Mumbai: The Reserve Bank of India (RBI) on Tuesday allowed banks some operational flexibility in implementing the central bank’s framework for revitalizing distressed assets, but did not change the 31 March deadline after which all fresh restructured assets would be treated as bad loans.

The framework, issued on 30 January, requires banks to categorize their assets under different heads based on how long the loan has remained overdue. If a loan worth 100 crore and more is not serviced for 60 days, the banks were required to form a joint lenders’ forum (JLF) and prepare a corrective action plan (CAP) to decide on refinance or recast of the loan.

Under the existing norms, a corrective action plan had to be prepared within 30 days of the account becoming categorized as ‘SMA-2’, or loan on which no interest or principal has been paid for 60 days.

With the revised guidelines, RBI extended the deadline to 45 days, for loans worth at least 500 crore.

Earlier, all creditors faced penalties if a corrective plan was not prepared within 30 days; now only the lead bank will be penalized because often a JLF is not formed because of delays caused by the lead bank, RBI said. The penalty for the bank is to increase the provision on the loan by at least 5%.

In case the lead bank of the consortium under the multiple banking arrangement fails to convene a JLF within 15 days of reporting a loan’s SMA-2 status, the bank with the second largest exposure should convene the JLF within the next 15 days, and face the same responsibilities and disincentives as applicable to the lead bank, RBI said.

RBI also made it difficult for banks to get out of a restructuring plan for a company. Many banks baulk at recasting loans because debt restructuring requires the lenders to sacrifice a part of their dues.

The central bank said banks can exit the consortium of lenders doing the restructuring “only by way of arranging their share of additional finance to be provided by a new or existing creditor."

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