The Reserve Bank of India (RBI) has issued new NPA guidelines “Prudential framework for resolution of stressed assets” to deal with bad loans, as the previous circular that was issued by RBI on Feb 12, 2019 rejected by Supreme Court. The new framework will replace the all the previous models. The directions have been issued in terms of the provisions of Section 35AA of the Banking Regulation Act, 1949, for initiation of insolvency proceedings against specific borrowers under the Insolvency and Bankruptcy Code, 2016 (IBC).
- RBI has mandated the lenders to review the accounts within 30 days of default and initiate a resolution plan or Insolvency and Bankruptcy Code (IBC) process before the default, in comparison to the Feb 12 circular which stated to initiate resolution or restructuring of loans even if the default was recorded for a single day.
- Lenders have been given complete discretion to design, implement resolution plan.
- Lenders should follow a board-approved policy for resolution of bad loans.
- Mandatory to sign inter-creditor agreement (ICA) by all lenders, which will provide for a majority decision making criteria.
- The earlier norm of 100 percent approval from creditors is also changed. ICA shall now provide any decision agreed by lenders representing 75 percent by value of total outstanding credit facilities and 60 percent of lenders by number shall be binding upon all the lenders.
- Lenders must resolve over Rs 2000 crore NPA account within 180 days.
- Lenders will have to make 35 percent provisions–first 20 percent for 180 days and then an additional 15 percent if no resolution is found within 365 days.
- Lenders shall submit a weekly report of instances of default by all borrowers (with aggregate exposure of Rs 50 million and above) by close of business on every Friday, or the preceding working day if Friday happens to be a holiday.
- For borrowers with exposure between Rs 1,500 crore and Rs 2,000 crore, the new norms will be applicable from January 1, 2020, while for loans up to Rs 1,500 crore will be announced in due course.
- RBI also warned that any action by lenders to conceal the actual status of accounts or evergreening the stressed accounts, will be subjected to stringent supervisory/enforcement actions.
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