Performance and Credit Rating Scheme (PCRS)
The Performance and Credit Rating Scheme (PCRS) was implemented by the National Small Industries Corporation (NSIC) on behalf of the Ministry of Micro, Small and Medium Enterprises (MSME). Although the scheme has since been discontinued, its objectives and methodology established an important foundation for the credit rating of MSMEs in India.
Objectives
* Third-party opinion: To provide an independent and reliable evaluation of a micro or small enterprise’s creditworthiness and capabilities.
* Strengths and weaknesses analysis: To help enterprises identify operational strengths and weaknesses, thereby enabling strategic improvements.
* Access to credit: To facilitate improved access to bank credit and financial resources on favorable terms.
* Market credibility: To enhance the acceptability of MSMEs among customers, buyers, and vendors.
Operational Mechanism
* Rating agencies: Empanelled agencies such as CRISIL, ICRA, and SMERA were responsible for conducting the ratings.
* Methodology: The rating combined both performance and credit factors, including financial health, business risks, operational efficiency, and managerial competence.
* Rating process: The process involved application submission, documentation, on-site evaluation, analytical review, and assignment of a rating.
* Fee subsidy: NSIC provided a subsidy on rating fees in the first year, with the amount linked to the enterprise’s turnover. While financial subsidies have since been withdrawn, NSIC continues to support the facilitation of credit rating.
Framework for Revival and Rehabilitation of MSMEs
The Ministry of MSME, in collaboration with the Reserve Bank of India (RBI), introduced the Framework for Revival and Rehabilitation of MSMEs on May 29, 2015. The framework seeks to provide a simplified and time-bound mechanism to address financial stress in MSME accounts.
Eligibility Criteria
* Loan amount: Applicable to MSME accounts with aggregate loan limits of up to ₹25 crore.
* Account type: Includes accounts under consortium lending or multiple banking arrangements.
Key Features and Process
1. Identification of stress: Banks are mandated to detect early warning signals of financial stress through the *Special Mention Account (SMA)* categorization:
* SMA-0: No overdue beyond 30 days, but early signs of stress.
* SMA-1: Overdue between 31 and 60 days.
* SMA-2: Overdue between 61 and 90 days.
2. Voluntary application: MSMEs may voluntarily apply for intervention if they foresee business distress, debt repayment difficulties, or net worth erosion.
3. Committee formation: Banks must establish a Committee for Stressed Micro, Small and Medium Enterprises (CSMSME) to devise a Corrective Action Plan (CAP).
4. Corrective Action Plan (CAP): Depending on the enterprise’s viability, the Committee may recommend:
* Rectification: Borrower-led measures to normalize the account.
* Restructuring: Modification of loan terms if the borrower is viable and not a willful defaulter.
* Recovery: Initiation of legal or recovery proceedings if the account is deemed unviable.
Judicial Mandate
In August 2024, the Supreme Court ruled that adherence to this framework is mandatory for banks prior to classifying an MSME account as a Non-Performing Asset (NPA). This ruling reinforces the shared responsibility of banks and MSMEs in the early identification and resolution of financial distress.
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