What changed
The definition of sickness for MSEs has been modified to remove delays in identification, based on the K.C. Chakrabarty Working Group recommendations. A new procedure for assessing viability of sick MSE units has been laid down, superseding the earlier 2002 guidelines. The emphasis is on early detection at the 'handholding stage' and proactive intervention by banks.
What it means for you
Banks must now monitor MSE accounts more closely for early signs of sickness and intervene at the handholding stage to prevent deterioration. The revised guidelines require banks to follow a structured viability assessment before declaring a unit unviable, promoting rehabilitation over recovery. This shift aims to reduce the number of sick units and protect the MSE sector's contribution to production, exports, and employment.
What you must do
- Update internal policies to align with the revised definition of sickness and handholding stage criteria.
- Train branch and credit staff to detect early signs of sickness in MSE accounts and initiate proactive rehabilitation.
- Implement the new viability assessment procedure for all potentially sick MSE units before declaring them unviable.
- Ensure timely and adequate assistance to viable sick MSEs, especially those affected by external factors beyond entrepreneur control.
- For non-viable units, expedite settlement or recovery measures as per guidelines.
Who it affects
All Scheduled Commercial Banks (excluding Regional Rural Banks), Micro and Small Enterprises (MSEs) and their borrowers, Bank credit and rehabilitation teams handling MSE portfolios
What is the 'handholding stage' in the revised guidelines?
The handholding stage is the point when early signs of sickness are detected in an MSE account. Banks must proactively intervene at this stage to provide timely assistance and prevent the unit from becoming sick.
How does the revised definition of sickness differ from the earlier one?
The revised definition aims to remove delays in identifying sickness by focusing on early detection. The exact criteria are detailed in Annex I of the circular, but the key change is hastening the identification process to enable faster rehabilitation.
What should banks do if an MSE unit is found to be unviable?
For units not capable of revival, banks should try for a settlement and/or resort to other recovery measures expeditiously, as per the guidelines.