Found a classification change during the branch audit? Route it through the Memorandum of Changes (MOC) format.
Under RBI’s Prudential Framework for Resolution of Stressed Assets (June 7, 2019), "restructuring" means a change in the terms of an advance — rescheduling, interest concession, tenor extension, conversion or moratorium — granted on account of the borrower’s financial difficulty. The financial-difficulty test is the gate: a commercial renegotiation with a performing borrower is not restructuring, but if the borrower is in default, in SMA, or would breach terms without the concession, the change is restructuring whatever the sanction note calls it. Once that gate is crossed, the classification consequence is mechanical: a standard account (including SMA — SMA is still "standard") is immediately downgraded to Sub-Standard (NPA) on implementation of the resolution plan, and an account that is already NPA stays NPA, continuing to age from its pre-restructuring NPA date.
The exceptions that once softened this rule have closed. The one-time MSME restructuring scheme (January 1, 2019 circular, extended in February and August 2020) and the COVID-19 Resolution Frameworks 1.0 (August 6, 2020 — including personal loans) and 2.0 (May 5, 2021) all had time-bound invocation windows, the last of which ended on September 30, 2021. A fresh restructuring today — MSME or not, personal or business — follows the general framework and is downgraded; the main surviving carve-out is relief for borrowers affected by natural calamities under RBI’s relief-measures directions. Accounts restructured inside those old windows remain governed by the terms of those circulars, so the invocation and implementation dates are the first thing to verify when a branch claims scheme cover.
The way back up is deliberately slow. A restructured account may be upgraded to standard only when every outstanding facility of the borrower shows "satisfactory performance" — no payment overdue beyond 30 days, and CC/OD accounts not out of order — throughout the monitoring period, which runs from implementation until at least 10% of the residual principal debt (plus interest capitalised under the plan) is repaid. Borrowers with aggregate exposure of ₹100 crore or more additionally need an investment-grade (BBB− or better) rating from a credit rating agency — two CRAs at ₹500 crore or more. Even after upgrade, the account is on probation until 20% of the residual debt is repaid (the "specified period"): a default with any lender in that window triggers an additional 15% provision and a fresh resolution cycle. Alongside all of this sit the provisioning consequences — Sub-Standard provisioning (15%, or 25% unsecured) on downgrade, no release of provisions below the pre-restructuring level, income recognition on realisation only, and additional provisions of 20% / 35% where a resolution plan is not implemented within 180 / 365 days of the review period ending.
A branch restructures the cash-credit and term-loan facilities of an Udyam-registered MSME (aggregate exposure ₹6 crore) — tenor extension plus funding of accrued interest — because the unit’s cash flows cannot service the existing terms. The account is in SMA-2 on the date of restructuring. The branch holds the account as standard, citing "MSME restructuring guidelines".
