RBI sets banks 180-day timeline to resolve bad loans

RBI ALSO WITHDREW EXISTING DEBT RESTRUCTURING SCHEMES SDR AND S4A

MUMBAI: The Reserve Bank of India (RBI) on Monday tightened norms for bad loan resolution by setting timelines for resolving large NPAS, failing which banks will have to mandatory refer them for insolvency proceedings. It also withdrew existing debt restructuring schemes such as SDR and S4A.

RBI has issued definitions of different resolution plans and an indicative list of financial difficultly, and directed lenders to share data on certain defaulted borrowers with the central bank’s database on large exposures on every Friday.

The large accounts are mainly those where banks have initiated resolution and are classified as restructured standard assets. Indian banks are sitting on a stressed assets pool of over ~10 trillion. As per new rules, for such accounts where the banking sector’s aggregate exposure is ~2,000 crore above, lenders must implement a resolution plan within 180 days, starting March 1.

“If a RP (resolution plan) in respect of such large accounts is not implemented as per the timelines specified, lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) within 15 days from the expiry of the said timeline,” the RBI said in notification issued late Monday.

This circular comes at a time when banks are finalizing resolution plans for 11 of the 12 accounts in RBI’S first defaulter list under the insolvency and bankruptcy code. They are also filing insolvency petitions for some of the 28 accounts which were part of central bank’s second defaulter list.

The RBI has warned banks that they will be penalised for failure to adhering the timelines.

“Any failure on the part of lenders in meeting the prescribed timelines or any actions...with an intent to conceal the actual status of accounts or evergreen the stressed accounts will be subjected to stringent supervisory/ enforcement actions as deemed appropriate by the (RBI), including, but not limited to, higher provisioning on such accounts and monetary penalties,” it said.