Executive Summary:
This circular from the Reserve Bank of India (RBI) addresses delays in the resolution of stressed assets. It reiterates the importance of adhering to the timelines prescribed in the Framework for Revitalising Distressed Assets. The circular clarifies that decisions agreed upon by a minimum of 60% of creditors by value and 50% of creditors by number in the JLF will be binding. Non-adherence to these instructions may attract monetary penalties.
Key Points / Main Content:
* **Framework for Revitalising Distressed Assets:**
* Lenders must adhere to timelines for finalising and implementing Corrective Action Plans (CAPs).
* CAPs can include Flexible Structuring of Project Loans, Change in Ownership under Strategic Debt Restructuring, and Scheme for Sustainable Structuring of Stressed Assets (S4A).
* **Joint Lenders Forum (JLF) Decision Making:**
* Decisions agreed upon by a minimum of 60% of creditors by value and 50% of creditors by number in the JLF will be considered the basis for deciding the CAP and are binding on all lenders.
* Lenders' representatives in the JLF must have appropriate mandates.
* Decisions taken at the JLF must be implemented by lenders within the timelines.
* Participating banks must have unambiguous and unconditional stances while voting on the final proposal before the JLF.
* Banks not supporting the majority decision may exit subject to substitution within the stipulated timeline, failing which they must abide by the JLF decision.
* Banks must implement the JLF decision without additional conditionalities.
* Boards shall empower their executives to implement the JLF decision without requiring further approval from the Board.
* **Penalties for Non-Adherence:**
* Non-adherence to instructions and timelines specified under the Framework will attract monetary penalties under the Banking Regulation Act 1949.
Impact Analysis:
**Scheduled Commercial Banks (Excluding Local Area Banks and Regional Rural Banks)**
Impact: Required to adhere to stricter timelines for stressed asset resolution and implement JLF decisions more efficiently. Facing potential monetary penalties for non-compliance.
Action Required: Ensure representatives in the JLF have appropriate mandates. Implement JLF decisions promptly and without additional conditions. Empower executives to implement JLF decisions without further board approval. Review and align internal processes with the circular's requirements.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for monetary policy and regulation of the banking system.
All Scheduled Commercial Banks: Refers to all commercial banks in India that are listed in the Second Schedule of the Reserve Bank of India Act, 1934, excluding Local Area Banks and Regional Rural Banks.
Stressed Assets Resolution: The process of resolving problematic or non-performing assets held by banks.
Framework for Revitalising Distressed Assets in the Economy: A set of guidelines issued by the Reserve Bank of India to address the issue of distressed assets in the Indian economy.
Joint Lenders Forum: A platform for lenders to coordinate and decide on the resolution of stressed assets.
Corrective Action Plan: A plan formulated by lenders to address and resolve stressed assets.
Banking Regulation Act 1949: An act of the Parliament of India to regulate banking companies
Mumbai, Maharashtra: A city in India where the central office of Department of Banking Regulation is located.
भारतीय �रजव र् बक�
_________________RESERVE BANK OF INDIA _________________
www.rbi.org.in
RBI/2016-17/299
DBR.BP.BC.No.67/21.04.048/2016-17 May 5, 2017
The Chairman and Managing Director/Chief Executive Officer
All Scheduled Commercial Banks
(Excluding Local Area Banks and Regional Rural Banks)
Madam/Dear Sir,
Timelines for Stressed Assets Resolution
Please refer to the circular DBOD.BP.BC.No.97/21.04.132/2013-14 dated February
26, 2014 on “Framework for Revitalising Distressed Assets in the Economy –
Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)” and
subsequent circulars/amendments in this regard.
2. The Framework aims at early identification of stressed assets and timely
implementation of a corrective action plan (CAP) to preserve the economic value of
stressed assets. In order to ensure that the CAP is finalised and formulated in an
expeditious manner, the Framework specifies various timelines within which lenders
have to decide and implement the CAP. The Framework also contains disincentives,
in the form of asset classification and accelerated provisioning where lenders fail to
adhere to the provisions of the Framework. Despite this, delays have been observed
in finalising and implementation of the CAP, leading to delays in resolution of
stressed assets in the banking system.
3. It is hereby clarified that the CAP can also include resolution by way of Flexible
Structuring of Project Loans, Change in Ownership under Strategic Debt
Restructuring, Scheme for Sustainable Structuring of Stressed Assets (S4A), etc.
ब��कंग �व�नयमन �वभाग, केन्द्र�यकायार्लय, 12वींमंिज़ल, शह�दभगत�सहं माग,र् मुंबई – 400001
Department of Banking Regulation, Central Office, 12th Floor, Shahid Bhagat Singh Marg, Mumbai - 400001
Tel No: 22661602 Fax No: 22705691 Email ID: cgmicdbr@rbi.org.in
�हदं � आसान ह�, इसका प्रयोग बड़ाइए2
4. In this context, it is reiterated that lenders must scrupulously adhere to the
timelines prescribed in the Framework for finalising and implementing the CAP. To
facilitate timely decision making, it has been decided that, henceforth, the decisions
agreed upon by a minimum of 60 percent of creditors by value and 50 percent of
creditors by number in the JLF would be considered as the basis for deciding the
CAP, and will be binding on all lenders, subject to the exit (by substitution) option
available in the Framework. Lenders shall ensure that their representatives in the
JLF are equipped with appropriate mandates, and that decisions taken at the JLF
are implemented by the lenders within the timelines.
5. It shall be noted that
(i) the stand of the participating banks while voting on the final proposal before the
JLF shall be unambiguous and unconditional;
(ii) any bank which does not support the majority decision on the CAP may exit
subject to substitution within the stipulated time line, failing which it shall abide the
decision of the JLF;
(iii) the bank shall implement the JLF decision without any additional conditionalities;
and
(iv) the Boards shall empower their executives to implement the JLF decision without
requiring further approval from the Board.
6. Any non-adherence to these instructions and timelines specified under the
Framework shall attract monetary penalties on the concerned banks under the
provisions of the Banking Regulation Act 1949.
7. This circular is issued in exercise of the powers conferred by Sections 21, 35A
and 35AB of the Banking Regulation Act, 1949.
Yours faithfully,
(Rajinder Kumar)
Chief General Manager