RBI Withdraws Restructuring Schemes In Complete Overhaul Of Bad Loan Framework

Published on 13 Feb 2018 by Tushar

Having pushed lenders into resolving nearly 40 of the largest bad loan accounts via the Insolvency and Bankruptcy Code (IBC), the Reserve Bank of India (RBI) has now revised its stressed asset framework to ensure speedy resolution of bad loans in the future. An overarching theme of the new framework is a reliance on the IBC to resolve stressed assets, while doing away with a number of interim schemes introduced before India adopted a bankruptcy code.

Key features of the new framework include doing away with schemes like-

  • Strategic Debt Restructuring (SDR),
  • the Scheme for Sustainable Structuring of Stressed Assets (S4A),
  • and the Corporate Debt Restructuring (CDR) scheme, among others.

To replace these schemes, the RBI has put in place a strict timeline over which a resolution plan must be implemented, failing which stressed accounts must be referred to the IBC.

NEW TIMELINE!

Under the new rules, banks will have to file for insolvency proceedings against loan defaulters with 20 billion rupees ($311 million) or more if a resolution plan is not implemented within 180 days of the initial occurrence of default, the RBI said.

It warned that any failure on the part of banks to meet the prescribed timelines, or any actions they take to conceal the actual status of accounts or evergreen stressed accounts, will expose banks to potential monetary penalties and other actions.

It also tightened rules around resolution plans, saying any such process involving restructuring or change in ownership for large accounts with loans of 1 billion rupees or more will need independent credit evaluation by credit rating agencies that are authorised by the RBI.

Loans of 5 billion rupees or more will need two such independent evaluators, the RBI said.

Source- Bloombergquint.com



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