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This article is written by Nilesh Javker. The article discusses the Revised Framework on Resolution of Stressed Assets dated February 12, 2018, of Reserve Bank of India.

The Reserve Bank of India (RBI) vide its notification bearing ref. no. DBR.No.BP.BC.101/21.04.048/2017-18 dated February 12, 2018 (“Revised Framework“) brought into effect a new framework with a view to early identification and resolution of stressed assets (i.e. non-performing assets accounts) in harmonisation with the principles of Insolvency and Bankruptcy Code, 2016 (IBC).

The extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) stand withdrawn with immediate effect. Accordingly, the Joint Lenders’ Forum as an institutional mechanism for resolution of stressed accounts also stands discontinued. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the Revised Framework.

Some important definitions under the Revised Framework

1. Default has been defined as non-payment of debt when whole or any part or installment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be. For revolving facilities like cash credit, default would also mean, without prejudice to the above, the outstanding balance remaining continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than 30 days.

2. Aggregate Exposure under the Revised Framework would include all fund based and non-fund based exposure with the lenders.

3. ‘Restructuring’ is defined as an act in which a lender, for economic or legal reasons relating to the borrower’s financial difficulty (An illustrative non-exhaustive list of indicators of financial difficulty are given in the Appendix to Annex-I of the Revised Framework), grants concessions to the borrower. Restructuring would normally involve modification of terms of the advances / securities, which may include, among others, alteration of repayment period / repayable amount / the amount of installments / rate of interest; roll over of credit facilities; sanction of additional credit facility; enhancement of existing credit limits; and, compromise settlements where time for payment of settlement amount exceeds three months.

4. ‘Specified Period’ means the period from the date of implementation of RP up to the date by which at least 20 percent of the outstanding principal debt as per the RP and interest capitalisation sanctioned as part of the restructuring, if any, is repaid. Provided that the Specified Period cannot end before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium under the terms of RP.

Early identification of stress through stringent reporting requirements

Applicability: All borrower entities having Aggregate Exposure (i.e. including fund based and non-fund based) of Rs. 50.00 million and above.

Reporting of Credit information

The lenders shall now report credit information, including classification of Special Mention Accounts to Central Repository of Information on Large Credits [CRILC] on monthly basis effective April 01, 2018.

Reporting of Default

For reporting of Default, the lenders shall now report to CRILC on a weekly basis, at the close of business on every Friday or the preceding working day if Friday happens to be a holiday.

Implementation of Resolution Plan (RP)

The Revised Framework, in order to prevent default of borrower entities turn into non-performing assets, has mandated the lenders to put in place Board-approved policies for resolution of stressed assets under this framework, including timelines of resolution as specified in Clause D of the Revised Framework.

The lenders are mandated to refer borrower entities for resolution under IBC if –

  1. The RP could not be implemented as per the timelines, then after the expiry of 15 days of such timelines; and
  2. If the borrower entity defaults during the Specified Period of RP, then within 15 days from the date of such default.

Such a resolution can be proposed either singly or jointly by the lenders which mean that even in case of default of one single lender; other lenders can join such lender for resolution of the stressed asset. This also substantiates cross default rights that are obtained by the lenders under their loan agreements.

The Revised Framework has described RP as any action / plans / reorganization including, any actions / plans / reorganization including, but not limited to, regularization 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.

Author’s Observations

The RP does not include option of conversion of debt into equity which hitherto was made available to the lenders under SDR and S4A. Does this mean under the Revised Framework, lenders will not be allowed to convert their debt into equity or the RBI does not envisage conversion of debt into equity as a viable option for Restructuring of stressed assets?

Default of Borrower Entities with Aggregate Exposure less than Rs. 100.00 Crore

Clause D of the Revised Framework prescribes timelines for reference dates of borrower entities having Aggregate Exposure at Rs. 2000.00 Crore and above for implementation of RP.

In respect of borrower entities with Aggregate Exposure of Rs. 100.00 Crore and above to less than Rs. 2000.00 Crore, RBI will announce reference dates for implementation of RP over a two year period.

Author’s Observations

The Revised Framework does not explain how the lenders should deal with accounts having Aggregate Exposure less than Rs. 100.00 Crore nor does it specify any RP for borrower entities having Aggregate Exposure of less than Rs. 100.00 Crore. But that does not exclude stressed assets of less than Rs. 100.00 Crore from Revised Framework. This does not seem to be the intention of the drafters of the Revised Framework. Does this mean that the lenders have the liberty to resolve the stressed assets of less than Rs. 100.00 Crore on their own including write off, one time settlement of such accounts or other recourse available to them under the extant laws?


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  1. Thank you Nisha for your compliments and apologies for the delay in replying to you.

    I’ll definitely keep writing my blogs.