What changed
RBI issued a circular on May 4, 2009, forwarding the Chakrabarty Working Group's recommendations on MSE credit. Banks are advised to implement Annex III recommendations for timely credit flow and to apply existing debt restructuring guidelines optimally. Banks must also put in place a non-discretionary OTS policy for the MSE sector.
What it means for you
Banks must prioritize early detection of sickness in MSE accounts and use debt restructuring as a first line of defense. For units that remain sick, existing rehabilitation guidelines apply. Banks are expected to have their own OTS policy, not a mandated RBI scheme, to enable quick decisions on non-performing loans.
What you must do
- Implement the Working Group's recommendations in Annex III for timely and adequate credit flow to MSEs.
- Apply existing debt restructuring guidelines (circulars of Sep 2005 and Aug 2008) optimally to prevent sickness.
- Put in place a non-discretionary One Time Settlement policy for the MSE sector, approved by your board.
- Review and adopt policies as per the Banking Codes Standards Board of India's Code of Commitment for MSE borrowers.
Who it affects
All Scheduled Commercial Banks, Micro and Small Enterprises (MSE) borrowers, Bank credit and risk management teams
What is the Chakrabarty Working Group?
It was a group chaired by Dr. K. C. Chakrabarty, then CMD of Punjab National Bank, formed by RBI to address credit and non-credit issues faced by the MSE sector. Its report was submitted in April 2008.
Do banks have to follow a specific RBI OTS scheme?
No. RBI advises banks to create their own non-discretionary OTS policy based on commercial judgment, not a mandated RBI scheme.
What should banks do for sick MSE units?
First, use debt restructuring guidelines to catch sickness early. If units remain sick, apply existing rehabilitation guidelines from the January 2002 circular.