SME Times News Bureau | 08 Jun, 2019
Allowing lenders to start resolution process within 30 days of default,
the Reserve Bank of India on Friday issued a revised framework for resolution
of stressed assets.
"All lenders must put in place board-approved policies for
resolution of stressed assets, including the timelines for resolution,"
the circular read.
"Since default with any lender is a lagging indicator of financial
stress faced by the borrower, it is expected that the lenders initiate the
process of implementing a resolution plan (RP) even before a default."
Accordingly, the new circular has provided lenders with complete discretion to
lenders with regard to design and implementation of resolution plans, in
supersession of earlier resolution schemes, "subject to the specified
timeline and independent credit evaluation".
However, a system of disincentives in the form of additional provisioning for
delay in implementation of resolution plan has been incorporated in the
"It is expected that the current circular will sustain the improvements in
credit culture that have been ushered in by the efforts of the government and
the Reserve Bank of India so far and that it will go a long way in promoting a
strong and resilient financial system in India," RBI said in a statement.
The circular comes after the Supreme Court in April struck down the apex bank's
previous circular which mandated that the resolution process begin immediately
on the day after default of loans worth over Rs 2,000 crore.
It gives banks flexibility to put in place their own policies, approved by
Earlier, the Supreme Court's April 2 order raised questions over the fate of
about eight power projects including the 3,600 MW KSK Mahanadi Power Co Ltd,
1,920 MW Lanco Amarkantak Power Ltd, 600 MW Avantha Power, 1,350 MW Rattan
India Power Ltd, 550 MW RKM Powergen and 700 MW Bharat Utkal.
These projects were referred by a consortium of lenders including the Power
Finance Corp to the NCLT as per the provisions of the February 12 RBI circular,
which said it would be mandatory for projects in default to be referred to the
NCLT after 180 days from start of the resolution period.
As 180 days for these projects ended in August, they were referred to the NCLT.