In a major overhaul for resolution of NPAs (non-performing assets), the Reserve Bank of India has revised the new stressed assets framework asking banks to resolve defaults within 180 days.
Further, starting February 23, banks must immediately identify the defaults and make disclosures every Friday to the RBI credit registry.
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.
The RBI has withdrawn the existing resolution frameworks and the Joint Lenders' Forum (JLF) also stands discontinued with immediate effect.
"The extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) stand withdrawn with immediate effect."
In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets, RBI did releasing a circular late evening on revised framework for resolution of stressed assets.
Last year in two tranches, RBI already identified assets worth over Rs 2.5 lakh crore of around 40 NPA accounts (12 large accounts in first list in June and 28 in second list in August) to be taken to insolvency courts.
The RBI, however, clarified these timelines do not apply to accounts where insolvency action has already been initiated at the insistence of the central bank.
At present, banks are battling a significant amount of stressed loans to the tune of over Rs 8.5 lakh crore on their balance sheets, following an asset quality review done towards the end of 2015.
Recognition of stress
"Lenders shall identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA).
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
RBI said, "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.
The first such weekly report shall be submitted for the week ending February 23, 2018, the Banking regulator said.
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.
i) If in default as on the reference date, then 180 days from the reference date.
ii) 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.
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," RBI said.
Cases of frauds / wilful defaulters
Borrowers who have committed frauds/ malfeasance/ wilful default will remain ineligible for restructuring, under the new guidelines.
However, in cases where the existing promoters are replaced by new promoters, and the borrower company is totally delinked from such erstwhile promoters/management, lenders may take a view on restructuring such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/management, it added.
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.