Mumbai, Sept. 5: The Reserve Bank of India (RBI) today announced guidelines for revamping debts of small and medium enterprises, following up on a government order weeks back aimed at doubling loans to these firms.

The revised norms cover all non-performing assets (NPAs) that banks are saddled with in this area of industry. They include loans that became doubtful, loss or sub-standard on March 31, 2004. The limit is Rs 10 crore.

The minimum amount to be recovered from such NPAs would be 100 per cent of the outstanding balance in the account on the day it was categorised “doubtful or loss”.

The settlement amount will have to be paid in one lump-sum. In cases where borrowers cannot do so, at least 25 per cent will have to be paid up-front, with the balance 75 per cent spread over a year. This will include interest at the existing prime lending rate (PLR) from the date of settlement to the day the final payment is made.

Under Reserve Bank rules, a loan is called an NPA when the interest and/or principal on it goes unpaid for over 90 days. NPAs are then classified into sub-standard, doubtful and loss assets. In a change of definition from March 31 this year, sub-standard assets are those that remain non-performing for up to 12 months.

Similarly, an asset is treated as a doubtful one if it remains in the sub-standard category for 12 months; loss assets are those where a bank is able to assess the hit.

However, the central bank said the guidelines will not cover cases of wilful default, fraud and malfeasance in small units.

“Banks shall identify cases of wilful default, fraud and malfeasance and initiate prompt action,” the central bank said in a statement put out today.

Non-performing loans where action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act has been initiated will be eligible for a settlement. Even cases pending before courts/tribunals/BIFR will be covered, provided banks secure permission from them for the settlement.

Banks will send a notice by January 31, 2006 to defaulting borrowers to avail of the opportunity for one-time settlement of outstanding dues under today’s guidelines.

While announcing a package aimed at doubling bank credit to SMEs last month, finance minister P. Chidambaram had said the RBI would issue guidelines to revamp debts of viable small and medium units on the lines of the corporate debt restructuring for large firms.

The minister has, in recent times, been asking banks to step up loans to this sector and the package announced last month envisaged at least a 20 per cent increase in credit flow to SMEs. In absolute terms, loans to these firms should be around Rs 1,35,000 crore by 2009-10.