REVISED DRAFT GUIDELINES FOR REHABILITATION OF SICK SSI UNITS
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.
Contigency Loan Assitance
Funds for Start-up Expenses and Margin for Working Capital
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.
Revised Draft Guidelines for
Rehabilitation of Sick SSI Units
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 Appendix – I
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
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.
Definition of Sick SSI Unit
An SSI unit
should be considered 'Sick' if
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
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;
the unit has been in commercial production for at least two years.
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.
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'.
and Concessions for Rehabilitation of Potentially Viable Units
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.
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:
The views of
the lending FI/banks in regard to wilful mismanagement of funds/defaults will be
treated as final.
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
Illustrative list of warning signals of incipient
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.)
Relief and concessions which can be extended by
banks/financial institutions to potentially viable
sick SSI units under rehabilitation
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
Dues on Cash Credit and Term Loan
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.
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.
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.
Capital Term Loan (WCTL)
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.
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.
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.
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.
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
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.
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.
for Start-up Expenses and Margin for Working Capital
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.
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.
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.
Notification available at http://www.rbi.org.in