What changed
RBI issued detailed guidelines for a debt restructuring mechanism for SMEs, as announced by the Finance Minister. The guidelines define SMEs based on investment limits (up to Rs. 1 crore for small units, Rs. 5 crore for specified items, and up to Rs. 10 crore for medium enterprises) and set eligibility criteria, including viability benchmarks and prudential norms for restructured accounts.
What it means for you
Banks must now offer restructuring terms to viable SMEs that are at least as favorable as the Corporate Debt Restructuring mechanism. This could increase credit flow to SMEs but requires banks to carefully assess viability and manage provisioning for restructured accounts, especially those with interest sacrifices.
What you must do
- Identify eligible SME accounts (non-corporate, single-bank corporate, and multi-bank with outstanding up to Rs. 10 crore) for restructuring.
- Assess viability of each unit within a 7-year horizon and ensure repayment within 10 years.
- Apply prudential norms: for standard accounts, rescheduling principal alone doesn't downgrade if fully secured; for sub-standard/doubtful, follow specified treatment.
- Exclude wilful defaulters, fraud cases, and loss assets from restructuring eligibility.
- For BIFR cases, complete all formalities before implementing the restructuring package.
Who it affects
All commercial banks, SME borrowers (non-corporate and corporate), Bank credit officers handling SME portfolios
What is the definition of SMEs under these guidelines?
SMEs are defined as per RPCD Circular dated August 19, 2005: small scale units with investment in plant and machinery up to Rs. 1 crore (Rs. 5 crore for specified items like hosiery, hand tools, drugs and pharmaceuticals, stationery items and sports goods), and medium enterprises with investment up to Rs. 10 crore.