The Reserve Bank of India has, vide notification dated 06.08.2020, issued a new framework for resolution of stressed loans caused by Covid-19 pandemic. The Reserve Bank of India told that, it will allow lenders to restructure loans of borrowers who are struggling to repay because of the fallout of the pandemic.

The restructuring will enable borrowers to reschedule their loan payment, or get a limited loan repayment holiday, or lower interest rates on their existing loans depending on the agreement they reach with their bank(s).

The lenders can now do this while keeping the borrower’s account standard, and will not have to tag them as defaulters/their account as a non-performing loan (remain unpaid for over 90 days). These easier terms are only allowed for those borrowers who have been impacted by COVID19, and no others.

loan

The borrowers who had been repaying regularly till March 2020 can avail restructuring of their loan through a framework which will be decided by the lending bank. As per RBI, the framework for this is required to be fixed by December 31 and implemented within 90 days from then. Loans in default for more than 30 days as on March 1, 2020, will not qualify for this plan.

1. Ineligible categories of borrowers/credit facilities for a resolution plan under this framework:

  • MSME borrowers whose aggregate exposure to is 25 crore or less as on March 1, 2020.
  • Farm credit as listed
  • Loans to Primary Agricultural Credit Societies, Farmers’ Service Societies and Large-sized Adivasi Multi-Purpose Societies for on-lending to agriculture.
  • Exposures of lending institutions to financial service providers.
  • Exposures of lending institutions to Central and State Governments; Local bodies and, body corporates established by an Act of Parliament or State Legislature.
  • Exposures of housing finance companies where the account has been rescheduled in terms of para 2(1)(zc)(ii) of the Master Circular.

2. Resolution of Stress in Personal Loans:

The resolution plans may inter alia include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years. Correspondingly, the overall tenor of the loan may also get modified commensurately. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan. Resolution under this framework may be invoked not later than December 31, 2020.

3. Resolution of Other Exposures:

The lending institutions may allow extension of the residual tenor of the loan, by a period not more than two years. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan. The resolution plan may also provide for conversion of a portion of the debt into equity or other marketable, non-convertible debt securities issued by the borrower.

In case where there is only one lending institution with exposure to the borrower, the decision regarding the request for resolution by the borrower may be taken by the lending institution as per the Board approved policy of the institution, but if there are multiple lending institutions the decision must be taken by lenders representing 75 per cent by value of the total outstanding credit facilities and not less than 60 per cent of lending institutions by number agree to invoke the same.

All the timeline must be strictly adhered, any breach of the above stipulated timelines shall be fully governed by the Prudential Framework/Lender’s relevant instructions.

The Original Notification can be accessed through this link: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11941&Mode=0

Disclaimer: – The information compiled are my personal observation and Interpretation of the Notification issued by the RBI. The Author and publisher disclaim any liability in connection with use of this information,

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