RBI: New guidelines issued for rehabilitation of sick MSEs

Thursday, 01 November 2012 17:14 administrator

A unit will be considered sick if any of the borrowal account of the enterprise remains NPA for 3 months or more

Revising the definition of sickness in micro and small enterprises (MSEs), the Reserve Bank of India, on Thursday, asked banks for timely and adequate assistance to them as soon as signs of sickness were detected.


As per the new guidelines, a MSE would be considered sick if any of the borrowal account of the enterprise remains non-performing assets (NPA) for three months or more.

Earlier, a unit was considered sick if its borrowal account remained sub-standard for more than six months.

However, the RBI asked banks not to classify units as sick if they reach such a situation on account of “wilful mismanagement, wilful default, unauthorised diversion of funds, disputes among partners.”

Also, the unit need not to be in commercial production for at least two years to be declared sick, it added.

The new guidelines should be applicable for the year ending March, 2013, it said.

The RBI asked banks to take a sympathetic attitude and strive for rehabilitation of MSE units when the sickness is on account of circumstances beyond control.

It asked for timely action by banks if there is a delay in commencement of commercial production by more than six months for reasons beyond the control of promoters.


The RBI said the revised guidelines would help banks take timely action in identification of sick units for their revival.

“The rehabilitation package should be implemented speedily in a time bound manner. The rehabilitation package should be fully implemented within six months from the date the unit is declared as potentially viable/viable.”

While identifying and implementing the rehabilitation package, banks are advised to do ‘holding operation’ for six months.

“This will allow small-scale units to draw funds from the cash credit account at least to the extent of their deposit of sale proceeds during the period of such holding operation,” it said.