Incipient Sickness
        Definition of Sick SSI Unit
        Viability of Sick SSI Unit 
        Reliefs and Concessions for Rehabilitation of Potentially Viable Units
        Delegation of Powers.
        Interest Dues on Cash Credit and Term Loan.
        Unadjusted Interest Dues.
        Term Loans
        Cash Losses
        Working Capital
        Contigency Loan Assitance
        Funds for Start-up Expenses and Margin for Working Capital
        Promoter's Contribution

The Reserve Bank of India has released "Revised draft guidelines for rehabilitation of Sick SSI Units" on its website for comments/views. The guidelines have been prepared taking into account the accepted recommendations of the Working Group on rehabilitation of Sick SSI Units. 

Proposed Revised Draft Guidelines for
Rehabilitation of Sick SSI Units

Incipient Sickness

1.         It is of utmost importance to take measures to ensure that sickness is arrested at the incipient stage itself. The branch officials should keep a close watch on the operations in the account and take adequate measures to achieve this objective. The managements of the units financed should be advised about their primary responsibility to inform the banks if they face problems which could lead to sickness and to restore the units to normal health. The organizational arrangements at branch level should also be fully geared for early detection of sickness and prompt remedial action. Banks/Financial Institutions will have to identify the units showing symptoms of sickness by effective monitoring and provide additional finance, if warranted, so as to bring back the units to a healthy track. An illustrative list of warning signals of incipient sickness that are thrown up during the scrutiny of borrowal accounts and other related records e.g. periodical financial data, stock statements, reports on inspection of factory premises and godowns, etc. is given in AppendixI which will serve as a useful guide to the operating personnel. Further, the system of asset classification introduced in banks will be useful for detecting advances which are deteriorating in quality well in time. When an advance slips into the sub-standard category, as per norms, the branch should make full enquiry into the financial health of the unit, its operations, etc. and take remedial action. The branch officials who are familiar with the day-to-day operations in the borrowal accounts should be under obligation to identify the early warning signals and initiate corrective steps promptly. Such steps may include providing timely financial assistance depending on established need, if it is within the powers of the branch manager, and an early reference to the controlling office where the relief required are beyond his delegated powers. The branch manager should also help the unit in sorting out difficulties which are non-financial in nature and require assistance from outside agencies like Government departments / undertakings, Electricity Boards, etc. He should also keep the term lending institutions informed about the position of the units wherever they are also involved.

2.         The instructions issued to banks by RBI to set up cells at all regional centers, besides at Head Office, to deal with sick industrial units and also provide expert staff including technical personnel to such cells are reiterated.

3. Definition of Sick SSI Unit

An SSI unit should be considered 'Sick' if

a)         any of the borrowal accounts of the unit remains substandard for more than six months i.e. principal or interest, in respect of any of its borrowal accounts has remained overdue for a period exceeding one year. The requirement of overdue period exceeding one year will remain unchanged even if the present period for classification of an account as sub-standard, is reduced in due course;


b)         there is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth during the previous accounting year;     


c)         the unit has been in commercial production for at least two years.

This would enable banks to take action at an early stage for revival of the units. The above definition may be adopted for the purpose of reporting the data for the half-year ending 31 March 2002, while for the purpose of formulating nursing programme, banks should go by the above definition with immediate effect.

4. Viability of Sick SSI Units

A unit may be regarded as potentially viable if it would be in a position, after implementing a relief package spread over a period not exceeding five years from the commencement of the package from banks, financial institutions, Government ( Central / State ) and other concerned agencies, as may be necessary, to continue to service its repayment obligations as agreed upon including those forming part of the package, without the help of the concessions after the aforesaid period. The repayment period for restructured (past) debts should not exceed seven years from the date of implementation of the package. In the case of tiny/decentralised sector units, the period of reliefs/concessions and repayment period of restructured debts which were hitherto, two years and three years respectively have been revised, so as not to exceed five and seven years respectively, as in the case of other SSI units. Based on the norms specified above, it will be for the banks/financial institutions to decide whether a sick SSI unit is potentially viable or not. Viability of a unit identified as sick, should be decided quickly and made known to the unit and others concerned at the earliest. The rehabilitation package should be fully implemented within six months from the date the unit is declared as 'potentially viable' / 'viable'. While identifying and implementing the rehabilitation package, banks/FIs are advised to do ‘holding operation' for a period of six months. This will allow small-scale units to draw funds from the cash credit account at least to the extent of their deposit of sale proceeds during the period of such ‘holding operation'.

