New Delhi: The Reserve Bank of India on Friday released fresh guidelines to deal with bad loans after the Supreme Court quashed its 12 February, 2018, circular, which mandated lenders to start resolution even if there was a one-day default. New NPA resolution norms replace all the previous models, the central bank said. Under the new norms, defaults are to be recognized within 30 days, says RBI.
During this review period of 30 days, lenders may decide on the resolution strategy, including the nature of the resolution plan (RP) and the approach for implementation of the RP.
In its prudential framework for resolution of stressed assets, RBI said, "Lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts."
The circular was struck down by the Supreme Court of India in April after several companies had challenged the guidelines in court arguing the time given by the central bank was insufficient to tackle bad debt.
The RBI has also asked banks to make additional provisions in case of failure to implement a resolution plan within given timelines, the circular showed.
The fundamental principles underlying the regulatory approach for resolution of stressed assets are as under:
* All lenders must put in place board-approved policies for resolution of stressed assets
* It is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default
* Lenders shall report credit information on all borrowers having aggregate exposure of ₹5 crore and above with them
* In cases where RP is to be implemented, all lenders shall enter into an inter-creditor agreement (ICA)
* Lenders shall submit weekly report of instances of default by all borrowers with aggregate exposure of ₹5 crore and above
* ICA to provide rules for finalisation, implementation of RP for those with credit facilities from more than one lender
RBI said intent to evergreen stressed accounts by lenders will be subjected to stringent actions including higher provisioning & monetary penalties.
"Resolution plans shall provide for payment not less than the liquidation value due to the dissenting lenders," stated RBI in its latest framework.
On accounts with aggregate exposure above a threshold with lenders, resolution plan is to be implemented within 180 days from review period and lenders shall undertake a review of the borrower account within thirty days from default
RBI said resolution plan underway as on date of circular may be pursued by lenders under revised framework subject to meeting specified conditions
The lenders are free to initiate legal proceedings for insolvency or recovery, the central bank said
The Joint Lenders’ Forum (JLF) as mandatory institutional mechanism for resolution of stressed accounts stands discontinued, RBI stated.
Also. extant instructions on resolution of stressed assets like framework for revitalising distressed assets have been withdrawn with immediate effect and so are the extant instructions on corporate debt restructuring scheme, flexible structuring of existing long term project loans.
According to the revised guidelines, extant instructions on strategic debt restructuring scheme, change in ownership outside SDR are also withdrawn and so are the extant instructions on scheme for sustainable structuring of stressed assets.
Framework is not available to borrowers to whom specific instructions have already been issued for initiation of insolvency proceedings under IBC.
RBI said borrowers who have committed frauds/malfeasance/wilful default will remain ineligible for restructuring.
The RBI said the new directions will come into force with immediate effect.