By S&S Co. Advocates & Solicitors · Published 25 June 2026 · Informational content, not legal advice: see our disclaimer
What Restructuring Means Under RBI's Framework
Loan restructuring, in the regulatory sense, refers to a modification of the terms of an existing credit facility, such as an extension of tenor, reduction of interest rate, conversion of a portion of debt into equity, or a moratorium on repayment: that is made because the borrower is facing genuine financial difficulty, and that the lender would not otherwise have agreed to under normal commercial terms. RBI's Prudential Framework for Resolution of Stressed Assets sets out the conditions under which such restructuring can be undertaken without automatically forcing the harshest asset classification consequences on the lender.
Early Identification and the Review Period
Under the framework, lenders are required to identify signs of stress and classify accounts into Special Mention Account (SMA) categories at an early stage, based on the number of days payments are overdue. Where an account shows signs of stress, lenders can enter into an Inter-Creditor Agreement with other lenders to the same borrower and agree on a resolution plan within a prescribed review period, failing which the account may need to be referred for insolvency resolution or face other prescribed consequences.
Restructuring vs One-Time Settlement
Restructuring modifies the terms of the existing facility so that it continues, typically with the expectation that the borrower will resume normal servicing on the revised terms; a one-time settlement (OTS), by contrast, closes out the account entirely against a negotiated lump sum that is usually less than the full outstanding, with any shortfall written off. Both are recognised resolution tools, but they carry different consequences for the borrower's credit history and for the lender's provisioning and asset classification treatment, and lenders will typically consider a borrower's genuine repayment capacity going forward in choosing between the two.
Practical Points for Borrowers Seeking Restructuring
A borrower seeking restructuring should approach the lender with a credible, realistic revised repayment plan supported by current financials, since restructuring approval is entirely at the lender's commercial discretion under the RBI framework. There is no statutory entitlement to restructuring. Genuine, early engagement before an account slips further into default meaningfully improves the prospects of the lender agreeing to workable revised terms rather than proceeding directly to recovery action.
Frequently Asked Questions
Does a borrower have a legal right to demand restructuring of a loan?
No. Restructuring under RBI's Prudential Framework is a commercial decision made by the lender (or lenders, where multiple lenders are involved) based on the borrower's circumstances and the resolution plan's viability; there is no statutory entitlement to restructuring.
What is a Special Mention Account (SMA)?
SMA categories are early-warning classifications, based on the number of days a payment is overdue, that RBI requires lenders to apply to identify signs of stress before an account actually becomes a non-performing asset.
Is restructuring the same as a one-time settlement?
No: restructuring modifies the terms of an existing, continuing facility, while a one-time settlement closes the account against a negotiated lump-sum payment, typically less than the full amount owed, with the shortfall written off.
References & Further Reading
This article references the following statutory provisions and regulatory materials. Readers should always verify current rules, circulars and timelines against the applicable statute, regulation or RBI direction as amended, since these are revised from time to time.
- Reserve Bank of India, Prudential Framework for Resolution of Stressed Assets, June 7, 2019 (as updated).