Login With Google
Revised norms to deal with stressed assets
Why is it in the news?
- The Reserve Bank of India released fresh guidelines to deal with bad loans after the Supreme Court quashed its 12 February, 2018, circular.
- The February circular had mandated lenders to start resolution even if there was a one-day default.
More in the news
- The new framework gives lenders a breather from the one-day default rule whereby they had to draw up an Resolution Plan(RP) for implementation within 180 days of the first default.
- It gives lenders (scheduled commercial banks, all-India financial institutions and small finance banks) 30 days to review the borrower account on default.
- As per RBI, the new NPA resolution norms replace all the previous models.
- Resolution strategy:(1) The lenders may decide on the resolution strategy, including the nature of the RP and the approach for its implementation.(2) Lenders may also choose to initiate legal proceedings for insolvency or recovery.(3) In cases where the RP is to be implemented, all lenders have to enter into an inter-creditor agreement (ICA) for the resolution of stressed assets.(4) Under the ICA, any decision agreed to by the lenders representing 75% of total outstanding credit facilities by value and 60% by number will be binding upon all the lenders.(5) In particular, the RPs will provide for payment which will not be less than the liquidation value due to the dissenting lenders.(6) If the implementation of an RP crosses the stipulated 180 days from the end of the review period, the lenders have to make additional provisions of 20% of the outstanding loan.(7) If this timeline exceeds 365 days, they further have to make a provision of 15%.
Source
The Hindu.