- Risk weight on loans to companies against which bankruptcy is initiated will be assigned lower risk weight.
- This means RBI would be incentivising banks who take the defaulted borrowers to the Bankruptcy Court.
- A Recent Supreme Court ruling had said that (on 12th Feb 2019) which granted 180 days to the defaulting companies to agree on a resolution plan with lenders or be taken to the Bankruptcy court. This will be applicable for Debts of Rs. 2000 crore and above.
- RBI is now considering a proposal to assign a lower risk weight to companies against whom action has been initiated under the Insolvency and Bankruptcy Code 2016.
- Conservation of capital by banks will be a possible factor with this incentivising plan.
- Also, it is said that this will be well within RBI’s regulatory framework and plans.
- Also, a lower risk weight on loans will make it easier for banks in respect of Capital Adequacy ratio maintenance.