Executive Summary:
This document from the Reserve Bank of India (RBI), dated May 26, 2016, modifies the framework for revitalizing distressed assets, applying changes made to banks to Non-Banking Financial Companies (NBFCs). It details amendments to prudential norms for Systemically Important, Non-Systemically Important, and Deposit Accepting/Holding NBFCs. These amendments include specific conditions and timelines for restructuring packages and promoter contributions.
Key Points / Main Content:
Restructuring Timelines:
* Restructuring packages under CDR/JLF/Consortium/MBA arrangements must be implemented within 90 days of approval.
* Other restructuring packages must be implemented within 120 days of application receipt by the NBFC.
Promoter Contributions:
* Promoters must bring additional funds in all restructuring cases.
* The minimum additional funds required are 20% of the NBFC's sacrifice or 2% of the restructured debt, whichever is higher.
* Promoter contributions should be brought upfront and can be in the form of converting unsecured loans into equity.
Viability Assessment:
* NBFCs should determine a reasonable timeframe for account viability based on cash flow and Techno-Economic Viability (TEV) studies.
* NBFCs must ensure the post-restructuring repayment period is reasonable and aligns with estimated cash flows and the required Debt Service Coverage Ratio (DSCR).
* NBFCs must document due diligence in assessing TEV and the assumptions underlying restructured repayment terms.
Fraud/Malfeasance Cases:
* In cases of fraud/malfeasance where existing promoters are replaced, NBFCs/JLFs can consider restructuring based on viability, without prejudice to criminal action against the former promoters.
* Such accounts may be eligible for asset classification benefits on refinancing after a change in ownership, as per circular DBR.BP.BC.No.4121.04.048/2015-16.
* NBFCs must formulate Board-approved policies for restructuring such assets.
Deletion of Paragraph 7:
* Paragraph 7 of Annex III (for Systemically and Non-Systemically Important NBFCs) and Annex A (for Deposit Accepting/Holding NBFCs) to the Directions are deleted.
Impact Analysis
NBFCs:
* Impact: NBFCs must adhere to the revised guidelines for restructuring distressed assets, including stricter timelines, promoter contribution requirements, and viability assessments.
* Action Required: Update internal policies to reflect the new restructuring timelines and promoter contribution norms; establish a process for documenting due diligence in TEV assessments; formulate a Board-approved policy for restructuring accounts involving fraud/malfeasance and change in promoters.
Borrowers/Promoters:
* Impact: Borrowers seeking restructuring will face stricter requirements for promoter contributions and faster implementation timelines.
* Action Required: Be prepared to contribute additional funds upfront during restructuring and ensure timely implementation of the restructuring package.
Key Entities Referenced
Reserve Bank of India: The central bank of India, referred to as 'the Bank' in the document. It issued the guidelines and notifications discussed in the text.
Non-Banking Financial Companies (NBFCs): Financial institutions that provide bank-like services but do not hold a banking license. The circulars and notifications are directed towards NBFCs.
Strategic Debt Restructuring Mechanism: A mechanism introduced by the Reserve Bank of India to revitalize distressed assets in the Indian economy.
Reserve Bank of India Act, 1934: An act of the Parliament of India that established the Reserve Bank of India. Section 45JA of this act is cited as the source of power for issuing the directives.
Systemically Important Non-Banking Financial Non-Deposit Accepting or Holding Companies Prudential Norms Reserve Bank Directions, 2015: A set of directions issued by the Reserve Bank of India pertaining to Systemically Important Non-Banking Financial Non-Deposit Accepting or Holding Companies.
Non-Systemically Important Non-Banking Financial Non-Deposit Accepting or Holding Companies Prudential Norms Reserve Bank Directions, 2015: A set of directions issued by the Reserve Bank of India pertaining to Non-Systemically Important Non-Banking Financial Non-Deposit Accepting or Holding Companies
Non-Banking Financial Deposit Accepting or Holding Companies Prudential Norms Reserve Bank Directions, 2007: A set of directions issued by the Reserve Bank of India pertaining to Non-Banking Financial Deposit Accepting or Holding Companies
Framework for Revitalising Distressed Assets in the Economy: A framework introduced by the Reserve Bank of India aimed at revitalizing stressed assets in the Indian economy.
