Current · Source: Reserve Bank of India · RBI/2011-12/171 · issued 12 Sep 2011 · ~2 min read
Quick answerRBI has withdrawn the 2002 relief and concession norms for rehabilitating sick SME units. Banks must now use their own Board-approved restructuring policies, allowing below-Base Rate lending with recompense clauses for viability.
The rule, in the simplest words
Banks must use their own Board-approved plan to help sick small businesses, not the old 2002 rules.
Banks can now give loans at interest rates lower than the Base Rate (the minimum rate set by the bank) to help a sick business recover, but only if the business can survive and the bank adds a 'recompense clause' (a rule to get back the lost interest later).
The old 2002 rules for giving relief and discounts to sick small businesses are cancelled.
Every bank's new plan must be approved by its Board of Directors (the top leaders of the bank).
How it plays out — a real example
Ravi, a credit & lending officer in Indore, is reviewing a request from a struggling small textile unit. Instead of using the old 2002 rules, he checks his bank's new Board-approved policy, which allows him to offer a loan at 1% below the Base Rate because the unit's viability plan includes a recompense clause. Ravi feels relieved that he can now tailor the package to help the business recover without breaking the rules.
What changed
RBI withdrew the Appendix-II relief and concession norms from the January 16, 2002 circular for rehabilitating viable/potentially viable sick SSI units. This follows the shift to the Base Rate regime from July 1, 2010, making PLR/BPLR references obsolete. Banks are now required to have their own Board-approved restructuring/rehabilitation policies for sick MSE units.
What it means for you
Banks gain flexibility to design tailored rehabilitation packages for sick SME units, including below-Base Rate lending if viability and recompense clauses are in place. This replaces the rigid 2002 norms, aligning with the Base Rate regime and existing restructuring guidelines. Lenders must ensure their policies are Board-approved and comply with the Master Circular on interest rates.
What you must do
Review and update your bank's restructuring/rehabilitation policy for sick MSE units to ensure Board approval.
Ensure any below-Base Rate lending under rehabilitation includes recompense clauses as per the Master Circular on Interest Rates on Advances.
Withdraw reliance on the old 2002 Appendix-II norms and communicate the change to relevant branches and credit teams.
Align your policy with the May 4, 2009 circular on putting in place a restructuring policy for viable sick units.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Credit and restructuring teams handling SME/MSME accounts, Board of Directors approving restructuring policies
❓ Common questions
Can we still lend below Base Rate for sick SME rehabilitation?
Yes, but only as part of a Board-approved restructuring policy with recompense clauses, as per the Master Circular on Interest Rates on Advances. This is not a violation of Base Rate guidelines.
What replaces the old 2002 relief and concession norms?
Banks must now use their own Board-approved restructuring/rehabilitation policies for viable/potentially viable sick MSE units. The 2002 Appendix-II norms are withdrawn.
📜 Read the original circular — full text as issued by RBI
RBI/2011-12/171
RPCD.SME & NFS.BC.No.19/06.02.31/2011-12
September 12, 2011
The Chairman/Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks
(excluding Regional Rural Banks)
Madam/Dear Sir,
Guidelines for Rehabilitation of Sick SME Units
Please refer to paragraph 5 of Annexure – I of our circular RPCD. NO. PLNFS.BC.57/06.04.01/2001-2002 dated January 16, 2002 on captioned subject. Norms for grant of reliefs and concessions by banks to potentially viable sick SSI units for rehabilitation as furnished in Appendix-II of the above circular were recently re-examined. It was observed that all the banks have migrated to the Base Rate regime with effect from July 1, 2010 and references to PLR/BPLR are no more meaningful.
2. As per extant guidelines on interest rates, banks are not allowed to lend below Base Rate. However, in terms of para 2.3.1.3 of Master Circular DBOD.No.Dir.BC.5/13.03.00/2011-12 dated July 1, 2011 on 'Interest Rates on Advances', in case of Restructured loans if some of the WCTL, FITL, etc. need to be granted below the Base Rate for the purposes of viability and there are recompense etc. clauses, such lending by Scheduled Commercial Banks will not be construed to be a violation of the Base Rate guidelines.
3. Further, vide RPCD Circular SME&NFS. BC.No.102/06.04.01/2008-09 dated May 04, 2009 , all Scheduled Commercial Banks have been advised to put in place their own Restructuring/ Rehabilitation policy for revival of viable/potentially viable sick units/enterprises duly approved by the Board of Directors.
4. Considering the above developments, the Relief and Concessions to viable/potentially viable sick units under rehabilitation prescribed in Appendix – II of our circular dated January 16, 2002 stand withdrawn.
5. Banks are advised to put in place their own Board approved Restructuring/ Rehabilitation policy for revival of viable/potentially viable sick MSE units/enterprises.
6. Please acknowledge receipt.
Yours faithfully
(C.D. Srinivasan)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/171 · issued 12 Sep 2011. The plain-English explanation above is BankPulse’s own independent summary.
Withdraw reliance on the old 2002 Appendix-II norms and communicate the change to relevant branches and credit teams.
📜 Compliance
Review and update your bank's restructuring/rehabilitation policy for sick MSE units to ensure Board approval.
Ensure any below-Base Rate lending under rehabilitation includes recompense clauses as per the Master Circular on Interest Rates on Advances.
Align your policy with the May 4, 2009 circular on putting in place a restructuring policy for viable sick units.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All Scheduled Commercial Banks (excluding RRBs), Credit and restructuring teams handling SME/MSME accounts, Board of Directors approving restructuring policies), your first concrete step on “RBI Withdraws Old Sick SME Rehabilitation Norms” is: “Review and update your bank's restructuring/rehabilitation policy for sick MSE units to ensure Board approval.” (RBI issued this 12 Sep 2011).
Circular: RBI/2011-12/171 -- RBI Withdraws Old Sick SME Rehabilitation Norms
Issued: 12 Sep 2011
Action required: Review and update your bank's restructuring/rehabilitation policy for sick MSE units to ensure Board approval.
Action required: Ensure any below-Base Rate lending under rehabilitation includes recompense clauses as per the Master Circular on Interest Rates on Advances.
Action required: Withdraw reliance on the old 2002 Appendix-II norms and communicate the change to relevant branches and credit teams.
Action required: Align your policy with the May 4, 2009 circular on putting in place a restructuring policy for viable sick units.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6703&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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