MSME ministry drafts revival plan for sick and loss making enterprises

Views of RBI, banks, various MSME industry bodies have been sought to finalise this

The ministry of micro , small and medium enterprises ( MSME) has drafted a revival plan for sick and loss making MSMEs termed as corrective action plan.

The views of the Reserve bank of India , banks, various MSME industry bodies have been sought  to finalise this at the earliest. This revival plan is to be followed by banks exclusively for the MSME who will not be guided by the present norms of the RBI for companies or units in general, said official sources.  

The draft, very similar to its counterpart  for the  big companies – Corporate Debt Restructuring (CDR) provides a classification  for identification of such stressed assets at an incipient stage . Both , the lenders as well the MSME can opt for  such a revival plan on their own. The key feature of this plan a MSME can approach the plan even with the apprehension of failure of  business apart from   factual situations like inability to pay debts, accumulated losses becoming equal to half or more of its entire net worth.

Over and above the RBI guidelines for  restructuring of accounts  and recovery proceedings for already companies classified as nonperforming assets (NPA) , the  ministry has come up with a concept of rectification. This is in case of those assets which apprehend to slip into stress.  Measures under rectification are to be adopted to turn around the entity and without making any change in terms and conditions  of the loan. At this stage,   the banks could consider providing need based additional finance to the borrower if the existing borrower is facing genuine difficulties in getting additional funds to regularise the account and not just ever greening the account.

In line with CDR, the draft proposes three options for restructuring of an account . It could be either exploring the possibility of transferring  equity of the company  by promoters to the lenders to compensate for their sacrifices or promoters infusing more equity into their companies.  The third option could be to transfer the promoters’ holding to a security trustee or popularly known escrow account till turnaround of the enterprise, enabling a change  in the management.

Last year in 2014,  the ministry had stated that government was working on reviving as many as 4,500 of the nearly 12.2 lakh MSME units that were declared “sick” by the Reserve Bank of India in 2013.

Among several measures,  this revival plan was one of the options.  That besides,  the government is planning to  open up 1,500 incubation centres to hand-hold innovators and entrepreneurs, and has already opened a couple of skill development centres in Noida and Hyderabad to get entrepreneurs and ITI diploma holders together under one roof to thrash out their ideas for new entrepreneurship. The government has also opened some of the 18 planned tool rooms, which are specially located in areas where facilities for industry are limited,” he added.The ministry is actively pursuing the public procurement policy which makes it mandatory for PSUs to make 27% purchases form MSMEs from April 2015 onwards.

The representatives of the MSMEs have also come up with several suggestions including implementation of goods and services tax in place of excise, service tax, VAT, etc., revision in the definition of the MEMEs, non-application of the NPA norms for new units up to three years, low interest rates of loans to MSMEs, single point monitoring bodies, MSME service sector be treated at par with manufacturing sector, power subsidy schemes, and financial support to MSME help desk being run by industry chambers.