CHENNAI: The Reserve Bank of India on Thursday issued guidelines for urban cooperative banks for undertaking restructuring of debt of small and medium enterprises (SMEs).

According to the guidelines, banks registered under the State acts may formulate, with the approval of the Registrar of Cooperative Societies concerned, a debt restructuring scheme for SMEs. In the case of Multi State Cooperative Banks, the scheme may be formulated with the approval of the board of directors. The restructuring exercise should follow the receipt of a request to that effect from the borrowing units.

In the case of eligible SMEs, which are under consortium/multiple banking arrangements, the bank with the maximum outstanding may work out the restructuring package, along with the bank having the second largest share. Banks should work out the package and implement the same within a maximum period of 60 days from the date of receipt of requests.

According to the RBI circular issued to urban cooperative banks, the guidelines would be applicable to (a) all non-corporate SMEs irrespective of the level of dues to banks, (b) all corporate SMEs which are enjoying banking facilities from a single bank, irrespective of the level of dues to the bank; and (c) all corporate SMEs, which have funded and non-funded outstanding up to Rs 10 crore under multiple/consortium lending. Accounts classified by banks as "loss assets" will not be eligible for restructuring.

"Banks may decide on the acceptable viability benchmark, consistent with the unit becoming viable in seven years and the repayment period for restructured debt not exceeding ten years", the RBI said. For the purpose of the guidelines, medium enterprises are reckoned as having investment (in plant and machinery) in excess of the applicable SSI limit but not exceeding Rs. 10 crore.

Mumbai Special Correspondent writes:

Advice to SCBs

The Reserve Bank of India on Thursday advised State Co-operative Banks (SCBs) and District Central Co-operative Banks (DCCBs) to give preferential treatment to hallmarked gold jewellery as security to grant advances for various purposes.

The RBI also asked them to keep in view the advantages of hallmarked jewellery and decide on the margin and rates of interest thereon.

"It should, however," said the RBI, "be ensured that such advances are not granted for speculative purposes.''

Interest relief to farmers

The RBI has asked banks to credit the farmers' accounts before March 31, 2006, with interest relief of two percentage points in the interest rate on the principal amount up to Rs. 1 lakh of crop loans availed of by the farmers for kharif and rabi 2005-06.

Banks can seek reimbursement from the RBI after crediting the relief to farmers' accounts.

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