RBI issues new NPA recognition norms

MUMBAI: The Reserve Bank on Friday issued a brand new framework for resolution of dangerous loans, replacing the former norms quashed by the Supreme Court in April, offering a 30-day gap for rigidity reputation as an alternative of the one-day default previous.

The new norms replaces the entire previous resolution plans such as the framework for revitalising distressed property, company debt restructuring scheme, flexible structuring of current long-term undertaking loans, strategic debt restructuring scheme (SDR), trade in possession outside SDR, and scheme for sustainable structuring of stressed property (S4A), and the joint lenders' forum with fast effect.

The apex courtroom had on April 2 struck down the stringent RBI round, issued on February 12, 2018, for resolving dangerous loans underneath which a company could be categorized an NPA if it missed reimbursement for an afternoon banks had been asked to find a resolution inside 180 days or else it will have to be despatched to bankruptcy courts.

Supreme Court quashes stringent RBI round against defaulters

In a big setback to efforts for recovery of dangerous debts of businesses owing Rs 2,000 crore or more to banks, the Supreme Court on Tuesday quashed the RBI’s February 12, 2018, round, which directed banks to move against defaulters underneath the Insolvency and Banking Code (IBC) on their failure to pay up inside 180 days from March 1, 2018.

The new round supplies for a framework for early reputation, reporting and time-bound resolution of dangerous loans.

The central banks mentioned lenders shall recognise incipient rigidity in mortgage accounts, in an instant on default, by classifying such property as special point out accounts (SMA).

Since default with any lender is a lagging indicator of financial rigidity faced by the borrower, it is expected that the lenders initiate the method of enforcing a resolution plan (RP) even before a default.

The central bank mentioned once a borrower is reported to be in default by any lenders, monetary institutions, small finance banks or NBFCs, the lenders shall adopt a prima facie assessment of the borrower account inside 30 days from the day of default.

The February 12 Reserve Bank round decoded

On February 12, 2018, the RBI wrote to banks asking them to classify as a defaulter any company that fails to satisfy the cost deadline even by an afternoon. The round also pressured banks to tug those firms to bankruptcy courtroom if the defaults were not resolved in 180 days. The round did away with quite a lot of loan-restructuring schemes that aimed to provide stressed debtors more time to pay off.

During this assessment period of 30 days, lenders would possibly come to a decision on the resolution strategy, together with the character of the resolution plan (RP) and the approach for implementation of the RP.

"In cases where RP is to be implemented, all lenders shall enter into an inter-creditor agreement (ICA), during the review period, to provide for ground rules for finalisation and implementation of the RP in respect of borrowers with credit facilities from more than one lender," the new RBI round mentioned.

The lenders are unfastened to initiate legal court cases for insolvency or recovery, the central bank mentioned.

The joint lenders' forum (JLF) as necessary institutional mechanism for resolution of stressed accounts also stands discontinued, the RBI mentioned.

The RBI mentioned the new directions will come into power with fast effect.