Govt notifies framework for revival, rehabilitation of MSMEs

Government today notified a framework for revival and rehabilitation of MSMEs, which mandates banks to form a panel to chalk out a corrective action plan to be adopted for units having stressed accounts.
"It is expected that above Framework help the lenders and debtors in revival and rehabilitation of enterprises and shall unlock the potential of MSMEs," the MSME Ministry said.
The salient features of the framework are identification of incipient stress; formation of committees for distressed micro, small & medium enterprises (MSMEs); and a Corrective Action Plan by the Committee.
"Pending a detailed revision of the legal framework for resolving insolvency/bankruptcy, there is a felt need for special dispensation for revival and exit of MSMEs.

"The MSMEs facing insolvency/bankruptcy need to be provided legal opportunities to revive their units. This could be through a scheme for re-organisation and rehabilitation, which balances the interests of the creditors and debtors," the Ministry said.
Under the framework, before a loan account of an MSME turns into a Non Performing Asset (NPA), banks/creditors are required to identify incipient stress in the account.

Any MSME may also voluntarily initiate proceedings if enterprise reasonably apprehends failure of its business or its inability or likely inability to pay debts and before the accumulated losses of the enterprise equals to half or more of its entire net worth.

Moreover, banks shall constitute one or more Committees at such locations as may be considered necessary by the board of directors to provide reasonable access to all eligible MSMEs which have availed credit facilities from such bank.
The panel shall comprise of representatives of the bank, independent expert and representative of the state Government.
Under the Corrective Action Plan, the Committee may explore various options to resolve the stress in the account.
"The intention is to arrive at an early and feasible solution to preserve the economic value of the underlying assets as well as the lenders' loans and also to allow the enterprise to continue with its business.

"During the period of operation of Corrective Action Plan (CAP), the enterprise shall be allowed to avail both secured and unsecured credit for its business operations," the MSME Ministry said.
The options under CAP may include: rectification - regularize the account so that the account does not slip into the non-performing asset (NPA) category; restructuring the account if it is prima facie viable and the borrower is not a willful defaulter; and recovery. Once the first two options are seen as not feasible, recovery process may be resorted to.