Moneycontrol Be a Pro
Get App
Last Updated : Jun 10, 2019 10:32 AM IST | Source:

RBI revises NPA norms: A win-win situation for lenders & borrowers

The new norms provide a framework for early recognition, reporting and time-bound resolution of stressed assets, the RBI said in a notification

Moneycontrol News @moneycontrolcom
  • bselive
  • nselive
Todays L/H

Reserve Bank of India (RBI) on June 7 issued a revised circular on the resolution of stressed assets, which most experts feel will bring much more clarity to the process. They also think it is a definite win-win for both lenders as well as the borrower.

RBI has said that lenders must resolve non-performing assets (NPA) over Rs 2,000 crore within 180 days. The latest directions from the RBI retains the basic spirit of February 12, 2018, circular as it mandates higher provisioning, bankruptcy options and not allowing any other resolution methods outside the new norms, a PTI report said.

The new norms provide a framework for early recognition, reporting and time-bound resolution of stressed assets, the central bank said in a notification on June 7.


In the revised norms on stressed assets, RBI has said that in case of a default by a borrower, lenders have to undertake a prima facie review of the borrower account within 30 days from such default (called the review period).

“This is a welcome step since there was a lag between noticing the default and then having a resolution to it. Earlier it was mandated to identify it on Day 1 which was actually a losing situation for the borrower. This was actually creating a stressful situation for the lender and the borrower,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“This new 30-day window will now actually put a cushion for the borrower. Secondly, the powers that have been now given to lender brings a lot of clarity on the table. Since it will now be able to identify the bad loans, study the books and make a concrete resolution for the same,” he said.

Nadeem further added that it is a win-win situation for both—the lender and the borrower—as it brings logically much-needed clarity.

During this review period of 30 days, lenders may decide on the resolution strategy, including the nature of the resolution plan and how it will be implemented. The lenders can also choose to initiate legal proceedings for insolvency or recovery.

In cases where a resolution plan is to be implemented, all lenders have to enter into an inter-creditor agreement (ICA) during the above-said review period.

Also read: RBI revises NPA norms, gives banks 30 days to review stressed loans

“Even though the revised framework for resolution of stressed assets does away with the implementation of resolution plan for borrowers overdue by up to 30 days, the overall framework is positive and will continue to incentivise banks for accelerated resolution of stressed assets,” Karthik Srinivasan, Group Head Financial Sector Ratings at ICRA said.

“Further incentives to reverse 50 percent of these provisions upon reference under IBC will incentivise lenders to refer such stressed cases to IBC for faster resolution, however, lenders may adopt a case-specific approach for such reference,” he said.

Srinivasan further added that even though criterion for upgradation of stressed account has been relaxed, which now requires at least 10 percent of debt repayments at the time of restructuring from 20 percent earlier; the requirement of an investment grade ratings by the external agency will ensure that upgradation is done only for viable cases.

Here’s how brokerage firms reacted on the RBI circular:


The RBI offers leeway to banks and the onus of resolutions is now on them. The new framework addresses banks’ concerns by giving four concessions.

There is no rule-based reference to NCLT. The central bank gave an extra 30 days i.e. a total of 210 days for implementing resolution plans.

It will be a tad easier for norms for loan upgrades. The new norms may address the risk of NCLT references to Rs 1.5-2 lakh crore of loans. We prefer private corporate banks like ICICI Bank, IndusInd Bank, and among PSUs, it prefers SBI.

Deutsche Bank:

The new NPA norms are likely to provide flexibility in the resolution process. We expect some pick-up in the pace of resolution.

Overall, it is positive for banks. It could provide some relief to power companies. The new norms should help in expediting resolution for power sector lending.


Most changes to the resolution process for stressed assets are practical. The changes rightly incentivise banks to find a time-bound resolution.

RBI has mandated additional provisions of 20-35 percent if lenders do not find a resolution plan. The resolution would need a nod of 75 percent of lenders by value or 60 percent by the number of lenders.

The revised framework eliminates the stringent rule of one-day default. We prefer corporate banks as the credit cycle is peaking for larger corporate banks. The corporate banks have limited exposure to recently stressed names in NBFC/infra space.

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.

The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .
First Published on Jun 10, 2019 10:32 am
Follow us on
Available On