Mumbai, Nov. 1: The Reserve Bank of India (RBI) today tightened the definition of a sick micro and small enterprise (MSE) unit even as it asked commercial banks to take timely rehabilitation measures when early signs of sickness are detected in a unit.
The RBI today said that an MSE will be considered sick if the account of the enterprise remains a non-performing asset (NPA) for three months or more. An account is classified as NPA if interest or principal is overdue for 90 days or more.
At present, an MSE unit is considered sick when any of the borrowal accounts of the unit remains sub-standard for more than six months. A sub-standard account is where the principal or interest has remained overdue for a period exceeding one year.
This apart, the central bank removed a stipulation that the unit should have been in commercial production for at least two years for it to be called sick.
The definition of a sick MSE has been tightened as the central bank wants early identification of such units so that remedial action can be taken.
Releasing the guidelines for the rehabilitation of sick MSEs, the RBI said timely and adequate assistance to MSEs should begin on a proactive basis when early signs of sickness were detected.
This early stage would be termed as “handholding stage”, and a borrowal account may be treated to have reached this stage if there is delay in commencement of commercial production by more than six months for reasons beyond the control of the promoters.
The same rules would apply if the company incurred losses for two years or the capacity utilisation is less than 50 per cent of the projected level in terms of quantity or the sales are less than 50 per cent of the projected level in terms of value during a year.
The RBI added that the bank branches should take timely remedial action, which includes an inquiry into the operations of the unit and proper scrutiny of accounts, apart from helping the unit to sort out difficulties which are non-financial in nature or requiring assistance from other agencies.
The MSE units that cannot be revived after intervention by banks at the handholding stage will have to be classified as sick. Based on a viability study, such units can be provided a rehabilitation package, which the RBI said should be fully implemented within six months from the date the unit is declared as potentially viable or viable.