By Aashi Sehrawat
To overcome bad loan problems, Reserve Bank of India (RBI) has come up with
a strict 180-day timeline within which banks have to finalise a resolution plan
in case of a default, failing which they have to refer the account for
bankruptcy under the Insolvency and Bankruptcy Code (IBC). The loan-restructuring mechanisms were issued late on Monday. This framework
seeks to push more big defaulters towards bankruptcy to get rid of the bad
loans faced by lenders.
A major change that will impact banks immediately is the fact that most
existing stressed asset schemes have been subsumed by the new framework, i.e., schemes such as
Corporate Debt Restructuring (CDR), Strategic Debt Restructuring (SDR), the
Scheme for Sustainable Structuring of Stressed Assets (S4A), and the Flexible
Structuring of Long Term Loans won't exist now.
So, what does the framework describe?
· Banks must report defaults on a weekly basis in the case of borrowers with
more than Rs 5 crore in bank debt. Once a default has occurred, banks will have
180 days within which to come up with a resolution plan. Should they fail, they
will need to refer the account to the IBC within 15 days.
· The new set of rules mandate that all future restructuring will amount to
the account being termed as bad, which means an immediate provisioning of 15%.
· The Joint Lenders Forum (JLF), which had been set up to coordinate
resolution of large consortium loans, has also been disbanded.
· Since the Revised Framework has replaced all the existing schemes, so now
existing accounts under these schemes, (if not restructured and implemented),
will now be governed by this revised framework. Lenders would need to go back to the drawing board to ensure that the restructuring
meets the norms under the Revised Restructuring Framework.
By this big reform in plans, RBI has removed many
constraints on debt restructuring. The framework will help the Indian Banking
System to move towards time bound resolution of stressed loans.
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