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Jun 07, 2019
8:56PM

RBI issues new guidelines for resolution of bad loans

File Pic: PTI
The Reserve Bank has issued a new framework for resolution of bad loans, offering a 30-day gap for stress recognition instead of the one-day default earlier.

In a notification issued from Mumbai today, RBI has said that lenders will have complete discretion with regard to the design and implementation of resolution plans, subject to the specified timeline and independent credit evaluation.
 
The apex bank has said that lenders may recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA).

In case a borrower is reported to be in default, the lenders should undertake a prima facie review of the account within 30 days from the day of default.

If multiple lenders are involved, then RBI has said that all the lenders must enter into an inter-creditor agreement during the review period, to provide for ground rules for finalisation and implementation of the resolution plan.

The new norms state that lenders are free to initiate legal proceedings for insolvency or recovery. These directions have come into force with immediate effect.

These norms come about two months after the Supreme Court held the February 12, 2018 RBI circular on Resolution of Stressed Assets as ultra vires.

The norms issued today will replace all the earlier resolution plans such as the framework for revitalising distressed assets, corporate debt restructuring scheme, flexible structuring of existing long-term project loans, strategic debt restructuring scheme (SDR), change in ownership outside SDR, and scheme for sustainable structuring of stressed assets (S4A), and the joint lenders' forum with immediate effect.

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