UCO Bank

Policy on Management / Restructuring of MSME Stressed Assets

In view of the recent phase of recession, the incidence of stress in MSME Sector is showing an increasing trend. Several internal and external factors have put considerable pressure on the performance of the MSMEs, resulting in a number of them becoming stressed.

The problems faced by some of the Units may be temporary in nature resulting in loan defaults and, therefore, require short term relief/concessions in order to bring them back to track.

The defaults are categorized into three groups. Based on the days of default recovery actions are to be taken.

Defaults of less than 30 days

As these defaults could be due to temporary liquidity constraints and cash flow adjustments, the branch offices should closely monitor and follow up with the promoters for early clearance of dues and understand the reasons for the default and possibilities of recovery within 30 days, so as to avoid these accounts slipping into stressed category.

Defaults of 30 to 60 days

Such assets are required to be given special attention as some of them may eventually turn into NPA if the default continues beyond 90 days. These accounts shall be reported to Zonal Office latest by the 30th day of default for close review and monitoring by ZO. These accounts should be classified into (i) those facing problems of temporary nature and (ii) those facing problems of medium term nature. Based on the category, need based restructuring may be considered and implemented, after examining the revised cash flow statement to be furnished by the Unit.

(i) Accounts facing temporary liquidity problem

For Units facing temporary liquidity problem, deferment/ reschedulement of principal installments within the original repayment period by reducing/ postponing the immediate future installments and suitably increasing the later installments, without extending the terminal date may be considered based on revised cash flows.

(ii) Accounts facing medium term liquidity problem

For Units facing liquidity problems of medium term nature following reliefs and concessions may be considered:

  • Reschedulement By reducing / postponing a number of future installments (need based) as also extension of terminal date may be considered, as reschedulement within the terminal date may not help the Unit to tide over its medium term problems, after examining that the revised cash flows warrant such extension. The modified repayment schedule is to be finalized based on the extant norms of DSCR in both the scenarios. Besides reschedulement, for Units facing medium term problems, funding of interest and fresh assistance may also be considered based on the merits of the case.
  • Funding of interest Overdue interest (including Further Compound Interest and Penal Interest (PI)], wherever applicable) and interest which would fall due in future (in respect of not more than 12 months) could normally be funded. The interest so funded should be payable within a maximum period of 36 months commencing after an initial moratorium not exceeding 6 months from the date of such funding. Funded amount would carry interest at the document rate or the rate decided after approval of relief/concessions proposal, whichever is lower.
  • Fresh assistance
    • WorkingCapital(WC)/ Working Capital Term Loan [WCTL] Liquidity support through fresh and/or additional WC / WCTL may be considered on a selective basis to Units whose operational difficulties are primarily due to liquidity constraints/inadequate sanction of working capital facilities.
    • Term Loan Fresh term loan assistance could be considered for acquisition of balancing equipment and/or need based expansion, on a selective basis in respect of cases where it is seen that providing such assistance would be helpful in bringing a turnaround of its operations. Where restructuring as stated as B (i) before, may be implemented within 75 days of default, the same, in any case, should be implemented within 90 days, before the account slips into NPA.

Defaults more than 60 days

The loan accounts having outstanding more than Rs. 2 crore where defaults are more than 60 days, need to be referred to the next higher authority by the 60th day for close review and monitoring.

Further, in such cases where the problems of the Unit are of long term/ structural in nature and it is observed that above mentioned measures are not likely to bring back the account(s) on track, comprehensive rehabilitation package would need to be offered to potentially viable Units. Rehabilitation package of cases with outstanding upto Rs.2 crore could be worked out at Zonal Office level and for cases with outstanding of more than Rs.2 crore at Circle Office level.

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