Supreme Court Ruling on MSME Accounts and NPA

Source- This post on Supreme Court Ruling on MSME Accounts and NPA has been created based on the article “SC asks banks to find MSME stress before accounts turn to NPA” published in The Hindu on 5 August 2024.

Why in News?

The Supreme Court has decided that banks or creditors must find early signs of trouble in MSME accounts before they become non-performing assets (NPAs).

About SC Ruling on NPAs

1. The focus is on a notification called “Instructions for the Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises,” issued on May 29, 2015.

2. This notification was updated by the Reserve Bank of India (RBI) in March 2016. These updates were made using the powers given by Section 21 and 35(A) of the Banking Regulation Act.

3. The court said that the May 2015 notification has “statutory force,” meaning it is legally binding on all Scheduled commercial banks licensed by the RBI.

4. According to the court, banks must follow the process outlined in the Framework to help MSMEs before their accounts are labeled as NPAs.

5. MSMEs need to provide verified documents to prove they are MSMEs before their accounts can be classified as NPAs.

6. If MSMEs fail to provide proof and their accounts are classified as NPAs, banks can use Chapter III of the SARFAESI Act, 2002, to take action to recover their money.

UPSC Syllabus: Indian Economy