RBI issues new Non-performing asset (NPA) recognition norms, offering a 30-day gap for stress recognition instead of the one-day default earlier

Reserve Bank on Friday has issued a new framework for resolution of b loans, replacing previous rms retracted by Supreme Court in April. new rms offer a 30-day gap for stress recognition inste of earlier one-day default.

new rms replaces all earlier resolution plans 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, scheme for sustainable structuring of stressed assets (S4A), and joint lenders' forum with immediate effect.

apex court h on April 2, 2018 struck down stringent RBI circular, issued on February 12, 2018, for resolving b loans under which a company could be labeled as an NPA if it missed repayment for a day. Banks were asked to find a resolution within 180 days or else it should be sent to bankruptcy courts. new circular provides for a framework for early recognition, reporting and time-bound resolution of b loans.

central banks said lenders shall recognize incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA).
Since default with any lender is a lagging indicator of financial stress faced by borrower, it is expected that lenders initiate process of implementing a resolution plan (RP) even before a default.

central bank said once a borrower is reported to be in default by any lenders, financial institutions, small finance banks or n-Banking Financial Company (NBFCs), lenders shall undertake a prima facie review of borrower account within 30 days from day of default. During this review period of 30 days, lenders may decide on resolution strategy, including nature of resolution plan (RP) and approach for implementation of RP.

"In cases where RP is to be implemented, all lenders shall enter into an inter-creditor agreement (ICA), during review period, to provide for ground rules for finalization and implementation of RP in respect of borrowers with credit facilities from more than one lender," new RBI circular said.
 

lenders are free to initiate legal proceedings for insolvency or recovery, central bank said. joint lenders' forum (JLF) as a mandatory institutional mechanism for resolution of stressed accounts also stands discontinued, RBI said ding that new directions will come into force with immediate effect.