5.Reliefs and Concessions for Rehabilitation of Potentially Viable Units

It is emphasised that only those units which are considered to be potentially viable should be taken up for rehabilitation. The reliefs and concessions specified are not to be given in a routine manner and have to be decided by concerned bank/financial institution based on the commercial judgment and merits of each case. Banks have also the freedom to extend reliefs and concessions beyond the parameters in deserving cases. Only in exceptional cases , concessions/ reliefs beyond the parameters should be considered. In fact, the viability study itself should contain a sensitivity analysis in respect of the risks involved that in turn will enable firming up of the corrective action matrix. Norms for grant of reliefs and concessions by banks/financial institutions to potentially viable sick SSI units for rehabilitation are furnished in Appendix - II.

6.         Units becoming sick on account of wilful mismanagement, wilful default, unauthorized diversion of funds, disputes among partners / promoters, etc. should not be considered for rehabilitation and steps should be taken for recovery of bank’s dues. The definition of wilful default, as given by RBI vide its Circular DBOD No.BC.DL.(W)12/20.016.002(1)98-99 dated 20 February 1999, will broadly cover the following:

  1. Deliberate non-payment of the dues despite adequate cash flow and good networth.
  2. Siphoning off of funds to the detriment of the defaulting unit.
  3. Assets financed have either not been purchased or have been sold and proceeds have been misutilised.
  4. Misrepresentation/falsification of records.
  5. Disposal/removal of securities without bank's knowledge.
  6. Fraudulent transactions by the borrower.

The views of the lending FI/banks in regard to wilful mismanagement of funds/defaults will be treated as final.

7. Delegation of Powers

The delay in the implementation of agreed rehabilitation packages should be reduced. One of the factors contributing to such delay was found to be the time taken for obtaining clearance from the Controlling Office for the relief and concessions. As it is essential to accelerate the process of clearance, the banks and the financial institutions may delegate sufficient powers to senior officers at various levels such as district, divisional, regional, zonal and also at head office to sanction the bank's or the financial institution's commitment to its share in the rehabilitation package drawn up in conformity with the prescribed guidelines.


Illustrative list of warning signals of incipient sickness that
are thrown up during the Scrutiny of Borrowal Accounts and other Related
Records (e.g. Periodical Financial Data, Statements,
Report on Inspection of Factory Premises and Godowns, etc.)

  1. Continuous irregularities in cash credit/overdraft accounts such as inability to maintain stipulated margin on continuous basis or drawings frequently exceeding sanctioned limits, periodical interest debited remaining unrealised;
  2. Outstanding balance in cash credit account remaining continuously at the maximum;
  3. Failure to make timely payment of instalments of principal and interest on term loans;
  4. Complaints from suppliers of raw materials, water, power, etc. about non- payment of bills;
  5. Non-submission or undue delay in submission or submission of incorrect stock statements and other control statements;
  6. Attempts to divert sale proceeds through accounts with other banks;
  7. Downward trend in credit summations;
  8. Frequent return of cheques or bills;
  9. Steep decline in production figures;
  10. Downward trends in sales and fall in profits;
  11. Rising level of inventories, which may include large proportion of slow or non-moving items;
  12. Larger and longer outstandings in bill accounts;
  13. Longer period of credit allowed on sale documents negotiated through the bank and frequent return by the customers of the same as also allowing large discount on sales;
  14. Failure to pay statutory liabilities;
  15. Utilisation of funds for purposes other than running the units.


Relief and concessions which can be extended by
banks/financial institutions to potentially viable
sick SSI units under rehabilitation

The viability and the rehabilitation of a sick SSI unit would depend primarily on the unit’s ability to continue to service its repayment obligations including the past restructured debts. It is, therefore, essential to ensure that ordinarily there is no write-off or scaling down of debt such as by reduction in rate of interest with retrospective effect except to the extent indicated in the guidelines. The guidelines on various parameters on reliefs and concessions are given below.

i)          Interest Dues on Cash Credit and Term Loan

If penal rates of interest or damages have been charged, such charges should be waived from the accounting year of the unit in which it started incurring cash losses continuously. After this is done, the unpaid interest on term loans and cash credit during this period should be segregated from the total liability and funded. No interest may be charged on funded interest and repayment of such funded interest should be made within a period not exceeding three years from the date of commencement of implementation of the rehabilitation programme.

