RBI has issued circular No. RBI/2017-18/131 DBR.No.BP.BC.101/21.04.048/2017-18 dated February 12, 2018 on resolution of stressed assets. I have summarized key points of the Circular for ready reference of readers-
1. SMA reporting now need to be done on weekly basis for borrowers entities having aggregate exposure of Rs. 5 crore and above
2. RBI withdraws CDR, SDR, S4A, JLF Scheme and substituted the existing guidelines with a harmonised and simplified generic framework and All lenders must put in place Board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution. Now restructuring need to be approved and implemented by 100% lenders.
3. In cases of large accounts credit rating of RP4 or above must for residual debt by one of the Credit rating agency if aggregate exposure is 100 to 500 crore and by two agencies if exposure is more than Rs. 500 crore.
4. For large accounts with exposure of more than Rs. 2000 crore then resolution plan need to be implemented within 180 days of 1st March 2018 (if there is a default on that date) or within 180 days of default (if happens after 1st March 2018). Else these companies shall be dragged to NCLT compulsorily within next 15 days.
5. However, lenders can file IBC before expiry of aforesaid period or without even attempting Resolution plan outside IBC.
6. In such large cases even after restructuring is implemented if there is a single default during specified period then IBC need to be invoked. Specified period is longer of
– Time period by which minimum 20% of principal debt and FITL is to be paid as per the restructuring scheme
– One year from the date of commencement of first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium under the term of scheme
7. Default after expiry period of specified period shall be reckoned as a fresh default
8. For exposure between 100 to 2000 crore RBI will announce reference date for implementing resolution plan over next 2 years
9. Schemes like CDR, Flexible structuring of Long term project loan, SDR, outside SDR, S4A and JLF mechanism stands withdrawn. Schemes invoked but not yet implemented shall also come under current circular.
10. Current provision of account becoming NPA upon restructuring shall continue to apply.
11. Account to be upgraded only if there is no default at any point of time during specified period.
12. In addition borrower has to get investment grade rating (BBB- or above) at the end of specified period by one rating agency if exposure is 100 crore to 500 crore and by two rating agency if exposure of more than 500 crore
13. However in case of change of ownership either under IBC or otherwise account shall be upgraded to standard provided new promoter is single largest shareholder and owns minimum 26% equity stake. Also credit rating of RP 4 and above as mentioned above must. Further any default during specified period shall make account NPA. Any provision held by bank can be reversed only after satisfactory performance during specified period.
14. Sale and lease back or conversion of rupee loan into foreign currency or vice versa (for repayment/refinancing) for borrowers in financial difficulty shall be treated as restructuring.