Two months after the Supreme Court struck down its February 12 circular, the Reserve Bank of India (RBI) on Friday released a revised framework for resolving stressed assets, wherein lenders have been given a 30-day period on whether to label an account as a non-performing asset. The changes were made in compliance with the Supreme Court's observations.
The original 12 February 2018 circular had removed all debt recast plans in favour of the Insolvency and Bankruptcy Code (IBC) which forced banks to start with insolvency proceedings within a stipulated period.
The rules have now been revised to heighten the provisioning norms. The longer it takes to come with a resolution plan, the larger the amount the lender will have to set aside.
Additionally, the rules are extended to include other entities such as non-banking finance companies. As for the resolution plan, lenders will now have one month to review a loan account after the borrower misses a payment and come up with a resolution plan within 180 days after that watch period.
"The RBI circular is a very welcome step. It has given more freedom to bankers to bring their own resolve and instead of directions, it (circular) has been propelled by provisioning requirements which will propel lenders to take timely decisions," Indian Banks' Association (IBA) Chairman Sunil Mehta told PTI on Saturday.
The latest directions from the RBI retain the basic spirit of the February 12, 2018 circular as it mandates higher provisioning, bankruptcy options as well as do not allow any other resolution methods outside the new norms.
The new norms provide a framework for early recognition, reporting and time-bound resolution of stressed assets, the central bank said in a notification on Friday.
With inputs from PTI