RBI withdraws SDR, S4A on NPA resolution

BE/RBI NOTE/4/2018

The resolution time for resolving large NPAs, has been specified in strict terms by RBI.  Non compliance would result in referring them for necessary insolvency proceedings.  Also, the debt restructuring schemes viz SDR, S4A and such other schemes have been withdrawn by RBI.

While announcing this, RBI has also defined various resolution plans and a probable list of financial difficulty, that are permitted, and advised the Banks/FIs, to share information on certain defaulted borrowers through the Central Bank’s Data Base on large exposures, every Friday.

LARGE ACCOUNTS:

• Accounts where Banks have started resolution process and categorized them as restructured standard assets.
• Indian Banks are on total stressed assets of more than Rs. 10 trillion, which is alarming.

SPECIAL FEATURES OF THE NEW RULE

1. Borrowers who have a total exposure of over Rs. 2,000 crore from the entire banking system, will now be subjected to a resolution plan within 180 days, effective from 1^st March 2018.
2. In case of non-implementation of RP (Resolution Plan), within the specified period of 180 days, lenders would be responsible to file insolvency application, either singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC), within 15 days from the expiry of the said timeline.
3. Non adherence to the timeline specified, or any misrepresentation of facts, would result in stringent supervisory/enforcement action..
4. Where ownership change is involved in the case of defaulting firm, RBI adds that the account should not be a defaulted during the specified period meaning, that the time between the implementation of the plan and the date where upto 20% of the outstanding debt is repaid.
5. In case there is a default in the period mentioned therein, it must be referred to IBC proceedings, and banks should ensure to conduct necessary due diligence and the person acquiring the firm should not have been disqualified in terms of section 29A of IBC.
6. In respect of account wherein the total exposure is below Rs. 2,000 crore, but above Rs. 100 crore, a reference period of over two years is being announced for implementation of the resolution plans which could enable a smooth time bound resolution of the accounts in default.
7. Also, the said rule will not be applicable for the accounts, wherein specific instructions have been issued by RBI for reference under IBC. Those cases will be governed by the instructions issued earlier.
8. Banks are to ensure that Independent Credit Evaluation (ICE) of residual debt, is done through credit rating agencies, and accounts with an aggregate exposure of Rs. 500 crore must have two such ICEs.
9. Consequent upon introduction of the above guidelines, related 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.
10. The Joint Lenders’ Forum (JLF) governing resolution of stressed accounts also stands discontinued.
11. Wherever, schemes have been invoked and are pending for implementation, would be governed by the revised framework.