Ensure credit to micro and small units, RBI tells banks

05 May 2009

The Reserve Bank of India (RBI) has asked banks to ensure enough credit to the micro and small industries and also to apply the RBI's guidelines on optimally restructuring debt to get MSEs out of incipient sickness and put them on the recovery path.

These guidelines, the RBI said in release, ''in fact, subsume the incipient sickness stage and, if implemented as intended, could significantly prevent or arrest sickness at the initial stages.''

''Such MSE units/enterprises, which turn sick in spite of debt re-structuring are expected to be few and would fall within the ambit of the extant guidelines on rehabilitation of potentially viable sick units/enterprises,'' it said, adding that it would be to the advantage of the creditor banks as well as their MSE clients.

The group has recommended the setting up of a credit guarantee fund trust for micro and small enterprises (CGTMSE) and has also made several suggestions aimed at increasing the flow of institutional credit to MSEs.

Besides addressing the issue of adequate and timely credit, the group has made recommendations for timely detection and remedial action with respect to incipient sickness as also rehabilitation of sick units which can be revived.

The group has also recommended that Reserve Bank of India may announce a One Time Settlement Scheme (OTS) for the MSME sector. However, RBI has left the issue of settlement of non-performing loans to the judgement of individual banks.