The Reserve Bank of India (RBI) has allowed a one time restructuring of loans without classifying them as NPAs to help companies and individuals manage the financial stress caused by the Covid 19 pandemic.
The central bank will also form a expert committee headed by former ICICI Bank CEO KV Kamath to suggest ways in which the restructuring will be implemented, governor Shaktikanta Das said.
“We have decided to provide a window for restructuring of loans without downgrading them according to the June 7 2019 circular. Care will be taken that past experience of restructuring is not repeated and enough safeguards will be followed,” Das said in his statement which followed the monetary policy.
Lending institutions have been asked to frame board approved policies to implement viable resolution plans for eligible borrowers under this framework. The policies shall, detail the eligibility of borrowers and lay down the due diligence considerations to be followed by the lending institutions. March 1 has been set as the reference date for the outstanding amount of debt for restructuring.
Personal loans have also been included in the restructuring except those given to staff of the lending institutions. Accounts which were standard, but not in default for more than 30 as on March 1, 2020 will be considered and the restrcuturing has to be invoked not later than December 31, 2020 and must be implemented within 90 days from the date of invocation, RBI said.
“The resolution plans may inter alia include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years. Correspondingly, the overall tenor of the loan may also get modified commensurately,” RBI said.
In case of corporate borrowers if there are multiple lending institutions with exposure to the borrower, the resolution process shall be treated as invoked in respect of any borrower if lending institutions representing 75% by value of the total outstanding credit facilities (fund based as well non-fund based) , and not less than 60% of lending institutions by number agree to invoke the same.
For corporate loans the restructuring has to be implemented within 180 days from the date of invocation
“In all cases involving multiple lending institutions, where the resolution process is invoked and consequently a resolution plan has to be implemented, inter creditor agreement shall be required to be signed by all lending institutions within 30 days from the date of invocation,” RBI said.
The bank will also constitute a committee under Kamath which shall recommend a list of financial parameters which, in their opinion would be required to be factored into the assumptions that go into each resolution plan, and the sector specific benchmark ranges for such parameters. “The parameters shall inter alia cover aspects related to leverage, liquidity, debt serviceability etc. The expert committee shall submit a list of financial parameters and the sector-specific desirable ranges for such parameters to the Reserve Bank, which, in turn, will notify the same, along with modifications, if any, within 30 days,” RBI said.
Loans to micro and small enterprises will also be restructured, Das said.