The Reserve Bank of India on Monday (12.02.2018) scrapped all existing frameworks for revitalizing distressed assets such as Corporate Debt Restructuring (CDR) scheme , Flexible restructuring of long-term project loans(5/25) scheme, Strategic Debt Restructuring (SDR) scheme, Scheme for Sustainable Structuring of Stressed Assets(S4A). The Joint Lendes’ Foroum (JLF) as an institutional mechanism for resolution of stressed accounts also now stands discontinued.
In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), the RBI substituted the existing guidelines and made IBC as the main tool to deal with defaulters. The harmonized and simplified generic new framework requires the lender to classify a loan as a Non-Performing Asset (NPA) immediately upon restructuring. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall also be governed by the revised framework.
Under the new norms, stressed assets are classified as special mention accounts (SMA) such as SMA-0, SMA-1, SMA-2 on the basis of Principal or interest payment or any other amount wholly or partly overdue between 1-30 days, SMA-1 31-60 days, SMA-2 61-90 days respectively. The 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 ₹ 50 million (Rupees five crore) and above with them. The CRILC-Main Report will now be required to be submitted on a monthly basis (instead of quarterly) with effect from April 1, 2018. The lenders also required report to CRILC, all borrower entities in default (with aggregate exposure of ₹ 50 million 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.
As per RBI notification to all Scheduled Commercial Banks (excluding- RRBs), and All-India Financial Institutions (Exim Bank, NABARD, NHB and SIDBI) that `any failure on their part meeting the prescribed timelines or any actions by lenders with an intent to conceal the actual status of accounts or evergreen the stressed accounts, will be subjected to stringent supervisory, enforcement actions, which may include “but not limited to, higher provisioning on such accounts and monetary penalties.”
When there is a default in the borrower’s account lender or 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. The RP shall be clearly documented by all the lenders (even if there is no change in any terms and conditions).
The RP is deemed implemented only if (a) the borrower entity is no longer in default with any of the lenders; (b) if the resolution involves restructuring, then all related documentation, including execution of necessary agreements between lenders and borrower / creation of security charge / perfection of securities are completed by all lenders; and the new capital structure and/or changes in the terms of conditions of the existing loans get duly reflected in the books of all the lenders and the borrower. In case of large accounts where exposure of lender is Rupees one billion and above, Resolution Plan involving restructuring / change in ownership shall require independent credit evaluation (ICE) authorized by RBI for this purpose. For aggregate exposure of Rupees 5 billion and above require two such ICEs.