Mumbai, June 8: Responding assertive to the Supreme Court’s viewpoint over resolution of stressed assets, the Reserve Bank of India, assuring effective reverence has clarified for expeditious moves taken in the light ahead.
Placing the prudential framework for stressed assets by banks, the RBI has laid fundamental principles underlying the regulatory approach for resolution which in an ascending order demand -
1. Early recognition and reporting of default in respect of large borrowers by banks, Financial Institutions and NBFCs
2. Complete discretion to lenders with regard to design and implementation of resolution plans, subject to the specified timeline and independent credit evaluation
3. A system of disincentives in the form of additional provisioning for delay in implementation of resolution plan or initiation of insolvency proceedings
4. Withdrawal of asset classification dispensations on restructuring where future upgrades to be contingent on a meaningful demonstration of satisfactory performance for a reasonable period
5. Signing of inter-creditor agreement (ICA) by all lenders to be mandatory, which will provide for a majority decision making criteria.
“Notwithstanding anything contained in this framework, RBI is set to issue directions to banks for initiation of insolvency proceedings against borrowers for specific defaults so that the momentum towards effective resolution remains uncompromised”, the statement read expecting the framework to sustain the improvements in credit culture.
“The RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline”, it signed off on a robust commitment.