RBI makes future loans more expensive for defaulters: Media Reports

RBI makes future loans more expensive for defaulters: Media Reports
The RBI has made future loans more expensive for borrowers who don't cooperate in resolving existing bad loans and offered a liberal regulatory treatment for distressed asset sales, reported PTI.

Releasing 'Framework for Revitalising Distressed Assets', the RBI said new guidelines aimed at reducing bad loans would be effective April 1.

The framework proposes allowing lenders to spread loss on sale of such assets over two years provided loss is fully disclosed, among others.

It said the corrective action plan will incentivise early identification of problem cases, timely restructuring of accounts which are considered to be viable, and prompt steps by banks for recovery or sale of unviable accounts.

The framework calls for early formation of a lenders' committee with time-line to agree to a plan for resolution, apart from extending the take-out financing/ refinancing time for longer period, which won't be construed as restructuring. Under existing norms a recast loan attracts higher provision.

The framework also offers incentives for lenders to agree collectively and quickly to a restructuring plan under which it will offer a better regulatory treatment of stressed assets if a resolution plan is underway, but will attract accelerated provisioning if no agreement can be reached.

Seeking improvements in the current restructuring process, the framework allows independent evaluation of large value restructuring, with a focus on viable plans and a fair sharing of losses (and future possible upsides) between promoters and creditors.

It also moots steps to enable better functioning of asset reconstruction companies, apart from encouraging sector-specific companies/private equity firms to play active role in stressed assets market.

Dion Global Solutions Ltd.

Story first published: Friday, January 31, 2014, 9:10 [IST]
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