RBI Revised Guidelines for Stressed Assets – Detailed Overview

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RBI Revised Guidelines for Stressed Assets

RBI Revised Guidelines for Stressed Assets.The Reserve Bank of India has scrapped numerous loan restructuring programmes prevalent among banks to restructure defaulted loans and made resolution of defaults time bound with the Insolvency and Bankruptcy Code becoming the main tool to deal with defaulters. The central bank has warned banks of monetary penalties and higher provisions if banks are found to have violated or found `evergreening’ accounts to escape its stringent new norms on fixing defaults.

The Reserve Bank of India abolished half a dozen existing loan-restructuring mechanisms late last night, and instead provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.

Today we are providing you a brief overview about R RBI Revised Guidelines For Stressed Assets I for the upcoming exam point of view. Candidates those who are preparing for Syndicate PO, Canara Bank PO, SBI Clerk, IBPS, RBI and all other competitive exams can use this.

 RBI Revised Guidelines For Stressed Assets

The Reserve Bank of India (RBI) has brought out a revised framework for speedy resolution of non-performing assets (NPAs), or bad loans, by harmonising existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC), 2016.

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The RBI has withdrawn the existing resolution frameworks and the Joint Lenders’ Forum (JLF) also stands discontinued with immediate effect. For accounts with an exposure of Rs 2,000 crore or more, banks will have to ensure that a resolution plan is in place within 180 days after a ‘default’. If not implemented within the timeframe, the account must be referred to the insolvency courts within 15 days. For accounts with exposure of Rs 100 crore to Rs 2,000 crore a timeline for resolution will be announced over a two-year period.

Early identification and reporting of stress

As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, mark them immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default as given below. As soon as there is a default in the borrower entity’s account with any lender, all lenders – singly or jointly – shall initiate steps to cure the default.

“Lenders shall identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA). MA Sub-categories Basis for classification –Principal or interest payment or any other amount wholly or partly overdue between:

SMA Sub-categories Basis for classification – Principal or interest payment or any other amount wholly or partly overdue between
SMA-0 1-30 days
SMA-1 31-60 days
SMA-2 61-90 days

CRILC Report

“Lenders shall report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC) on all borrower entities having aggregate exposure of Rs 50 million (Rs 5 crore) and above with them.”

The CRILC-Main Report will now be required to be submitted on a monthly basis effective April 1, 2018. In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs 5 crore and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday.

Timelines for large accounts

In respect of accounts with aggregate exposure of the lenders at Rs 20 billion (Rs 2,000 crore) and above, on or after March 1, 2018 (‘reference date’), including accounts where resolution may have been initiated under any of the existing schemes as well as accounts classified as restructured standard assets which are currently in respective specified periods, the resolution professional (RP) shall implement as per following timelines.

  • If in default as on the reference date, then 180 days from the reference date.
  • If in default after the reference date, then 180 days from the date of first such default.

In respect of such large accounts, where an RP involving restructuring/change in ownership is implemented within the 180-day period, the account should not be in default at any point of time during the ‘specified period’, failing which the lenders shall file an insolvency application, singly or jointly, under the IBC within 15 days from the date of such default.

‘Specified period’ means the period from the date of implementation of RP up to the date by which at least 20 percent of the outstanding principal debt as per the RP and interest capitalisation sanctioned as part of the restructuring, if any, is repaid.

Supervisory Review

Any failure on the part of lenders in meeting the prescribed timelines or any actions by lenders with intent to conceal the actual status of accounts RBI will take the Prompt Corrective Action (PCA) on those particular lenders. These are the some of the main guidelines of the RBI for stressed assets; if there are any further changes made by the RBI we will update this post.

Immediate Resolution Plan

The central bank has asked all lenders to put in place Board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution.

“As soon as there is a default in the borrower entity’s account with any lender, all lenders − singly or jointly − shall initiate steps to cure the default.

“The resolution plan (RP) may involve any actions / plans / reorganization including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership, or restructuring,”

Existing loans under old framework

All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework.

Source – Money Control

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