RBI rolls out new stressed assets framework to tackle bad loan problem

On February 12, 2018, Reserve Bank of India (RBI) tightened norms for bad loan resolution by setting timelines for resolving large Non-performing assets (NPAs).

Withdrawing existing loan restructuring programmes:

Along with setting new norms to be followed for identifying, reporting and resolving stressed assets, RBI has also withdrawn the existing resolution frameworks and the Joint Lenders’ Forum (JLF).

• The existing resolution frameworks which have been withdrawn with immediate effect include Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme (SDR), Flexible Structuring of Existing Long Term Project Loans and Scheme for Sustainable Structuring of Stressed Assets (S4A).

New norms for Identifying, Reporting and Resolving Stressed Assets:

Now onwards, Banks will have to classifying stressed assets as Special Mention Accounts (SMA), immediately on default.

• Principal, interest payment or any other amount wholly or partly overdue between 1-30 days is to be placed under sub-category ‘SMA-0’.
• Principal or interest payment or any other amount wholly or partly overdue between 31-60 days is to be placed in sub-category SMA-1 while overdue amount between 61-90 days should be placed in SMA-2.
• From April 1, 2018, banks will have to report credit information of all borrower entities having aggregate exposure of Rs 5 crore and above to Central Repository of Information on Large Credits (CRILC). This report is to be submitted on a monthly basis.
• Besides, all defaulter entities, having aggregate exposure of Rs 5 crore and above, have to be reported to CRILC on a weekly basis, starting from week ending February 23, 2018.
• For defaulter accounts, where banking sector’s aggregate exposure is Rs. 2000 crore or above, Banks must implement a resolution plan within 180 days.
• The resolution plan (RP), should be as per board-approved policy and may involve any actions/plans including regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities /investors, restructuring orChange in ownership.
• If resolution plan is not implemented as per the timelines specified, Banks shall file insolvency application under the Insolvency and Bankruptcy Code 2016 (IBC) within 15 days.
• RBI has warned banks of monetary penalties and higher provisions if they violate any of the above stated new norms.