The Reserve Bank of India today released on its website the Framework for Revitalising Distressed Assets in the Economy. The Framework outlines a corrective action plan that will incentivise early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. The main features of the Framework are:
With the slowdown of the Indian economy, a number of companies/projects are under stress. As a result, the Indian banking system has seen increase in NPAs and restructured accounts during the recent years. Not only do financially distressed assets produce less than economically possible, they also deteriorate quickly in value. Therefore, there is a need to ensure that the banking system recognises financial distress early, takes prompt steps to resolve it, and ensures fair recovery for lenders and investors. ‘Improving the system’s ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery’ has been indicated by the Governor, Reserve Bank of India as one of the five pillars on which Reserve Bank’s developmental measures will be built for improving the financial system over the next few quarters. Accordingly, a Discussion Paper on ‘Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy’ was released on December 17, 2013 for comments by January 1, 2014. Today’s Framework incorporates public comments on that Paper and outlines the specific proposals the Reserve Bank will implement.