Mumbai: The Reserve Bank of India (RBI) has issued new guidelines to quicken stressed asset resolutions through the joint lender forums (JLFs) comprising creditors to borrowers who are in default.
RBI said it was exercising new powers conferred on it by the Banking Regulation Ordinance that was passed on Friday.
The central bank slashed the minimum votes required in a JLF to reach a decision. It said decisions agreed to by 60% of creditors by value and 50% by number would be the basis for deciding a corrective action plan. Earlier, JLF decisions required the assent of 60% by number of creditors and 75% by value to achieve resolution.
The JLF framework was introduced in 2014 to resolve stressed assets quickly. The large composition of the committees acted as an impediment because lenders found it difficult to arrive at a consensus.
There have also been instances of a few banks striking private deals with borrowers even as they participated in a JLF.
Despite disincentives such as accelerated provisioning against bad loans, there have been delays in finalizing corrective action plans, the central bank said.
It also clarified that such plans could include flexible structuring of project loans and change in ownership under strategic debt restructuring.
The central bank said that banks should vote on JLF proposals unconditionally.
Any bank which does not support the majority decision has the option of exiting its exposure. If it fails to do so within a stipulated timeline, it will have go along with the majority decision.
“The bank shall implement the JLF decision without any additional conditionalities,” the regulator said.
It also asked bank boards to empower their executives to implement a JLF decision without requiring any further approval from the board.
RBI said it will impose monetary penalties if banks fail to stick to these timelines.
“Empowering executives to implement the JLF decision will ensure that banks will take decisions expeditiously. It will also force banks to take a final decision at the JLF without having to go back to the board for further approval,” said Sunil Srivastava, deputy managing director, State Bank of India.