RBI REVISES STRESSED ASSET RESOLUTION NORMS

Why in News?

  • The RBI has released revised set of norms on stressed asset resolution which are substantially less stringent from the previous one.

Inter-Creditor Agreement (ICA):

  • The inter-creditor agreement is aimed at the resolution of loan accounts with a size of ₹50 crore and above that are under the control of a group of lenders.
  • It is part of the Sashakt plan approved by the government to address the problem of resolving bad loans. The lenders may also choose to initiate legal proceedings for insolvency or recovery as per the news circular. If the RP is to be implemented, lenders have been asked to enter into an inter-creditor agreement (ICA), within the review period, to provide for ground rules for finalization and implementation of the RP.
  • The ICA shall provide that any decision agreed by lenders representing 75% by value of total outstanding credit facilities (fund-based as well as non-fund based) and 60% of lenders by number shall be binding upon all the lenders. The RP will have to implement within 180 days from the end of review period.

Review Period:

  • The new circular asked lenders to undertake a prima facie review of the borrower account within 30 days from a default, which is termed as review period. During this review period, lenders may decide on the resolution strategy, including the nature of the resolution plan (RP), the approach for implementation of the RP etc.
  • The review period shall commence not later than the date of the this circular for loans above Rs. 2000 crore; January 1 ,2020 for loans above Rs. 1,500 crore to Rs. 2,000 crore.

What if Resolution Plan delayed?

  • There is a disincentive for banks if they delay implementing a viable resolution plan.
  • In case the plan is not implemented within 180 days from the end of review period, banks have to make additional provision of 20% and another 15% if the plan is not implemented within 365 days from the start of the review period. The additional provisions would be
    reversed if resolution is pursued under Insolvency and Bankruptcy Code (IBC).
Share Socially