JOIN USReserve Bank Deputy Governor K C Chakrabarty, on Saturday, said efforts were on to redefine what makes an industrial unit sick, which will help bring down delinquencies.
“We need to redefine a sick unit. Our definition of sick unit needs a change,” Chakrabarty said during a summit organised by SME Chamber of India here.
A committee is looking into redefining what makes a unit sick as the current provisions, which entail a 50 per cent erosion of net worth of a company before it is declared sick, is ineffective in tackling the asset stress, he said.
“When 50 per cent of the networth is eroded, the unit is dead,” Chakrabarty said, adding that once the definition is revised, banks will be more encouraged to act and save potential defaulters in time.
With the present rules, which provide for a high cut-off before a unit is deemed sick, very few banks “nudge” such units towards paying their debt obligations, he said. He also hinted that with schemes such as Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE), which guarantees loans up to Rs 1 crore, banks are getting complacent and being lax in appraisals.
“Nowhere should the message go that now that you have an insurance, your appraisal standards should go down. We need to be careful with CGTMSE, and must also have an exit policy,” he said. Chakrabarty said that banks are neglecting services such as factoring, which are of great help to small units. Targets on the SME sector should be set at the branch level and there should be monitoring of the same to make the branch-level staff achieve it, he said.