borrowing from the institutional source is paramount. It is because, if they launch the recovery proceedings against the enterprise, this will lead to rapid deterioration of public profile as well as confidence of stakeholders.

Bank debt restructuring alone is enough?

No. It is a primary requirement but not alone. Many enterprises normally take a sigh of relief once the bank loan is restructured. Stressed business requires many more steps to return to normalcy. For whatever reason/s it may have been under stress, its return to normalcy is multifunctional exercise. To name a few:

  • Appropriate organisational  wide behaviour change towards improving the efficiency
  • Review of the road travelled to identify the gaps in the internal processes
  • Risk analysis and mitigation practice to minimise the negative surprises in the future
  • Undertaking strategic review to revisit the purpose,  products, and   markets
  • Review the manpower, skill-base and augment the gaps
  • Leverage the opportunities extended by the tax authorities and other regulators

Why initial moratorium and proper redrawing of repayment of bank loan matters?

Because any Stressed business needs time to heal and lookup.

It is an obvious question for all of us how long we need to seek a moratorium to start repayment and how the repayment structure should be.  It is prudent to seek maximum leverage from all the stakeholder including the bank.

Way forward to turnaround…….

We need to draw a turnaround strategy. The qualitative aspects and quantitative aspects required to be analysed while drawing it.

Qualitative aspects cover the economy, state of affairs in the industrial segment and review of our internal workings that lead to crisis. This should lead us to take a pragmatic view of our situation and prepare ourselves for mapping our turnaround strategy.

The strategy must be reflected in the quantitative model. All our future action plans must be translated into financial plan we prepare for revival. The debt repayment structure should be well aligned to cash flow from the revival process.  

The plan must be prepared for ourselves and this should act as the guide map for reviving our business. Many a time the entrepreneurs submit the plan to the bank/s without involving themselves in preparing it. That is not correct. The ownership and burden to implement the revival plan vest with the entrepreneur himself. 

Covid 19 is an uncertain event and  we are unsure how it will play out in to the future. In the globalised trade environment, it is not enough if one country comes out of the grip of Covid 19. Thus it is adding to uncertainty to many industrial sectors as many of them depend either on the supply of inputs or marketing of products and services with the rest of the world. Also domestically the Covid 19 still prevailing and not sure of the gravity of its impact our business.


During the crisis time, restructuring of the bank loan is an important stepping stone to stabilise the businesses facing rough weather. It is important that the business revival is backed by a proper plan to convince all the stakeholders including the bank. Also, ensure that the firm gets maximum leverage in terms of rescheduling of debt moratorium and new repayment structure synchronising with the cash flow forecasting.