1. Core Difference

Refinancing replaces existing debt with new loan at better terms, available to healthy businesses. Restructuring modifies terms of existing debt through negotiation with current lenders, usually when business in distress.

2. Evolution of RBI Frameworks

Old Frameworks (now withdrawn on June 7, 2019):

• CDR - Corporate Debt Restructuring - JLF based
• SDR - Strategic Debt Restructuring Scheme - RBI circular provided framework whereby lender banks granted enhanced capabilities to initiate change in ownership by converting loan dues into equity. Option to be taken within 30 days after review, approved by 75% by value and 60% by number, max 180 days to convert. At time of divestment to new promoter, banks may refinance existing debt considering changed risk profile without treating as restructuring subject to provisioning for diminution in fair value.
• S4A - Sustainable Structuring of Stressed Assets: At least 50% of debt should be serviced in same period as existing loan.
• JLF - Joint Lenders Forum

Current Framework: Prudential Framework for Resolution of Stressed Assets - June 7, 2019 (Revised 2020, 2023):

RBI withdraws CDR, SDR, S4A, JLF and substituted existing guidelines with harmonised and simplified generic framework. All lenders must have Board-approved policies for resolution.

Key Points:

1. Early identification: SMA 0,1,2
2. Resolution must be implemented within 180 days from review period
3. Requires 100% lenders agreement for restructuring (earlier 75%)
4. Additional provisioning 20% if not implemented
5. Lenders must file with CRILC
6. For infrastructure: Banks can flexibly structure existing project loans to infrastructure and core industries with option to periodically refinance them. Refinancing may repeat till end of fresh loan amortisation schedule - same lender or new lenders or bond issuance. Such flexible structuring not treated as restructuring if project is viable, aligned with cash flows.

Special COVID Frameworks:
One-time restructuring for standard accounts as of March 1, 2020 - personal and MSME - moratorium + tenor extension without downgrade.

3. Refinancing Frameworks

A. Normal Refinancing: Any bank can refinance standard loan if borrower not in distress, interest rate risk transferred. Not considered restructuring.

B. 5/25 Flexible Structuring: For infrastructure loans - 25 years amortisation with refinance every 5 years.

C. Take-out Finance: Infrastructure loan taken over by new lender after COD.

RBI clarified: At time of divestment of holdings to new promoter under SDR, banks may refinance existing debt considering changed risk profile without treating exercise as restructuring while adhering to provisioning as prescribed under SDR framework.

4. Case Laws - Supreme Court & NCLT

Case 1: B. Prashanth Hegde vs State Bank of India - Supreme Court March 10, 2026 - Latest & Most Important

Summary: Recent decision recognises that application under Section 7 IBC that substantially complies cannot be rejected merely due to insignificant errors. Further, debt restructuring can amount to acknowledgement of debt by Corporate Debtor, extending limitation period for filing.

Impact:

• If Corporate Debtor signs restructuring proposal / OTS / Master Restructuring Agreement - it is acknowledgement u/s 18 Limitation Act - 3-year limitation extends from that date.
• Banks use this to file IBC beyond 3 years.

Case 2: Supreme Court - Mere Pendency Of Restructuring Cannot Stall CIRP - Feb 24, 2025

SC observed merely because arrangement of restructuring debt-laden corporate debtor is in place would not bar initiation of CIRP under IBC. Bench Justices Sanjay Kumar and K Vinod Chandran set aside NCLAT decision which rejected Sec 7 application on premise restructuring was in place.

Ratio: Restructuring is commercial negotiation, IBC is statutory right. Debtor cannot take shelter of ongoing talks to avoid CIRP.

Case 3: Power Trust vs REC Ltd - Supreme Court on Precondition Failure

Precedent to restructuring arrangement's operability, arrangement never attained legal force. Original loan agreements reflecting default remained governing instruments. Accordingly Sec 10A IBC had no application.

Ratio: If restructuring has conditions precedent (upfront payment, promoters infusion) and those not met, restructuring never legally effective - original default date relevant for IBC moratorium.

Case 4: India Resurgence ARC vs Amit Metaliks Ltd - Supreme Court June 14, 2021

Dissenting secured creditor cannot challenge resolution plan approved under IBC insisting higher amount should have been paid based on its security interest.

Ratio: Once restructuring via resolution plan approved by CoC, dissenting creditor bound - cannot insist on own security valuation.

Case 5: Swiss Ribbons vs Union of India - Supreme Court 2019 - Validity of IBC

Court upheld IBC, stated classification between financial and operational creditors based on intelligible differentia - Financial creditors involved in assessing viability and restructuring debt, while operational creditors have limited insight. Thus financial creditors given power to decide restructuring.

Case 6: RBI vs Power Sector NPAs - Mandatory Reference to NCLT

Before RBI Circular, banks had option to resolve via term loan agreements or IBC. After circular, mandatory for every unresolved stressed account to be referred to NCLT. If insolvency cannot be resolved by restructuring or change in ownership, only option liquidation.

5. Practical Process for Company Seeking Restructuring

Step 1: Declare stress early - SMA 0 (1-30 days). Approach lead bank with viability report + techno-economic viability (TEV).

Step 2: Inter-creditor Agreement (ICA) - 100% lenders sign within 30 days

Step 3: Resolution Plan Options:

• Rescheduling - Extend tenor 5 to 10 years
• Moratorium - 12-24 months
• Haircut - Principal / interest sacrifice (requires high provisioning)
• Conversion - Debt to equity / optionally convertible debentures (SDR legacy)
• Additional funding - WCTL

Step 4: Implementation within 180 days - board approval, execution of Master Restructuring Agreement (MRA) - acknowledgement of debt clause included to extend limitation.

Step 5: Upgrade Norm - Account can upgrade to standard only after 1 year of satisfactory performance under restructured terms + 10% of outstanding repaid.

6. When to Choose Refinancing vs Restructuring

Refinancing: Interest rates dropped, you have good CIBIL, project completed, cash flows stable - Go for take-out, 5/25, or new bank at lower rate. No regulatory stigma.

Restructuring: Cash flow mismatch, COVID impact, project delayed but viable long term - Use RBI Prudential Framework. Be ready for provisioning, credit report flag, and need for viability proof.