Page 40 - BANKING FINANCE JUNE 2016

ARTICLE
While the classification of an account into SMA-1 or SMA-2
happens based on record of recovery, an account can be
classified as SMA-0 once it indicates incipient signs of stress. Where the borrowers, in which the bankers have an expo-
The Framework also lists down a few illustrative signs of
stress for the purpose of categorising an account as SMA-0
and the same have been listed below:
a. Delay of 90 days or more in (a) submission of stock
statement / other stipulated operating control state-
ments or (b) credit monitoring or financial statements
or (c) non-renewal of facilities based on audited
financials.
b. Actual sales / operating profits falling short of projec-
tions accepted for loan sanction by 40% or more; or a
single event of non-cooperation / prevention from con-
duct of stock audits by banks; or reduction of Drawing
Power (DP) by 20% or more after a stock audit; or evi-
dence of diversion of funds for unapproved purpose; or
drop in internal risk rating by 2 or more notches in a
single review.
c. Return of 3 or more cheques (or electronic debit in-
structions) issued by borrowers in 30 days on grounds
of non-availability of balance/DP in the account or re-
turn of 3 or more bills / cheques discounted or sent
under collection by the borrower.
d. Devolvement of Deferred Payment Guarantee (DPG)
instalments or Letters of Credit (LCs) or invocation of
Bank Guarantees (BGs) and its non-payment within 30
days.
e. Third request for extension of time either for creation
or perfection of securities as against time specified in
original sanction terms or for compliance with any other
terms and conditions of sanction.
f. Increase in frequency of overdrafts in current accounts.
g. The borrower reporting stress in the business and
financials.
h. Promoter(s) pledging/selling their shares in the bor-
rower company due to financial stress.
An account involving aggregate loan of Rs. 10 lakhs and
above, on reaching the SMA-2 categorisation, shall have to
be referred to a committee, constituted by the name of
Committee for Stressed Micro, Small and Medium Enter-
prises, within 5 working days from the date of
categorisation for devising a corrective action plan.
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The reference to the committee for the purpose of devis-
ing a CAP can also be made at the option of the borrower.
sure of Rs. 10 lakhs or more, themselves feel the formation
of a stress in the business, they are allowed to make a suo
moto application to the lender and lenders are bound to
refer the account to the Committee for devising a CAP.
Committee for stressed micro small and
medium enterprises
The Committee is meant for the purpose of devising a cor-
rective action plan for the revival of the stressed assets. The
role of the Committee is same as that of Joint Lenders Fo-
rum, as per the Framework for Revitalising Distressed As-
sets in the Economy. The Committee has to be constituted
by every bank or every consortium of banks having MSME
exposure in the following manner -
a. The Committee shall be chaired by the regional or zonal
head of the convener bank;
b. The Committee shall be convened by the officer-in-
charge of the Micro, Small and Medium Enterprises
Credit Department of the convener bank at the regional
or zonal office level, who shall also be its member;
c. One independent external expert with expertise in
Micro, Small and Medium Enterprises related matters
to be nominated by bank.
d. One representative from the concerned State Govern-
ment. Endeavour should be made to bring representa-
tive from the respective State Government in the Com-
mittee. In case State Government fails to nominate any
member, then the convening bank has the power to
include an independent expert in the Committee,
namely a retired executive of another bank of the rank
of AGM and above.
e. Where the case involves consortium of lenders - senior
representatives of all banks / lenders having exposure
to the borrower.
In case of accounts involving multiple lenders, an Inter Credi-
tor Agreement has to be executed between the lenders.
The Framework also requires the banks to adopt a policy
with the approval of the board that would lay down the
particulars pertaining to the composition of the Commit-
tee, the terms of appointment of its members, the man-
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