RBI/2015-16/408
DNBR.CC.PD.No.081/03.10.01/2015-16 May 26, 2016
To
All Non-Banking Financial Companies (NBFCs)
Madam/ Sir,
Review of Framework for Revitalising Distressed Assets in the Economy and
Strategic Debt Restructuring Mechanism
The Reserve Bank of India (the Bank) has issued various guidelines aimed at revitalising
the stressed assets in the economy. The measures taken by the Bank include Strategic
Debt Restructuring Mechanism, Framework to Revitalise the Distressed Assets in the
Economy and Revisions to the Guidelines on Restructuring of Advances by Banks. To the
extent applicable, the said Framework was made applicable to NBFCs vide circulars
dated March 21, 2014, July 23, 2015 and October 29, 2015.
2. The Department of Banking Regulation of the Bank has made certain
modifications to the Framework vide circular DBR.BP.BC.No.82/21.04.132/2015-16 dated
February 25, 2016. It has been decided that the modifications made in the Framework
vide the above mentioned circular shall also be, mutatis mutandis, made applicable to
NBFCs.
3. Notification No.DNBR. 041/CGM(CDS)-2016 dated May 26, 2016 amending the
Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding)
Companies Prudential Norms (Reserve Bank) Directions, 2015; Notification
No.DNBR.042/CGM(CDS)-2016 dated May 26, 2016 amending the Non-Systemically
Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies
Prudential Norms (Reserve Bank) Directions, 2015; and Notification
No.DNBR.043/CGM(CDS)-2016 dated May 26, 2016 amending the Non-Banking
Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank)
Directions, 2007 are enclosed.
Yours faithfully
(C.D.Srinivasan)
Chief General ManagerRESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING REGULATION
CENTRAL OFFICE, CENTRE I, WORLD TRADE CENTRE
CUFFE PARADE, COLABA, MUMBAI 400 005
Notification No.DNBR 041/CGM (CDS)-2016 dated May 26, 2016
The Reserve Bank of India (the Bank), having considered it necessary in public
interest and being satisfied that, for the purpose of enabling the Bank to regulate the
credit system to the advantage of the country, it is necessary to amend the
Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding)
Companies Prudential Norms (Reserve Bank) Directions, 2015, issued vide
Notification No. DNBR. 009 CGM (CDS) – 2015 dated March 27, 2015 (the
Directions), as amended up to April 07, 2016, in exercise of the powers conferred by
section 45JA of the Reserve Bank of India Act, 1934 (Act 2 of 1934) and of all the
powers enabling it in this behalf, hereby directs that the said Directions shall be
amended with immediate effect as follows –
1. Paragraph 7 of Annex III to the Directions shall be deleted.
2. In paragraph 8 of Annex III to the Directions, after Miscellaneous and
before sub paragraph 8.1 the following shall be inserted;
Following general conditions would be applicable in all cases of restructuring:
3. In paragraph 8 of Annex III to the Directions, the following paragraphs
shall be inserted after sub paragraph 8.4.
8.5 All restructuring packages will be required to be implemented in a time bound
manner. All restructuring packages under CDR/ JLF/ Consortium/ MBA arrangement
should be implemented within 90 days from the date of approval. Other restructuring
packages should be implemented within 120 days from the date of receipt of
application by the NBFC.
8.6 Promoters must bring additional funds in all cases of restructuring.
Additional funds brought by promoters should be a minimum of 20 per cent of
NBFCs’ sacrifice or 2 per cent of the restructured debt, whichever is higher. The
promoters' contribution should invariably be brought upfront while extending the
restructuring benefits to the borrowers. Promoter's contribution need not necessarilybe brought in cash and can be brought in the form of conversion of unsecured loan
from the promoters into equity;
8.7 NBFCs should determine a reasonable time period during which the
account is likely to become viable, based on the cash flow and the Techno Economic
Viability (TEV) study;
8.8 NBFCs should be satisfied that the post restructuring repayment period is
reasonable, and commensurate with the estimated cash flows and required DSCR in
the account as per their own Board approved policy.
