Guidelines for Rehabilitation of Sick SME Units

NO.CLE/ED/CIRCULAR/2011
Sept. 13, 2011

Members of the Council.

Sub : Guidelines for Rehabilitation of Sick SME Units

Dear Member

As members are aware, the norms for grant of reliefs and concessions ( like concessional rates of interest for term loans, working capital term loans etc.,) by banks to potentially viable sick SSI units for rehabilitation were prescribed in Appendix-II of Reserve Bank of India (RBI) circular RPCD. NO. PLNFS.BC.57/06.04.01/2001-2002 dated January 16, 2002. The RBI has now issued a Circular No. RBI/2011-12/171 dated Sept. 12, 2011 which mentions about the following issues.

1) The Base Rate System on fixation of interest rates on lending has come into place with effect from July 1, 2010 wherein banks cannot lower the interest rates on lending below the fixed Base Rate. On account of switch over to Base Rate, references to Prime Lending Rates (PLR)/ Benchmark Prime Lending Rate (BPLR) mentioned in the aforesaid Appendix II (RBI) circular RPCD. NO. PLNFS.BC.57/06.04.01/2001-2002 dated January 16, 2002 are no more meaningful.

2) 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 Working Capital Term Loan (WCTL), Funded Interest Term Loan (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, RPCD Circular SME&NFS. BC.No.102/06.04.01/2008-09 dated May 04, 2009, has advised all Scheduled Commercial Banks 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.

In view of the above, the afore-said RBI circular RBI/2011-12/171 dated Sept. 12, 2011 states that the concessional measures for sick units under rehabilitation notified vide Appendix II of RBI circular RPCD. NO. PLNFS.BC.57/06.04.01/2001-2002 dated January 16, 2002 stands withdrawn. In view of this, banks are required to frame their own Restructuring/ Rehabilitation policy for revival of viable/potentially viable sick units/enterprises and there is also provision for fixing interest rates on restructured loans below the base rate for the purpose of viability.

Members may kindly note the above.

With regards

Ali Ahmed Khan
Executive Director
COUNCIL FOR LEATHER EXPORTS