The Reserve Bank of India (RBI) put the onus of forming a Joint Lenders' Forum (JLF) on the bank with highest exposure to a distressed borrower and said here today that failure to do so would attract higher provisioning penalties for that bank alone.
Under revised norms, RBI has also tightened distressed asset sales to asset reconstruction companies (ARCs) saying that banks should first fulfil commitments made at the lenders' forum in case of a loan recast.
"It is emphasised that success of the (JLF) framework depends not only on early reporting but also on taking corrective action in time by the forum. Thus, any delay in formation of the JLF will defeat objectives of the framework," the monetary authority said in a review of the 'Framework for Revitalising Distressed Assets in the Economy' published today.
According to the RBI's new guidelines, if any lender has reported an account to the Central Repository of Information on Large Credits (CRILC) as "special mention accounts" (SMA2) accounts which are due for more than 61 days and a JLF has not formed or a corrective action plan (CAP) was not decided, then the bank with the largest exposure should pay the penalty for such a delay.
"Accelerated provisioning will be applicable only on the bank having the responsibility to convene a JLF and not on all lenders in the consortium or multiple banking arrangement," the RBI said.
In case the lead bank does not form the JLF within the stipulated 15 days, the onus to do so would fall on the bank with the second largest exposure and the same "disincentives" as the lead bank would apply to it, the RBI notification said.