8.9 Each NBFC should clearly document its own due diligence done in
assessing the TEV and the viability of the assumptions underlying the restructured
repayment terms.
4. After sub clause 5.1.3 of clause 5.1 of paragraph 5 of Appendix 3 of
Annex III to the Directions, the following shall be inserted.
With a view to preserve the economic value of viable accounts, it has been decided
that in cases of fraud/ malfeasance where the existing promoters are replaced by
new promoters and the borrower company is totally delinked from such erstwhile
promoters/ management, NBFCs and JLF may take a view on restructuring of such
accounts based on their viability, without prejudice to the continuance of criminal
action against the erstwhile promoters/ management. Further, such accounts may
also be eligible for asset classification benefits available on refinancing after change
in ownership, if such change in ownership is carried out under guidelines contained
in circular DBR.BP.BC.No.41/21.04.048/2015-16 dated September 24, 2015 on
“Prudential Norms on Change in Ownership of Borrowing Entities (Outside Strategic
Debt Restructuring Scheme)”. Each NBFC may formulate its policy and requirements
as approved by the Board, on restructuring of such assets.
(C.D.Srinivasan)
Chief General ManagerRESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING REGULATION
CENTRAL OFFICE, CENTRE I, WORLD TRADE CENTRE
CUFFE PARADE, COLABA, MUMBAI 400 005
Notification No.DNBR 042/CGM (CDS)-2016 dated May 26, 2016
The Reserve Bank of India (the Bank), having considered it necessary in public
interest and being satisfied that, for the purpose of enabling the Bank to regulate the
credit system to the advantage of the country, it is necessary to amend the Non-
Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding)
Companies Prudential Norms (Reserve Bank) Directions, 2015 issued vide
Notification No. DNBR. 008 CGM(CDS) – 2015 dated March 27, 2015, as amended
upto March 10, 2016 (the Directions), in exercise of the powers conferred by section
45JA of the Reserve Bank of India Act, 1934 (Act 2 of 1934) and of all the powers
enabling it in this behalf, hereby directs that the said Directions shall be amended
with immediate effect as follows –
1. Paragraph 7 of Annex III to the Directions shall be deleted.
2. In Paragraph 8 of Annex III to the Directions, after Miscellaneous and
before sub paragraph 8.1, the following shall be inserted;
Following general conditions would be applicable in all cases of restructuring:
3. In paragraph 8 of Annex III to the Directions, the following paragraphs
shall be inserted after sub paragraph 8.4
8.5 All restructuring packages will be required to be implemented in a time bound
manner. All restructuring packages under CDR/ JLF/ Consortium/ MBA arrangement
should be implemented within 90 days from the date of approval. Other restructuring
packages should be implemented within 120 days from the date of receipt of
application by the NBFC.
8.6 Promoters must bring additional funds in all cases of restructuring.
Additional funds brought by promoters should be a minimum of 20 per cent of
NBFCs’ sacrifice or 2 per cent of the restructured debt, whichever is higher. The
promoters' contribution should invariably be brought upfront while extending the
restructuring benefits to the borrowers. Promoter's contribution need not necessarily
be brought in cash and can be brought in the form of conversion of unsecured loan
from the promoters into equity;8.7 NBFCs should determine a reasonable time period during which the
account is likely to become viable, based on the cash flow and the Techno Economic
Viability (TEV) study;
8.8 NBFCs should be satisfied that the post restructuring repayment period is
reasonable, and commensurate with the estimated cash flows and required DSCR in
the account as per their own Board approved policy.
8.9 Each NBFC should clearly document its own due diligence done in
assessing the TEV and the viability of the assumptions underlying the restructured
repayment terms.
