Framework for Revival and Rehabilitation of MSMEs

The Government of India has notified the instructions for the “Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSMEs)”. As per the provisions made under this framework, each bank will form a “Committee for Stressed Micro, Small and Medium Enterprises” (CSMSME) and decide on Corrective Action Plan (CAP) to help such units come out of the stress. This framework applies to MSMEs having loan limits above Rs. 10 lakhs and up to Rs. 25 crores from the bank. In this article, we look at the Framework for Revival and Rehabilitation of MSMEs in detail.

Objectives

The main objectives of the framework for Revival and Rehabilitation of MSMEs are as follows.

To enable MSMEs to seek relief and concession to revive over difficult financial times.
To grant reasonable access to all eligible MSMEs which have availed credit facilities from the bank.

Eligibility Criteria

The following are the eligible MSME units mentioned under this framework.

It applies to Micro, Small & Medium Enterprises (MSMEs) having loan limits above Rs. 10 lakhs and up to Rs. 25 crores which covers accounts under consortium or multiple banking arrangements (MBA).
It applies to both manufacturing and service MSME units facing problems can be overcome with timely remedial or corrective action.

Detection of incipient stress

Before a loan account of an MSME change into a Non Performing Asset (NPA), the branch should recognise incipient stress under the Special Mention Account (SMA) types are explained below in the tabular format:

S.No	Types of SMA	Classification
1.	SMA-0	Principal or interest payment delayed for more than 30 days but account showing signs of incipient stress.
2.	SMA-1	Principal or interest payment delayed between 31-60 days.
3.	SMA-2	Principal or interest payment delayed between 61-90 days.

Committee for Stressed MSME

All banks comprise of one or more Committees in the location which is considered necessary by the directors of respective bank to grant reasonable access to all eligible Micro, Small and Medium Enterprises which have acquired credit facilities from the bank. The Committee should hold the representatives of the Bank, independent expert and representative of the State Government.

Corrective Action Plan (CAP) by the Committee

The Committee will examine various options to resolve the stress in the account. The intention is to provide a feasible solution to preserve the economic value of the assets as well as the lender's loans and also to allow the enterprise to continue with its business. During the period of operation of the Corrective Action Plan (CAP), the enterprise will be allowed to utilise both secured and unsecured credit for its business operations.

Applicable to the Committee for CAP

A bank or lender can request an application for CAP to the committee will inform the concerned enterprise about such claim within 5 working days.
The enterprise is required to respond to the application or create a representation before the Committee.
Details of all its liabilities, including the debts owed to the State or Central Government and unsecured creditors have to be enclosed within 15 working days from the date of application.
If the enterprise does not reply within the specified time limit period, the Committee may proceed ex-parte.
After receiving the application, the committee will decide on the Corrective Action Plan (CAP) as per the norms specified by the RBI and inform the enterprise about such a decision.
Upon finalisation of the CAP for revival, the implementation of the plan will be completed by the concerned bank within the specified period.

Rectification

To regularise the account commitment, specifying actions and timeline have to be obtained from the borrower to withdraw the account from the SMA status or does not turn into the Non-Performing Asset and the commitment should be maintained with identifiable cash flows within the required time limit and without causing any loss for the existing lenders.

Restructuring

An account is considered for restructuring if:

The account is viable and if the borrower is not a wilful defaulter.
The promoters are willing to extending their guarantee along with their net worth statement supported by copies of legal titles to assets.
The promoters give a declaration that they would not undertake any transaction that would alienate assets without the permission of the Committee.

Recovery

If either rectification or restructuring of an account is not feasible, due to the recovery process will be resorted. The Committee will recommend recovery in the account within 30 days of its first meeting of an enterprise, and the Committee can take a decision under the corrective action plan (CAP) and inform the enterprise about such an arrangement, within 5 working days. If the Committee is not eligible to decide on CAP and restructuring package due to non-availability of information on dues of the borrower, the Committee will take 30 days for choosing CAP and start preparing the restructuring package. However, they should not exceed this period and proceed with CAP.

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Frequently Asked Questions

Common questions about Framework for Revival and Rehabilitation of MSMEs in India.

The Framework for Revival and Rehabilitation of MSMEs is a set of guidelines notified by the Government of India to enable struggling Micro, Small and Medium Enterprises (MSMEs) to seek relief and concessions to revive during difficult financial times. It aims to grant reasonable access to eligible MSMEs that have availed credit facilities from banks.

The framework applies to MSME units having loan limits above Rs. 10 lakhs and up to Rs. 25 crores from banks. It covers accounts under consortium or multiple banking arrangements (MBA) and applies to both manufacturing and service MSME units facing financial stress that can be overcome with timely corrective action.

Each bank will form a "Committee for Stressed Micro, Small and Medium Enterprises" (CSMSME) to examine various options and decide on a Corrective Action Plan (CAP) to help stressed MSME units come out of their financial difficulties. The Committee will have representatives from the bank, an independent expert, and a representative of the State Government.

The framework provides guidelines for banks to recognize incipient stress in MSME loan accounts before they become Non-Performing Assets (NPAs). It classifies accounts as Special Mention Accounts (SMA) based on the number of days of delay in principal or interest payment, with SMA-0, SMA-1, and SMA-2 categories.

When a bank requests an application for CAP, the concerned MSME unit must respond and provide details of its liabilities within 15 working days. The Committee will then decide on the CAP as per RBI norms and inform the enterprise. The bank will implement the finalized CAP for revival within the specified period.

The Committee examines options like rectification (obtaining commitment from the borrower to regularize the account), restructuring (if the account is viable and the promoters are willing to extend guarantees), or recovery (if rectification or restructuring is not feasible).

If the Committee has all the required information, it should decide on the CAP and inform the enterprise within 30 days of its first meeting. If information is not available, the Committee can take up to 30 days to choose the CAP and start preparing the restructuring package, but should not exceed this period.

During the period of operation of the Corrective Action Plan (CAP), the MSME unit will be allowed to utilize both secured and unsecured credit for its business operations.

If the MSME unit does not respond or make a representation before the Committee within 15 working days from the date of the CAP application, the Committee may proceed ex-parte (without the unit's representation).

For an MSME account to be considered for restructuring, it must be viable, the borrower should not be a wilful defaulter, the promoters must be willing to extend their guarantees and provide net worth statements with legal titles to assets, and they must declare that they will not alienate assets without the Committee's permission.