RBI revises rules for resolution of stressed MSME loans

The Reserve Bank of India on Thursday revised rules pertaining to revival of advances to small businesses and asked lenders to form district-level committees to resolve stressed loans to micro, small and medium enterprises (MSMEs).

"In order to enable faster resolution of stress in an MSME account, every bank shall form Committees for Stressed MSME," RBI said in a notification.

The rules have been revised for "revival and rehabilitation of MSMEs having loan limits up to Rs 25 crore".

"Restructuring of loan accounts with exposure of above Rs 25 crore will continue to be governed by the extant guidelines on corporate debt restructuring (CDR) or Joint Lenders' Forum (JLF) mechanism," the notification said.
 
The notification follows a May 2015 government decision to provide a simple and fast mechanism to address stress in accounts of MSMEs and also help in the promotion of such businesses, it said.

A board-approved policy to operationalise the revised framework will have to be put in place by banks before June 30, the regulator said.

These will be district-level committees which will resolve the stress in MSMEs under their jurisdictions, it said, adding in case of a MSME banking with multiple lenders, the lead bank's panel's should deal with the issue.

The committees shall comprise regional head of the bank as chairperson, and MSME loans in-charge as the convener and member. The bank should also appoint an external expert nominated by the bank and a representative of the state government, it said.

The bank boards should form a policy on the composition of the committee and terms of appointment, among other things.

Just like in the case of large borrowers, RBI has asked banks to look for stress from an early stage by identifying loans of over Rs 10 lakh as special mention accounts, right from 30 days' non-payment of principal and interest onwards. The committee will have to come up with a corrective action plan for the account, which shall look at rectification, restructuring, recovery and also additional finance if needed, the apex bank said.

It can be noted that the current episode of rise in asset quality stress has been attributed to large corporates.