The Reserve Bank of India (RBI) on Friday released fresh guidelines to deal with bad loans, which mandated banks to start the resolution even if there was a one-day default.
In February 2018, the RBI had issued a framework on the resolution of stressed assets under which banks were asked to initiate resolution or restructuring of loans worth Rs 2,000 crore or more even if there was a single day of default. However, the Supreme Court had called this framework 'ultra vires.'
The RBI has now revised the circular and said that a lender should initiate a resolution plan before the loan default. It should have the board approved policies for the resolution of stressed assets.
In the revised prudential norms on stressed assets, the RBI said that in case of a default by a borrower, lenders have to undertake a prima facie review of the borrower account within 30 days from such default (called the review period).
During this review period, lenders may decide on the resolution strategy, including the nature of the resolution plan and how it will be implemented. The lenders can also choose to initiate legal proceedings for insolvency or recovery.
In cases where the resolution plan is to be implemented, all lenders have to enter into an inter-creditor agreement (ICA) during the review period.
The ICA shall provide that any decision agreed by lenders representing 75 per cent by value of total outstanding credit facilities (fund based as well non-fund based) and 60 per cent of lenders by number shall be binding upon all the lenders.
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In respect of accounts with aggregate exposure above a threshold with the lenders on or after the reference date, the resolution plan has to be implemented within 180 days from the end of the review period.
New NPA resolution norms replace all the previous models, the central bank said.