RBI Set Banks Under Pressure Scrapping SDR, S4A, CDR, JLF Schemes Setting 180 Day Timeline to Restructure Defaulted Loans

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RBI Set Banks Under Pressure: RBI has taken a very big step and set banks under pressure withdrawing SDR, S4A, CDR, JLF Schemes. These are the schemes that set loan restructuring programmes prevalent among banks to restructure defaulted loans and made resolution of defaults time bound. RBI has also set a 180 day timeline for all the banks from the date of first such default to restructure the defaulted loans.

RBI’s existing norms on Scheme for Sustainable Structuring of Stressed Assets (S4A), ownership norms on stressed accounts, guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP), Strategic Debt Restructuring Scheme (SDR) and such myriad of schemes are now part of a simpler, easy to reference, scheme. This is part of a revised framework on resolving stressed accounts, put up late on Monday night on the RBI website.

The statement from RBI said, “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Scheme, Flexible Structuring of Existing Long-Term Project Loans, SDR, change in ownership outside SDR, and S4A stand withdrawn with immediate effect. Accordingly, the JLF as an institutional mechanism for resolution of stressed accounts also stands discontinued.”

Starting February 23, the defaulters of above Rs 50 million and above will be monitored by the RBI on a weekly basis, as banks will have to report the status of those accounts at the close of the business day on Friday to the RBI’s Central Repository of Information on Large Credits (CRILC). In case the accounts are not in default, the information would have to be sent on a monthly basis.

“All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework. Transition arrangement shall not be available for borrower entities in respect of which specific instructions have already been issued by the central bank to the banks for reference under the Insolvency and Bankruptcy Code.”

“Lenders shall continue to pursue such cases as per the earlier instructions. All lenders must put in place board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution. 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 central bank said on its website.

“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,” said RBI, adding “The resolution plan (RP) may involve any actions, plans, reorganization 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 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 RBI said, while mandating that the resolution plan should be clearly documented by all the lenders.

RBI said lenders shall identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA). If the principal or interest payment or any other amount wholly or partly overdue between one to 30 days, an account would be SMA-0, for 31-60 days SMA-1, and for 61-90 days, SMA-2 would be the categorisation.

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