BackRBI revises norms for small firms
A small enterprise can be identified as sick if any of its loans turn bad for at least 3 months
Premium(RBI removed the earlier stipulation that the unit should have been in commercial production for at least two years with its revised guidelines on the rehabilitation of sick small businesses. )
Mumbai: The Reserve Bank of India (RBI) on Thursday directed banks to identify sick small businesses quickly and nurse them back to health.
To hasten the process, the central bank said a micro or small enterprise can be identified as sick when any of its loans turn bad for at least three months. A loan turns into bad debt if interest or principal is not paid for three months. This essentially means that if an account is not serviced for six months by the borrower, the company can be termed sick. Banks waited for at least a year to determine whether a company was sick.
The guidelines have been revised following recommendations by a working group committee led by deputy governor K.C. Chakrabarty.
RBI removed the earlier stipulation that the unit should have been in commercial production for at least two years with its revised guidelines on the rehabilitation of sick small businesses.
Once a company is identified as sick, banks should check for the viability of the unit within three months. If viable, banks should handhold the company within two months of assessing the viability to turn it around, said the guidelines.
Apart from one-time settlement of dues, handholding includes “an enquiry into the operations of the unit and proper scrutiny of accounts, providing guidance/counselling services, timely financial assistance as per established needs and also helping the unit in sorting out difficulties which are non-financial in nature or requiring assistance from other agencies."
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