In a bid to hasten the resolution of bad loans, RBI has tightened rules to make banks identify and tackle any non-payment of loan rapidly, a move the government said should act as a "wake up call" for defaulters.
The Reserve Bank of India abolished half a dozen existing loan-restructuring mechanisms late on Monday night, and instead provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.
Financial Services Secretary Rajiv Kumar said the new rules are a "wake up call" for defaulters.
"The government is determined to clean up things in one go and not defer it. It is a more transparent system for resolution," he said," he said.
Under the new rules, insolvency proceedings would have to be initiated in case of a loan of Rs 2,000 crore or more if a resolution plan is not implemented within 180 days of the default. Banks will face penalties in case of failure to comply with the guidelines, RBI said.
Financial Services Secretary said the RBI's decision would not have much impact on provisioning norms for banks.
The revised framework has specified norms for "early identification" of stressed assets, timelines for implementation of resolution plans, and a penalty on banks for failing to adhere to the prescribed timelines.
RBI has also withdrawn the existing mechanism which included Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A).
The Joint Lenders' Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued, it said, adding that "all accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework".
Under the new rules, banks must report defaults on a weekly basis in the case of borrowers with more than Rs 5 crore of loan. Once a default occurs, banks will have 180 days within which to come up with a resolution plan. Should they fail, they will need to refer the account to the Insolvency and Bankruptcy Code (IBC) within 15 days.
Last year, the government had given more powers to the RBI to push banks to deal with non-performing assets (NPAs) or bad loans.
The gross NPAs of public sector and private sector banks as on September 30, 2017 were Rs 7,33,974 crore, Rs 1,02,808 crore respectively.
"In view of the enactment of the IBC, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets," RBI said in the notification.
As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMAs) depending upon the period of default. Classification of SMA would depend on the number of days (1- 90) for which principal or interest have remained overdue.
"As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default," RBI said.
The resolution plan (RP) may involve any actions/plans/ reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities/investors, change in ownership, or restructuring.
The notification said that if a resolution plan in respect of large accounts is not implemented as per the timelines specified, lenders will be required to file insolvency application, singly or jointly, under the IBC, 2016, within 15 days from the expiry of the specified timeline.
All lenders are required to submit report to Central Repository of Information on Large Credits (CRILC) on a monthly basis effective April 1, 2018.
In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs 5 crore and above), on a weekly basis, at the close of business every Friday, or the preceding working day if Friday happens to be a holiday.
The first such weekly report shall be submitted for the week ending February 23, 2018, the notification said.
The new guidelines have specified framework for early identification and reporting of stressed assets.
In respect of accounts with aggregate exposure of the lenders at Rs 2,000 crore and above, on or after March 1, 2018 (reference date), resolution plan RP should be implemented within 180 days.
"If in default after the reference date, then 180 days from the date of first such default," the notification said.