RBI issued revised Framework for Revival and Rehabilitation of MSMEs

The Reserve Bank of India on 17 March 2016 issued revised Framework for Revival and Rehabilitation of Medium, Small and Micro Enterprises (MSMEs). This revised Framework will supersede RBI’s earlier Guidelines on Rehabilitation of Sick Micro and Small Enterprises issued on 1 November 2012.

The Framework has to be put in place by the banks not later than 30 June 2016.

Key Guidelines

• It shall be applicable to MSMEs having loan limits up to 25 crore rupees including accounts under consortium or multiple banking arrangement (MBA).

• It classifies three categories in Special Mention Account (SMA) to identify incipient stress in the accounts of MSMEs in case of Non-Performing Assets (NPAs):

a) SMA-0: Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress

b) SMA-1: Principal or interest payment overdue between 31-60 days

c) SMA-2: Principal or interest payment overdue between 61-90 days

• On the basis of the above early warning signals, the branch maintaining the account should consider forwarding the stressed accounts with aggregate loan limits above 10 lakh rupees to the Committee for Stressed MSMEs within five working days for a suitable corrective action plan (CAP).

• As regards accounts with aggregate loan limits up to 10 lakh rupees identified as SMA-2, the account should be mandatorily examined for CAP by the branch itself under the authority of the branch manager /designated official as decided by the bank.

• In order to enable faster resolution of stress in an MSME account, every bank shall form Committees for Stressed MSMEs

• The chairperson of the Committee shall be the regional or zonal head of the convener bank

• Officer-in-charge of the MSME credit department of the convener bank at the regional or zonal level shall be member and convener of the Committee.

• One independent external expert with expertise in Micro, Small and Medium Enterprises related matters to be nominated by bank.

• One representative from the concerned State Government shall be endeavoured to be nominated to the Committee.

• The option under CAP may include Rectification, Restructuring and Recovery among others.

• If the Committee decides on options of either ‘Rectification’ or ‘Restructuring’, but the account fails to perform as per the agreed terms under these options, the Committee shall initiate recovery

• Restructuring cases shall be taken up by the Committee only in respect of assets reported as Standard, Special Mention Account or Sub-Standard by one or more lenders of the Committee. Wilful defaulters shall not be eligible for restructuring.

Although, the Ministry of MSME on 29 May 2015 had notified a ‘Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises but the present Framework seeks make it compatible with the existing regulatory guidelines on ‘Income Recognition, Asset Classification and provisioning pertaining to Advances’ issued to banks by RBI.

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