RBI has in its Monetary Policy and Statement on Developmental and Regulatory Policies focused on the Measures Aimed at Mitigating the Economic Fallout of COVID-19.
In the review on monetary and credit policies RBI Governor
Shaktikanta Das said a window under the June
7,2019 “Prudential Framework
on Resolution of Stressed Assets” dated June 7, 2019 be provided which will enable lenders to implement a
resolution plan, without a change in ownership. Any resolution plan implemented under the
Prudential Framework, which involves granting of any concessions on account of
financial difficulty of the borrower, entails an asset classification downgrade
except when accompanied by a change in ownership, subject to prescribed
conditions.
“...it has been decided to provide a window under the June 7th
Prudential Framework to enable lenders to implement a resolution plan in
respect of eligible corporate exposures - without change in ownership - as well
as personal loans, while classifying such exposures as standard assets, subject
to specified conditions,” RBI
Governor Shaktikanta Das said in his statement on Thursday the 6th
August 2020. The regulatory approach has to be “dynamic, proactive and
balanced”, Das said. The RBI will ensure that necessary safeguards are in place
to maintain financial stability, he added.
A restructuring framework for MSMEs that were in default but
‘standard’ as on January 1, 2020 is already in place. The scheme has provided
relief to a large number of MSMEs. With COVID-19 continuing to disrupt normal
functioning and cash flows, the stress in the MSME sector has got accentuated,
warranting further support. Accordingly, it has been decided that stressed MSME
borrowers will be made eligible for restructuring their debt under the existing
framework, provided their accounts with the concerned lender were classified as
standard as on March 1, 2020. This restructuring will have to be implemented by
March 31, 2021.
What is Restructuring Plan –
New loan that
replaces the outstanding balance on an older loan, and is paid over
a longer period, usually with a lower installment amount. Loans are
commonly rescheduled to accommodate a borrower in financial difficulty and,
thus, to avoid a default. Also called rescheduled loan.
Under the restructuring plan, banks can now choose to reschedule
loan repayments, convert any interest accrued or to be accrued into another
credit facility, extend the loan tenor, or even extend moratorium up to two
years for the existing loans, depending on the current repayment ability of the
eligible borrower.
According to the RBI, lenders must
ensure that this New restructuring scheme is only available to borrowers which
are facing stress on account of Covid-19. The framework shall not be available
for exposures to financial sector entities as well as central and state
governments, local government bodies and any body corporate established by an
act of parliament or state legislature.
RBI said that borrowers who had been repaying regularly till March
2020 can now have a restructuring of their loan through a framework which will
be decided by the bank. As per RBI, the framework for this is required to be
fixed by December 31 and implemented within 90 days from then. Loans in default
for more than 30 days as on March 1, 2020, will not qualify for this plan.
Eligibility Criteria
·
Accounts which were in default for
not more than 30 days as of March 1 will be eligible for such restructuring.
All other stressed accounts will have to follow June 2019 framework for
resolution.
·
A committee headed by KV Kamath will
be set up to make recommendations to the RBI on the required financial
parameters, along with the sector specific benchmarks to be factored into each
resolution plans.
·
This committee will also validate the
resolution plans for accounts with cumulative debt of Rs 1,500 crore and above.
· The committee shall check and verify that all the processes have been followed by the parties concerned as desired without interfering with the commercial judgments exercised by the lenders.·
For cases where the aggregate debt is over Rs 100 crore, the
lending institutions will have to obtain an independent credit evaluation for
the resolution plan from a recognised credit rating agency.
Timeline & Process For
Restructuring
·
One-time restructuring plan may be
invoked any time before December 31, 2020 and must be implemented within 180
days of invocation.
·
Lending institutions are required to
sign an inter-creditor agreement ahead of the restructuring. Lenders who do not
sign inter-creditor agreements within 30 days of invocation of resolution plan
shall attract 20% provisions.
·
In a multiple banking or consortium
lending arrangement, if 60% of the lenders by number and 75% by value do not
sign the ICA, then the invocation would be considered as lapsed. The one time
restructuring scheme can then not be invoked for such cases again.
·
Lending institutions may allow for
extension of the residual tenor of the loan, with or without payment
moratorium, by a period not more than two years.
·
In cases where a loan is converted
into other instruments, such debt instruments with terms similar to the loan,
shall be counted as part of the post-resolution debt.
