Banks jittery as RBI deadline nears
Lenders are likely to miss the six-month deadline set by the Reserve Bank of India (RBI) to find a resolution of defaulting companies by December 6, thus putting another ~3.8 trillion of loans at risk.
In its June 7 circular, the RBI gave banks 180 days, plus a one-month review period at the beginning, to approve debt-resolution plans. According to a source close to the development, 60-80 more companies will miss the deadline as there is no resolution in sight.
“Banks will have to make provisions in the March quarter as the deadline along with the review period of several companies will expire by January first week,” the source said. These loans were primarily given to power, sugar, and fertiliser companies over the years. The power sector alone accounts for ~1.8 trillion of stressed loans.
The RBI in its circular had said the accounts with exposure above ~2,000 crore would have the same “reference date” as the circular.
Resolution plans were to be implemented within 180 days from the end of the one-month review period. The review period for large accounts commenced on the reference date or the date of the first default after the reference date.
In view of the impending crisis, the RBI is planning a makeover of the inter-creditors agreement (ICA) so that it clears the logjam in resolution of bad assets due to bottlenecks. The RBI is looking at the feasibility of weaving the ICA right from the start of a relationship within consortiums and multiple banking arrangements of a borrower. This is to ensure that there is visibility on what needs to be done when an account defaults or faces difficulty.
In its circular, the RBI had said the resolution plan for borrowers would be deemed to be “implemented” only if the borrower was not in default with any of the lenders as on 180th day from the end of the review period. Any subsequent default shall be treated as a fresh default, triggering a fresh review, the central bank had said.