RBI’s New Norms On Bad Loans Wake Up Call For Defaulters
NEW DELHI: In an attempt to speed up the resolution of bad loans, RBI has tightened the rules for banks to identify and resolve any non-payment of loans quickly, a move that the government should act as a “wake-up call” for the defaulters.
The Reserve Bank of India abolished half a dozen existing late-night loan restructuring mechanisms and established a strict 180-day schedule for banks to agree on a resolution plan in case of default or remit bankruptcy to the bank. account.
The Secretary of Financial Services, Rajiv Kumar, said the new rules are a “wake-up call” for defaulters.
“The government is determined to clean things up at once and not defer them, it’s a more transparent resolution system,” he said, “he told PTI here.
Under the new rules, insolvency proceedings would have to be initiated in the case of a loan of Rs 2,000 crore or more if a resolution plan is not implemented within 180 days of the breach.
The banks will face sanctions in case of non-compliance with the guidelines, said RBI.
The Secretary of Financial Services said that the decision of the RBI would not have much impact on the provision of rules for banks.
The revised framework has specified standards for the “early identification” of stressed assets, the deadlines for the implementation of resolution plans and a fine for banks for failing to meet deadlines.
RBI has also withdrawn the existing mechanism that included the Corporate Debt Restructuring Scheme, the Strategic Debt Restructuring Scheme (SDR) and the Scheme for the Sustainable Structuring of Stressed Assets (S4A).
The Joint Lenders Forum (JLF) as an institutional mechanism for resolving stressed accounts is also suspended, he said, adding that “all accounts, including accounts where any of the schemes have been invoked but not yet implemented, will be governed for the revised framework. ”
Under the new rules, banks must report defaults weekly in the case of borrowers with more than 5 million rupees of loan. Once a default occurs, banks will have 180 days to develop a resolution plan. If they fail, they must submit the account to the Bankruptcy and Insolvency Code (IBC) within 15 days.
Last year, the government gave the RBI more powers to pressure banks to manage unproductive assets (NPA) or bad loans.
The gross NPAs of public sector and private sector banks as of September 30, 2017 were Rs 7,393,974 crore, Rs 1,02,808 crore, respectively.
“In view of the promulgation of the IBC, it was decided to replace the existing guidelines with a simplified and harmonized generic framework for the resolution of stressed assets,” RBI said in the notification.
According to the revised guidelines, banks should identify the emerging stress in loan accounts, immediately in case of default, by classifying stressed assets as special-mention accounts (SMA) depending on the period of default. The SMA classification will depend on the number of days (1-90) for which the principal or interest has remained due.
The notice stated that if a resolution plan with respect to large accounts is not implemented according to the specified terms, the lenders must submit an insolvency application, individually or jointly, in accordance with the IBC, 2016, within 15 days after the expiration of the specified term. timeline
All lenders must submit a monthly report to the Central Credit Information Depository (CRILC) as of April 1, 2018.
In addition, lenders must inform CRILC, all borrowing entities in arrears (with a total exposure of Rs 5 crore and above), weekly, at the close of business every Friday, or the previous business day if Friday becomes a holiday .
The first weekly report of this type will be submitted for the week ending on February 23, 2018, according to the notification.
The new guidelines have a specific framework for the early identification and reporting of stressed assets.
With respect to accounts with a total exposure of the lenders of Rs 2,000 crore and above, on March 1, 2018 or after (reference date), the resolution plan RP must be implemented within 180 days.
“If it is in default after the reference date, then 180 days from the date of the first breach,” the notice said.