Bad loan resolution: RBI does away with JLR, notifies revised framework under IBC

The Reserve Bank of India today came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC).

The new guidelines have specified framework for early identification and reporting of stressed assets.

"In view of the enactment of the Insolvency and Bankruptcy Code (IBC), 2016, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets," the RBI said in a notification issued late in the evening.

Among other things, the RBI has decided to do away with the Joint Lenders' Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued.

The notification further said all accounts, including those where any of the schemes have been invoked but not yet implemented, will be governed by the revised framework.

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 (SMA) depending upon the period of default.

All lenders will be required to put in place Board- approved policies for resolution of stressed assets under this framework, including the timelines for resolution, it said, adding, "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."

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 revised framework has also laid down the timelines for resolution of stressed assets.

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.

It further said all lenders will be required to submit Central Repository of Information on Large Credits (CRILC)- Main Report to the Reserve Bank 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 on 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, with a view to harmonise the guidelines with the norms specified in the IBC, said the notification while withdrawing existing mechanism for dealing with the bad debt in the banking system.

The new guidelines have specified framework for early identification and reporting of stressed assets.