Mumbai: Revising definition of sickness in micro and small enterprises (MSEs), the Reserve Bank Thursday asked banks for timely and adequate assistance to them as soon as the signs of sickness are detected.
"...Timely and adequate assistance to potentially viable MSE units which have already become sick or are likely to become sick is of the utmost importance...In view of the sector?s contribution to the overall industrial production, exports and employment generation," RBI said in a notification.
As per the new guidelines, a MSE would be considered sick if any of the borrowal account of the enterprise remains non-performing assets (NPA) for three months or more.
Earlier,a unit was considered sick if its borrowal account remained sub-standard for more than six months.
However, RBI asked the banks not to classify units as sick if they reach such a situation on account of "willful mismanagement, willful default, unauthorised diversion of funds, disputes among partners."
Also, the unit need not to be in commercial production for at least two years to be declared sick, it added.
The new guidelines should be applicable for the year ending March ending 2013, it said.
RBI asked the banks to take a sympathetic attitude and strive for rehabilitation of MSE units when the sickness is on account of circumstances beyond control.
It asked for timely action by banks if there is a delay in commencement of commercial production by more than six months for reasons beyond the control of promoters.
Also, if company incurs losses for two years or cash loss for one year beyond the accepted time frame and if capacity utilization is less than 50 percent of the projected level in terms of value during a year.
RBI said the revised guidelines would help the banks to take timely action in identification of sick units for their revival.
"The rehabilitation package should be implemented speedily in a time bound manner. The rehabilitation package should be fully implemented within six months from the date the unit is declared as potentially viable/viable."
While identifying and implementing the rehabilitation package, banks are advised to do 'holding operation' for a period of six months.
"This will allow small-scale units to draw funds from the cash credit account at least to the extent of their deposit of sale proceeds during the period of such holding operation," it said.