Mumbai: The Reserve Bank of India (RBI) on Monday proposed expanding the scope of oversight committees and a larger role for credit rating agencies as it draws up an action plan to deal with the Indian banking system’s Rs10 trillion stressed loan problem. Earlier this month, the government moved an ordinance empowering the central bank to intervene directly in stressed asset cases.

In a statement on its website, the central bank said it wanted to expand the oversight committee from its current size of two members so that the panel can constitute separate benches to deal with the huge number of cases expected. RBI also said it was planning to allow the oversight panel to look at cases beyond S4A (Scheme for Sustainable Structuring of Stressed Assets).

Secondly, the central bank has proposed creating an advisory committee of its independent board members. The regulator said it was working on a framework that will allow “objective and consistent decision making process" for invoking the insolvency and bankruptcy code. Detailed guidelines will be released later by RBI. The ordinance gives the government powers to authorize RBI to invoke the code against defaulters.

The central bank said it has already asked banks for the current status of large stressed assets. Further, it is planning to meet stakeholders such as banks, asset reconstruction companies, rating agencies, the Insolvency and Bankruptcy Board of India and private equity firms in the near future.

The central bank also said it was considering revising the current rules on restructuring so that stressed assets can be resolved in a “value optimising manner".

Bankers have asked RBI for more powers to push errant borrowers to give up ownership and voting rights, effect a management change and even split the debt into sustainable and unsustainable parts to better restructure loans. Currently, there are rigid rules for invoking these powers, a key reason for the failure of these schemes, according to bankers.

On 5 May, hours after the ordinance was passed, RBI tweaked some rules to quicken stressed asset resolutions through the joint lender forums comprising creditors to borrowers who are in default.

In Monday’s statement, the regulator said that it saw a larger role for credit rating agencies. In order to prevent conflict of interest, RBI is proposing to assign cases to ratings agencies itself. It is looking at the possibility of paying these raters from a kitty funded by itself and commercial banks

“The speed with which the regulator has come out with these guidelines is really commendable. Since the regulator will retain the agency to examine the stressed accounts, quality of ratings will get further enhanced," said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services Llp.