Mumbai: The Reserve Bank of India (RBI) put the onus of forming a Joint Lenders' Forum (JLF) on the bank with highest exposure to a distressed borrower and said here today that failure to do so would attract higher provisioning penalties for that bank alone.
Under revised norms, RBI has also tightened distressed asset sales to asset reconstruction companies (ARCs) saying that banks should first fulfil commitments made at the lenders' forum in case of a loan recast.
"It is emphasised that success of the (JLF) framework depends not only on early reporting but also on taking corrective action in time by the forum. Thus, any delay in formation of the JLF will defeat objectives of the framework," the monetary authority said in a review of the 'Framework for Revitalising Distressed Assets in the Economy' published on Tuesday.
According to the RBI's new guidelines, if any lender has reported an account to the Central Repository of Information on Large Credits (CRILC) as "special mention accounts" (SMA2) accounts which are due for more than 61 days and a JLF has not formed or a corrective action plan (CAP) was not decided, then the bank with the largest exposure should pay the penalty for such a delay.
"Accelerated provisioning will be applicable only on the bank having the responsibility to convene a JLF and not on all lenders in the consortium or multiple banking arrangement," the RBI said.
In case the lead bank does not form the JLF within the stipulated 15 days, the onus to do so would fall on the bank with the second largest exposure and the same "disincentives" as the lead bank would apply to it, the RBI notification said.
Earlier this year, the RBI had released guidelines for early detection of stress for avoiding asset quality troubles, which stressed formation of JLFs for large accounts and incentivised early reporting and disincentivised lax behaviour by way of higher provisioning requirements which eat into bottom lines.
As part of the same, the penalty for non-formation of the JLF was on all banks with exposures, which has now been shifted to the bank having the single highest exposure alone. In its review of the 'Framework for Revitalising Distressed Assets in the Economy', the RBI said that it has received representations saying that sale of an asset to an asset reconstruction company (ARC) after deciding on a corrective action plan (CAP) disrupts implementation of CAP.
"In view of this, it has been decided that if restructuring has been decided as the CAP, then banks will not be permitted to sell such assets to SCs/RCs, without arranging their share of additional finance to be provided by a new or existing creditor," the RBI clarified.
It also initiated a slew of relaxations to banks, especially on the reporting front, where more time has been given.
For example, as against the earlier requirement of reporting about SMA2 accounts and JLF formations within a day, banks have now been told that they may report the same by the last working day of the week.
It has also been decided that banks may not report crop loans of more than Rs 5 crore which start facing stress, the RBI said.
As against the earlier recommendation of arriving at a CAP within 30 days of formation of a JLF, the RBI has relaxed that time line to 45 days.