ii) Unadjusted Interest Dues

Unadjusted interest dues such as interest charged between the date up to which rehabilitation package was prepared and the date from which actually implemented, may also be funded on the same terms as at (i) above.

iii) Term Loans

The rate of interest on term loans may be reduced, where considered necessary, by not more than three per cent in the case of tiny/decentralised sector units and by not more than two per cent for other SSI units, below the document rate.

iv) Working Capital Term Loan (WCTL)

After the unadjusted interest portion of the cash credit account is segregated as indicated at (i) and (ii) above, the balance representing principal dues may be treated as irregular to the extent it exceeds drawing power. This amount may be funded as Working Capital Term Loan (WCTL) with a repayment schedule not exceeding 5 years. The rate of interest applicable may be 1.5 % to 3% points below the prevailing fixed rate / prime lending rate, wherever applicable, to all sick SSI units including tiny and decentralized units.

v) Cash Losses

Cash losses are likely to be incurred in the initial stages of the rehabilitation programme till the unit reaches the break-even level. Such cash losses excluding interest as may be incurred during the nursing programme may also be financed by the bank or the financial institution, if only one of them is the financier. But if both are involved in the rehabilitation package, the financial institution concerned should finance such cash losses. Interest may be charged on the funded amount at the rates prescribed by SIDBI under its scheme for rehabilitation assistance.

Future cash losses in this context will refer to losses from the time of implementation of the package up to the point of cash break-even as projected. Future cash losses as above, should be worked out before interest (i.e., after excluding interest) on working capital etc., due to the banks and should be financed by the financial institutions if it is one of the financiers of the unit. In other words, the financial institutions should not be asked to provide for interest due to the banks in the computation of future cash losses and this should be taken care of by future cash accruals.

The interest due to the bank should be funded by it separately. Where, however, a commercial bank alone is the financier, the future cash losses including interest will be financed by it.

The interest on the funded amounts of cash losses/interest will be at the rates prescribed by Small Industries Development Bank of India under its scheme for rehabilitation assistance.

vi) Working Capital

Interest on working capital may be charged at 1.5% below the prevailing fixed / prime lending rate wherever applicable. Additional working capital limits may be extended at a rate not exceeding the PLR.


vii) Contingency Loan Assistance

For meeting escalations in capital expenditure to be incurred under the rehabilitation programme, banks/financial institutions may provide, where considered necessary, appropriate additional financial assistance upto 15 per cent of the estimated cost of rehabilitation by way of contingency loan assistance. Interest on this contingency assistance may be charged at the concessional rate allowed for working capital assistance.

viii) Funds for Start-up Expenses and Margin for Working Capital

There will be need to provide the unit under rehabilitation with funds for start-up expenses (including payment of pressing creditors) or margin money for working capital in the form of long-term loans. Where a financial institution is not involved, banks may provide the loan for start-up expenses, while margin money assistance may either come from SIDBI under its Refinance Scheme for Rehabilitation or should be provided by State Government where it is operating a Margin Money Scheme. Interest on fresh rehabilitation term loan may be charged at a rate 1.5% below the prevailing fixed / prime lending rate wherever applicable or as prescribed by SIDBI / NABARD where refinance is obtained from it for the purpose.

All interest rate concessions would be subject to annual review depending on the performance of the units.

x) Promoters' Contribution

As per the extant RBI guidelines, promoter's contribution towards the rehabilitation package is fixed at a minimum of 10 per cent of the additional long term requirements under the rehabilitation package in the case of tiny sector units and at 20 per cent of such requirements for other units. In the case of units in the decentralized sector, promoter’s contribution may not be insisted upon. A need is felt for increasing the promoters' contribution towards rehabilitation from the present limits. It is, therefore, open to banks and financial institutions to stipulate a higher promoters' contribution where warranted. At least 50 per cent of the above promoters' contribution should be brought in immediately and the balance within six months. For arriving at promoters' contribution, the monetary value of the sacrifices from banks, financial institutions and Government may be taken into account, in addition to the long - term requirement of funds under the rehabilitation package.

While evolving packages, it should be made a precondition that the promoters should bring in their contribution within the stipulated time frame. Further, in regard to concessions and relief made available to sick units, banks should incorporate a ‘Right of Recompense' clause in the sanction letter and other documents to the effect that when such units turn the corner and rehabilitation is successfully completed, the sacrifices undertaken by the Fls and banks should be recouped from the units out of their future profits/ cash accruals.


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