Bankers seek more clarity, time from RBI for resolution of NPAs under old framework

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New Delhi, Mar 20: As bankers struggle in the transition of bad loan resolution, from the old to the new Reserve Bank of India’s (RBI) rule, they have sought more time and clarity from the central bank on the assets that are already under restructuring.
The banks are also seeking a consensus on various resolutions underway.
“As many large stressed accounts are worked out through multiple consortiums of banks, we need clarity on how these will be worked out by each bank? Among previous mechanisms of SDR and S4A, etc…even the Joint lenders’ Forum (JLF) has been done away with and hence we have written to RBI to seek clarity on how to take that forward,” said a banker with a large state-owned lender.
On February 12, the central bank discontinued several resolution mechanisms for NPAs (non-performing assets), including strategic debt restructuring (SDR) and scheme for sustainable structuring of stressed assets (S4A), ensuring the new resolution framework is more decision-oriented and time-bound. In addition, the JLF, a forum of lenders formed for approval and implementation of resolution plans, was withdrawn with immediate effect.
Under the new rules, loans of Rs 2,000 crore and above if are in default as on March 1, lenders must implement a resolution plan within 180 days from March 1. These large corporate assets where banks have initiated resolution under the previous frameworks or classified as restructured standard assets.
Abhishek Bhattacharya, Director & Co- Head, Corporate Ratings at India Ratings & Research, said, “We have seen much more action on the resolution front while NCLT remains the last recourse but now the writing is on the wall by the RBI, those proposals which were earlier under Implementation for SDR or S4A will continue but lenders and corporates are still awaiting clarity from RBI on which ones can be taken forward and which ones cannot. In our estimate this has impacted quite a few genuine refinancing proposals.”
Further, new rules suggest that if the default is after March 1, then the action must be taken 180 days from the first default date and the account has to be tagged as special mention account (SMA) as soon as there is a default.
“We have sought additional time to resolve these accounts instead of pressing on the 180-day deadline. Also, there are lot of decisions are pending on the NPAs under the older mechanisms, who will take those after the JLF ,” said another official with a mid-sized public sector bank.
Under JLF, decisions agreed to by 60 percent of creditors by value and 50 percent by number was sufficient to arrive at a corrective action plan.
On the new resolution plans, banks and other experts suggest that a lot of resolution will have to be case specific and hence one rule for all may not work and also how will the lenders arrive at a decision on them is not clear.