The Reserve Bank of India has come up with a revised framework for revival and rehabilitation of Micro, Small and Medium Enterprises so that incipient sickness can be detected by banks in the units and a corrective action plan can be set in motion for them.

The revised framework, which supersedes RBI’s earlier guidelines on rehabilitation of sick micro and small enterprises, is applicable to MSMEs having loan limits up to ₹25 crore, including accounts under consortium or multiple banking arrangement.

Corrective action plan (CAP) may include rectification or restructuring or restructuring. The RBI said before a MSME turns into a non-performing asset, banks should identify incipient stress in the account by creating three sub-categories under the special mention account (SMA).

Under the SMA-0 sub-category, principal or interest payment is not overdue for more than 30 days but account showing signs of incipient stress; SMA-1 (principal or interest payment is overdue between 31-60 days); and SMA-2 (principal or interest payment is overdue between 61-90 days).

On the basis of these early warning signals, the branch maintaining the account should consider forwarding the stressed accounts with aggregate loan limits above ₹10 lakh to the Committee (for Stressed Micro, Small and Medium Enterprises) within five working days for a suitable corrective action plan (CAP). Forwarding the account to the Committee for CAP will be mandatory in cases of accounts reported as SMA-2.

As regards accounts with aggregate loan limits up to ₹10 lakh identified as SMA-2, the account should be mandatorily examined for CAP by the branch itself under the authority of the branch manager / such other official as decided by the bank in terms of their Board approved policy.

However, the cases, where the branch manager / designated official has decided the option of recovery under CAP instead of rectification or restructuring, should be referred to the Committee for their concurrence.

Any MSME borrower may voluntarily initiate proceedings under this revised framework, if the enterprise reasonably apprehends failure of its business or its inability or likely inability to pay debts or there is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth during the previous accounting year, by making an application to the branch or directly to the Committee.

When such a request is received by lender, the account with aggregate loan limits above ₹10 lakh should be referred to the Committee. The Committee should convene its meeting at the earliest but not later than five working days from the receipt of the application, to examine the account for a suitable CAP.

The accounts with aggregate loan limit up to ₹10 lakh may be dealt with by the branch manager / designated official for a suitable CAP.

The RBI said the Board approved policy to operationalise the framework may be put in place by the banks not later than June 30, 2016.

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