RBI Gets Tough : New bad-loans framework, Debt restructuring disallowed
Mumbai : The Reserve Bank of India (RBI) on Monday tightened norms for dealing with bad loans by setting 180-day timeline for resolving large NPAs(Non Performing Assets).
Notably RBI also withdrew existing debt restructuring schemes such as SDR and S4A.
According to the new rule, banks with aggregate exposure of Rs. 2,000 crore and above, should implement resolution plan within 180-days starting March 1, failing which the cases have to be mandated for insolvency proceedings.
RBI has issued definitions of different resolution plans and an indicate list of financial difficulty. It has also directed lenders to share data on certain defaulted borrowers with the central bank’s database on large exposures, every Friday.
“If a RP(resolution plan) in respect of such large accounts is not implemented as per the timelines specified, lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016(IBC) within 15 days from the expiry of the said timeline,” the RBI notification on Monday read.
The apex bank has also warned banks of penalisation if timelines are not conformed with.
In cases where there is a change in ownership structure of the defaulting firm, RBI mandates that the account would not be in default at any point during the specified period.
Specified period is the time between implementation of the plan and the date where up to 20% of the outstanding principal debt is repaid.
Transition arrangements will however not be allowed for entities already under RBI’s reference under IBC, it said.
For exposures below Rs. 2,000 crore but above Rs. 100 crore the central bank intends to announce a two-year timeframe.
The circular comes at a time when banks are finalising resolution plans for 11 or 12 accounts in RBI’s first defaulter list under IBC and filing petitions for 28 other accounts from the second list.
Indian banks are sitting on a stressed assets pool of over Rs. 10 trillion.