·
Conversion to any other non-equity
instrument will lead to the value of that portion of debt being written down to
Re 1.
·
In cases where there are multiple
banking or consortium banking arrangement, all disbursements made to the
borrowers by the banks and payments made by the borrowers to banks shall be
routed through an escrow account maintained with one of the lending
institutions.
Asset Classification & Provisions
·
The account will continue to retain
standard asset classification after implementation of the plan.
·
Lenders shall have to keep additional
10% provisions against post resolution debt.
Monitoring
The RBI has prescribed a clear
monitoring period for accounts which are restructured under this scheme. This
period begins from the date of implementation till the point in time when the
borrower pays back at least 10% of the residual debt.
·
In case a borrower is in default with
any of the lending institutions during the monitoring period, a review period
of 30 days gets triggered. If the default is not resolved within this review
period, the account is classified as NPA by all lenders involved.
·
Lenders can write back half of the
provisions held against restructured accounts after the borrower pays back at
least 20% of the residual debt. The remainder of the provisions can be written
back after another 10% of the residual debt is repaid, without the account
slipping into NPA.
Disclosures
·
Banks will be required to publish
disclosures with respect to the number of accounts where a one time-restructuring
plan is implemented and the outstanding loans to such accounts, on a quarterly
basis starting March 31, 2021.
·
They will also be required to
disclose the quantum of loans which were classified as standard after the
restructuring plan, but later slipped to NPA during the monitoring period, on a
half yearly basis starting September 30, 2021.
·
A disclosure format has been
prescribed by the RBI as under:
Format – A
Format for disclosures to be made in the
quarters ending March 31, 2021, June 30, 2021 and September 30, 2021
|
Type of borrower |
(A) |
(B) |
(C) |
(D) |
(E) |
|
Personal Loans |
|
|
|
|
|
|
Corporate persons* |
|
|
|
|
|
|
Of which, MSMEs |
|
|
|
|
|
|
Others |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
*As defined in Section
3(7) of the Insolvency and Bankruptcy Code, 2016 |
|||||
Format for disclosures to be made half yearly
starting September 30, 2021
|
Type of borrower |
Exposure to accounts
classified as Standard consequent to implementation of resolution plan –
Position as at the end of the previous half-year (A) |
Of (A), aggregate debt
that slipped into NPA during the half-year |
Of (A) amount written
off during the half-year |
Of (A) amount paid by
the borrowers during the half-year |
Exposure to accounts
classified as Standard consequent to implementation of resolution plan –
Position as at the end of this half-year |
|
Personal Loans |
|
|
|
|
|
|
Corporate persons* |
|
|
|
|
|
|
Of which MSMEs |
|
|
|
|
|
|
Others |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
* As defined in
Section 3(7) of the Insolvency and Bankruptcy Code, 2016 |
|||||
Conditions for the
Resolution Framework for COVID-19-related Stress are spelt out in details by
RBI. Readers may click on the following link for full details of the said
circular no. RBI/2020-21/16 - DOR.No.BP.BC/3/21.04.048/2020-21 dt. 6th
August 2020
How the One time
Restructuring will impact the individual Borrowers:
This scheme covers the bulk of the existing loans sanctioned to
individual borrowers and will help them in repaying their loans according
to their current repayment capacity as opposed to their repayment ability when
they borrowed the loan. This will mainly help those people whose
salaries have been cut amid the pandemic or those who have lost their jobs and
are not earning at the moment.
This decision has come at a time when six-month moratorium
announced on Equated Monthly Installment (EMI) is about to end on August 31,
which means loan payments will start from September 1. Borrowers who must have
opted for the 6-month moratorium can either repay it in one shot or ask lenders
to add these to their existing EMIs. Now, borrowers also have the option
of converting interest accrued during the moratorium period into a separate
loan.
Additionally, borrowers can keep their EMI unchanged but the loan tenure can be extended as well. However, as per experts, if possible, borrowers should aim to pre-pay the EMIs within the next 12 months in order to get rid of the additional debt incurred. Pre-paying 120 per cent of the EMIs that borrowers had to defer is ideal, meaning if a person deferred five EMIs, they are advised to pre-pay six additional EMIs over the next 12 months as it will help them bounce back in repayment plan and get out of debt quicker.
Source: rbi.org.in, Bloomberg Quint & Times Now
