OBC

A micro enterprise is an enterprise where original investment in plant and machinery does not exceed Rs. 25 lakh;
A small enterprise is an enterprise where the original investment in plant and machinery is more than Rs 25 lakh but does not exceed Rs. 5 crore; and
A medium enterprise is an enterprise where the original investment in plant and machinery is more than Rs. 5 crore but does not exceed Rs. 10 crore.

Service Sector: Enterprises engaged in providing or rendering of services and whose investment in equipment are specified below.

A micro enterprise (service sector) is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
A small enterprise (service sector) is an enterprise where the investment in equipment is more than Rs. 10 lakh but does not exceed Rs. 2 crore; and
A medium enterprise (service sector) is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.

The service sector will also include small road and water transport operators, small business and professional and self-employed persons.

OBJECTIVE

2.1

The objective of the DRS for SMEs is to ensure timely and transparent mechanism for restructuring the debts of potentially viable entities facing problems for the benefit of all concerned. In particular, the framework will aim at preserving viable SMEs that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme.

2.1.1

Default in a loan account occurs when interest or installment payable is delayed and the repayment of principal is delayed or denied. In the event of default continuing beyond a specified period the accounts are to be treated as NPA and the IRAC norms apply. Default is a function of losses / other cash flow inefficiencies.

ELIGIBILITY CRITERIA OF CASES UNDER SME-DEBT

3.1

Eligibility criteria: As per RBI guidelines the Debt Restructuring guidelines shall be applicable for SMEs to the following entities, which are viable or potentially viable :

3.1.1

All non-corporate SMEs irrespective of the level of dues to banks.

3.1.2

All corporate SMEs, which are enjoying banking facilities from a single bank, irrespective of the level of dues to the bank.

3.1.3

All corporate SMEs, which have funded and non-funded outstanding up to Rs.10 crore under multiple/ consortium banking arrangement

CASES WHICH CANNOT BE CONSIDERED UNDER SME-DRS

4.1

Accounts classified as “Loss Assets” will not be eligible for restructuring under this scheme.

4.2

Cases involving frauds or diversion of funds with malafide intent will not be eligible for restructuring under this scheme.

4.3

Accounts involving fraud and malfeasance will not be eligible for restructuring under this scheme.

4.4

In respect of BIFR cases approval from BIFR shall be obtained before implementing the package and completion of all formalities in seeking BIFR approval shall be obtained.

4.5

The definition of willful default, will broadly cover the following :

4.5.1

Deliberate non-payment of the dues despite adequate cash flow and net-worth.

4.5.2

Siphoning off of funds to the detriment of the defaulting unit.

4.5.3

Assets financed have either not been purchased or have been sold and proceeds have been mis-utilised.

4.5.4

Misrepresentation /falsification of records.

4.5.5

Disposal/removal of securities without bank's knowledge; and.

4.5.6

Fraudulent transactions by the borrower.

4.6

The views of the bank in regard to willful mismanagement of funds/defaults will be treated as final.

4.7

In case of willful defaulters under SME category, the bank may review the reasons for classification of the borrower as willful defaulter specially in old cases where the manner of classification of a borrower as a willful defaulter was not transparent and satisfy itself that the borrower is in a position to rectify the willful default provided he is granted an opportunity under the Debt Restructuring Mechanism for SMEs. Such exceptional cases may be admitted for restructuring with the approval of the Board of Directors of the Bank only. Such cases should be referred by RO to HO giving full details and justification.

TIME FRAME FOR APPROVAL OF PROPOSALS UNDER SME-DRS

5.1

RBI Guidelines: Banks should work out the restructuring package and implement the same within a maximum period of 60 days from date of receipt of requests.

5.2

Bank’s Policy: The Restructuring package should be worked out and implemented within 60 days from the date of receipt of request for restructuring from the borrower.

Steps to be taken	Time to be taken
Forwarding of the Restructuring package
By Branch to the sanctioning authority (RO) with branch views / recommendations (in cases falling under RO powers.	10 days
By RO to HO with RO views / recommendations ( in cases falling under HO powers.
(i)Viability study, (ii) joint meeting with other banks ( in case of multiple (iii) banking / consortium accounts 30 days Sanction of the restructuring package	30 days
Implementation of the restructuring package	20 days

REJECTION OF CASES UNDER SME-DRS

6.1

If the restructuring is not found viable the bank would be free to take necessary steps
for immediate recovery of dues.

STAGES AT WHICH PROPOSALS UNDER SME-DRS CAN BE
CONSIDERED

7.1

There would be no requirement of the account / borrower being sick, NPA or being in default for a specified period before being considered for restructuring under the SME-DRS.

7.2

However potentially viable cases of NPAs should get priority.

7.3

This approach would provide the necessary flexibility and facilitate timely intervention for debt restructuring under SME-DRS.

7.4

The debt restructuring exercise would have to be triggered by the Bank and prescribing any milestone(s) would not be necessary.

7.5

Proposals under SME-DRS may normally be considered at various stages such as:

7.5.1

before commencement of commercial production;

7.5.2

after commencement of commercial production but before the asset has been classified as ‘sub-standard’;

7.5.3

after commencement of commercial production and the asset has been classified as ‘sub-standard’ or ‘doubtful’.

7.5.4

Any other stage other than above.

8 .

VIABILITY CRITERIA FOR SME-DRS

8.1

RBI guideline: Banks may decide on the acceptable viability benchmark, consistent with the unit becoming viable in 7 years and the repayment period for restructured debt not exceeding 10 years.

8.2

In terms of RBI guidelines applicable to Debt Restructuring Mechanism for SMEs, entities which are viable or potentially viable can be considered.In order to have uniformity in the assessment of viability it is proposed to stipulate the following viability criteria.

PARTICULARS	VIABILITY NORMS FOR SME-DRS
Minimum Average DSCR 1.25
Maximum Period within which the unit should become viable	7 years
Maximum Repayment period of the restructured debt	10 years
Minimum Promoters’ Contribution	Tiny Sector 10%
(of which at least 50% must come upfront and balance within 6 months)	All other sectors 20%

The relief and concessions may be decided as per the cash flow anticipated in the techno- economic viability report.

Procedure

The borrowers intending to avail the benefits of restructuring under DRM for SMEs shall approach the branch with the following papers:

Application for restructuring of debts under the Bank’s SME-DRS.

Copies of the audited balance sheet and profit and loss account of the borrower for the last three years.

Unaudited data for the current year.

For projects under implementation, details of sources and uses of funds since inception.

Projected Profitability statement covering the period of repayment proposed for the restructured debt along with the calculation of DSCR.

Projected Balance sheet and Profit and Loss account covering the period of repayment proposed for the restructured debt.

Projected cash flow statements covering the period of repayment proposed for the restructured debt.

Techno-economic viability study report to be obtained for exposure of Rs. 10.00 crore and above.

Statement showing identification of the sources of margin money.

Statement showing the annual working capital requirement.

10.

Legal Basis

The borrower requesting for restructuring shall have to sign a Debtor Creditor Agreement.

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