 "Shikha Sharma")
The rules around making a Joint Lenders' Forum, to revitalise stressed assets, need some changing, feels Shikha Sharma, managing director of Axis Bank, third largest lender in the private sector.
“The JLF is working but tightening some of the mechanisms around that to hasten decision making will be better. There needs to be some refinement in the rule for a CDR (coprorate debt restructuring) mechanism to be able to keep the whole consortium together and be able to take decisions quickly,” she told Business Standard.
Other lenders had earlier complained about lack of transparency in JLF. As a result, the Reserve Bank of India had revised the guidelines in this regard. Earlier, a JLF was required to finalise a Corrective Action Plan within 30 days after an account was reported as SMA-2 (where principal or interest payment was overdue for 61-180 days) or if a request was made from a borrower to form a JLF in case it sensed imminent stress. This was extended to 45 days, to ensure banks have sufficient time.
The regulator had also said if a JLF was not formed because the lead bank of the consortium did not take the initiative and corrective action was not taken within the time frame suggested, the accelerated provisioning will be applicable only on the bank with the responsibility to convene a JLF, not on all the lenders in a consortium.
However, despite these measures, bankers still do not seem happy with the working of a JLF. “The problem is also with co-ordination in a consortium. When there are many banks present, it is difficult for them to sometimes agree on one thing and that leads to a delay,” said another banker, requesting anonymity.
Lack of equal participation by all banks in a consortium seems the biggest challenge, say experts. “The entire model is based on the premise that all the banks will collectively act against a borrower for recovery. However, the basic model does not account for the fact that different lenders might have different levels of comfort or discomfort, based on the exposure, collateral, etc. And, because all the lenders are not on the same page, there have been challenges with respect to efficiency,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services.
“The JLF is working but tightening some of the mechanisms around that to hasten decision making will be better. There needs to be some refinement in the rule for a CDR (coprorate debt restructuring) mechanism to be able to keep the whole consortium together and be able to take decisions quickly,” she told Business Standard.
Other lenders had earlier complained about lack of transparency in JLF. As a result, the Reserve Bank of India had revised the guidelines in this regard. Earlier, a JLF was required to finalise a Corrective Action Plan within 30 days after an account was reported as SMA-2 (where principal or interest payment was overdue for 61-180 days) or if a request was made from a borrower to form a JLF in case it sensed imminent stress. This was extended to 45 days, to ensure banks have sufficient time.
The regulator had also said if a JLF was not formed because the lead bank of the consortium did not take the initiative and corrective action was not taken within the time frame suggested, the accelerated provisioning will be applicable only on the bank with the responsibility to convene a JLF, not on all the lenders in a consortium.
However, despite these measures, bankers still do not seem happy with the working of a JLF. “The problem is also with co-ordination in a consortium. When there are many banks present, it is difficult for them to sometimes agree on one thing and that leads to a delay,” said another banker, requesting anonymity.
Lack of equal participation by all banks in a consortium seems the biggest challenge, say experts. “The entire model is based on the premise that all the banks will collectively act against a borrower for recovery. However, the basic model does not account for the fact that different lenders might have different levels of comfort or discomfort, based on the exposure, collateral, etc. And, because all the lenders are not on the same page, there have been challenges with respect to efficiency,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services.
