Reserve Bank of India on 12 February issued a revised guidelines for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC).
- The new guidelines have specified framework for early identification and reporting of stressed assets.
- In a notification issued in Mumbai RBI said, in view of the enactment of the Insolvency and Bankruptcy Code, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets.
- The RBI has decided to do away with the Joint Lenders’ Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued.
- It also withdrew existing restructuring schemes such as SDR and S4A (Scheme for Sustainable Structuring of Stressed Assets).
- All accounts, including those where any of the schemes have been invoked but not yet implemented, will be governed by the revised framework.
- RBI has set timelines for resolving large assets, failing which banks will have to mandatorily refer them for insolvency proceedings. Banks must report a loan to the centralized database of RBI on default after 30 days. It means, loans showing incipient signs of stress will be called ‘special mention accounts’.
- The central bank has issued definitions of different resolution plans, an indicative list of financial difficulty, and directed lenders to share data on certain defaulting borrowers, with the central bank’s database on large loans every Friday. Banks must report defaults on a weekly basis for borrowers having more than Rs 5 crore in bank loans.
- 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%.