MSME Rehabilitation - A Comprehensive Overview
MSME Rehabilitation: Detailed Discussion
1. Sickness in MSMEs
Sickness in MSMEs refers to the sustained financial and operational underperformance of the business. Recognizing early symptoms is crucial to enable timely intervention.
Symptoms of Sickness
- Continuous cash losses
- Increasing working capital gap
- Decline in turnover and production
- Delayed statutory payments (PF, GST, etc.)
- Default in loan repayments
Warning Signals
- Overdrafts exceeding limits frequently
- Cheque bounces
- Reduction in capacity utilization
- Inventory pile-up
2. Diagnosis and Prescription
Early diagnosis is key. Tools such as SWOT analysis, credit rating reports, and cash flow analysis can be used to understand the root causes.
Mathematical Example
Debt Service Coverage Ratio (DSCR):
DSCR = Net Operating Income / Total Debt Service
Example:
Net Operating Income = ₹1,20,000
Total Debt Service = ₹1,00,000
DSCR = 1.2 (Acceptable if > 1)
3. Rehabilitation and Restructuring
Rehabilitation involves a systematic plan to restore the financial health of the unit. It includes:
- Fresh infusion of funds
- Interest waiver or reduction
- Extension of repayment period
- Capital restructuring
4. Holding-On Operations
These are temporary financial accommodations given to keep the unit afloat while final rehabilitation is planned. They include short-term working capital loans and moratorium on existing repayments.
5. Work Out Strategies
- Financial restructuring with promoter contribution
- Operational support through technology upgrades
- Improved cash flow planning
6. NPA Management
If the loan becomes Non-Performing Asset (NPA), special attention is needed. Banks may restructure the loan under RBI’s Prudential Framework for Resolution of Stressed Assets.
7. Recovery Options
- Compromise settlements
- One-Time Settlements (OTS)
- Lok Adalats
- Debt Recovery Tribunals (DRTs)
8. Legal Aspects
- SARFAESI Act: For enforcement of security without court intervention
- Insolvency and Bankruptcy Code (IBC): For comprehensive insolvency resolution
9. Securitization and Exit Alternatives
Securitization involves pooling of stressed assets and selling them to Asset Reconstruction Companies (ARCs). Exit can be through sale of business, acquisition, or liquidation.
Conclusion
Rehabilitation of MSMEs is critical for maintaining employment and economic growth. Timely detection and structured interventions supported by policy and legal frameworks can ensure effective revival of these units.
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