Skip to main content

RBI withdraws SDR, S4A, sets banks 180-day timeline for bad loan resolution

RBI withdraws SDR, S4A, sets banks 180-day timeline for bad loan resolution
Banks must implement a resolution plan within 180 days where exposure is Rs2,000 crore and above, failing which the NPA account has to be referred to the insolvency and bankruptcy code within 15 daysThe Reserve Bank of India (RBI) on Monday tightened norms for bad loan resolution by setting timelines for resolving large NPAs, failing which banks will have to mandatory refer them for insolvency proceedings. It also withdrew existing debt restructuring schemes such as SDR and S4A.
RBI has issued definitions of different resolution plans and an indicative list of financial difficultly, and directed lenders to share data on certain defaulted borrowers with the central bank’s database on large exposures on every Friday.The large accounts are mainly those where banks have initiated resolution and are classified as restructured standard assets. Indian banks are sitting on a stressed assets pool of over Rs10 trillion.
According to the new rules, for such accounts, where the banking sector’s aggregate exposure is Rs2,000 crore above, lenders must implement a resolution plan within 180 days, starting 1 March 2018.“If a RP (resolution plan) in respect of such large accounts is not implemented as per the timelines specified, lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) within 15 days from the expiry of the said timeline,” the RBI said in notification issued late on Monday.
This circular comes at a time when banks are finalizing resolution plans for 11 of the 12 accounts in RBI’s first defaulter list under the insolvency and bankruptcy code. They are also filing insolvency petitions for some of the 28 accounts which were part of central bank’s second defaulter list.

The central bank has warned banks that they will be penalised for failure to adhering the timelines.“Any failure on the part of lenders in meeting the prescribed timelines or any actions by lenders with an intent to conceal the actual status of accounts or evergreen the stressed accounts will be subjected to stringent supervisory / enforcement actions as deemed appropriate by the Reserve Bank, including, but not limited to, higher provisioning on such accounts and monetary penalties,” it said.
In case the resolution plan involves change in the ownership structure of the defaulting firm, RBI has mandated that account should not be in default at any point during the specified period.Specified period is the time between implementation of the plan and the date, where up to 20% of the outstanding principal debt is repaid.
If there is a default in the specified period, the account must be referred for IBC proceedings, RBI said. “Banks shall conduct necessary due diligence in this regard and clearly establish that the acquirer is not a person disqualified in terms of Section 29A of the IBC,” the central bank said.
RBI said that for other accounts with aggregate exposure below Rs2,000 crore but and, at or above Rs100 crore, it intends to announce, over a two-year period, reference dates for implementing the resolution plans to ensure calibrated, time-bound resolution of all such accounts in default.
“It is, however, clarified that the said transition arrangement shall not be available for borrower entities in respect of which specific instructions have already been issued by the Reserve Bank to the banks for reference under IBC. Lenders shall continue to pursue such cases as per the earlier instructions,” the RBI said.
Banks must also vet the resolution plan through credit rating agencies for independent credit evaluation (ICE) of residual debt. Accounts with aggregate exposure of Rs500 crore there must require two such ICEs, and one for in other cases.With new norms, all regulatory guidelines pertaining to restructuring of loans under different schemes of the central bank such as strategic debt restricting (SDR), 5/25 refinancing, and Scheme for Sustainable Structuring of Stressed Assets (S4A), among others, stand withdrawn with immediate effect, RBI said.
“Accordingly, the Joint Lenders’ Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework,” RBI said.
The Mint, New Delhi, 13th February 2018

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…