4. After sub clause 5.1.3 of clause 5.1 of paragraph 5 of Appendix 3 of
Annex III to the Directions, the following shall be inserted
With a view to preserve the economic value of viable accounts, it has been decided
that in cases of fraud/ malfeasance where the existing promoters are replaced by
new promoters and the borrower company is totally delinked from such erstwhile
promoters/management, NBFCs and JLF may take a view on restructuring of such
accounts based on their viability, without prejudice to the continuance of criminal
action against the erstwhile promoters/management. Further, such accounts may
also be eligible for asset classification benefits available on refinancing after change
in ownership, if such change in ownership is carried out under guidelines contained
in circular DBR.BP.BC.No.41/21.04.048/2015-16 dated September 24, 2015 on
“Prudential Norms on Change in Ownership of Borrowing Entities (Outside Strategic
Debt Restructuring Scheme)”. Each NBFC may formulate its policy and requirements
as approved by the Board, on restructuring of such assets.
(C.D.Srinivasan)
Chief General ManagerRESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING REGULATION
CENTRAL OFFICE, CENTRE I, WORLD TRADE CENTRE
CUFFE PARADE, COLABA, MUMBAI 400 005.
Notification No. DNBR 043/CGM (CDS) -2016 dated May 26, 2016
The Reserve Bank of India (the Bank), having considered it necessary in public
interest and being satisfied that, for the purpose of enabling the Bank to regulate the
credit system to the advantage of the country, it is necessary to amend the Non-
Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms
(Reserve Bank) Directions, 2007 issued vide Notification No.DNBS.192/DG(VL)-
2007 dated February 22, 2007, as amended upto March 10, 2016 (the Directions), in
exercise of the powers conferred by section 45JA of the Reserve Bank of India Act,
1934 (Act 2 of 1934) and of all the powers enabling it in this behalf, hereby directs
that the said Directions shall be amended with immediate effect as follows –
1. Paragraph 7 of Annex A to the Directions shall be deleted.
2. In paragraph 8 of Annex A to the Directions, after Miscellaneous and
before sub paragraph 8.1, the following shall be inserted;
Following general conditions would be applicable in all cases of restructuring:
3. In paragraph 8 of Annex A to the Directions, the following paragraphs
shall be inserted after sub paragraph 8.4
8.5 All restructuring packages will be required to be implemented in a time bound
manner. All restructuring packages under CDR/ JLF/ Consortium/ MBA arrangement
should be implemented within 90 days from the date of approval. Other restructuring
packages should be implemented within 120 days from the date of receipt of
application by the NBFC.
8.6 Promoters must bring additional funds in all cases of restructuring.
Additional funds brought by promoters should be a minimum of 20 per cent of
NBFCs’ sacrifice or 2 per cent of the restructured debt, whichever is higher. The
promoters' contribution should invariably be brought upfront while extending the
restructuring benefits to the borrowers. Promoter's contribution need not necessarily
be brought in cash and can be brought in the form of conversion of unsecured loan
from the promoters into equity;8.7 NBFCs should determine a reasonable time period during which the
account is likely to become viable, based on the cash flow and the Techno Economic
Viability (TEV) study;
8.8 NBFCs should be satisfied that the post restructuring repayment period is
reasonable, and commensurate with the estimated cash flows and required DSCR in
the account as per their own Board approved policy.
8.9 Each NBFC should clearly document its own due diligence done in
assessing the TEV and the viability of the assumptions underlying the restructured
repayment terms.
4. After sub clause 5.1.3 of clause 5.1 of paragraph 5 of Appendix 3 of
Annex A to the Directions, the following shall be inserted
With a view to preserve the economic value of viable accounts, it has been decided
that in cases of fraud/ malfeasance where the existing promoters are replaced by
new promoters and the borrower company is totally delinked from such erstwhile
promoters/ management, NBFCs and JLF may take a view on restructuring of such
accounts based on their viability, without prejudice to the continuance of criminal
action against the erstwhile promoters/ management. Further, such accounts may
also be eligible for asset classification benefits available on refinancing after change
in ownership, if such change in ownership is carried out under guidelines contained
in circular DBR.BP.BC.No.41/21.04.048/2015-16 dated September 24, 2015 on
“Prudential Norms on Change in Ownership of Borrowing Entities (Outside Strategic
Debt Restructuring Scheme)”. Each NBFC may formulate its policy and requirements
as approved by the Board, on restructuring of such assets.
(C.D.Srinivasan)
Chief General Manager