Definition
Restructured Assets
Restructured assets are loans whose terms, such as tenure, interest rate or repayment schedule, have been modified because the borrower is in financial difficulty.
Restructuring gives a stressed borrower easier terms in the hope of avoiding default. Under current RBI norms, most restructuring of a financially distressed borrower must be classified as restructured and attracts additional provisions, since it signals underlying weakness.
India saw large restructuring waves during the COVID-19 resolution frameworks, when the RBI allowed special one-time restructuring of eligible loans. Heavily restructured books are watched closely because restructured accounts often slip back into NPA status.
Related terms
- Non-Performing Asset (NPA)A Non-Performing Asset is a loan or advance on which the borrower has not paid interest or principal for 90 days or more, as defined by RBI norms.
- Slippage RatioThe slippage ratio measures fresh non-performing assets added during a period as a percentage of standard advances at the start of that period.
- Special Mention Account (SMA)A Special Mention Account is a loan showing early signs of stress, classified by the RBI into SMA-0, SMA-1 and SMA-2 based on how many days payment is overdue, before it becomes an NPA.
- One-Time Settlement (OTS)A One-Time Settlement is a negotiated agreement where a bank accepts a lump-sum payment less than the full dues to close a defaulted loan account.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.