The Reserve Bank of India (RBI) issued guidelines for revitalising distressed assets on 26 February 2014. The guidelines suggested the forming of Joint Lenders Forum (JLF) and adoption of Corrective Action Plan (CAP) for operationalising the framework.
Highlights of the Guidelines:
• Before a loan account turns into a NPA, banks are required to identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA1) category. SMA Sub-categories.
- SMA-0: Account will fall in this category if the Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress.
- SMA-1: If the Principal or interest payment overdue between 31-60 days
- SMA-2: If the Principal or interest payment overdue between 61-90 days
• RBI to set up a Central Repository of Information on Large Credits (CRILC) to collect, store, and disseminate credit data to lenders.
• Banks are advised that as soon as an account is reported by any of the lenders to CRILC as SMA-2, they should mandatorily form a committee to be called Joint Lenders’ Forum (JLF) if the aggregate exposure (AE) of lenders in that account is 1000 million rupees and above.
• The RBI suggested infusion of more equity into their companies by promoters and transfer of their holdings to a security trustee or an escrow arrangement till the turnaround of the company.
• The Indian Banks’ Association (IBA) would prepare a master JLF agreement and operational guidelines for JLF which could be adopted by all lenders.
• While JLF formation and subsequent corrective actions would be mandatory in accounts having AE of 100 crore rupees and above, in other cases also the lenders would have to monitor the asset quality closely and take corrective action for effective resolution as deemed appropriate.
• For accounts with AE of 500 crore rupees and above, the techno-economic viability study and restructuring package would have to be subjected to an evaluation by an independent evaluation committee (IEC) of experts.
• The IEC would be required to give its recommendation in these cases to the JLF within 30 days.
• Thereafter, considering the views of IEC, if the JLF decided to go ahead with the restructuring, the restructuring package, including all terms and conditions as mutually agreed upon between the lenders and the borrower, would have to be approved by all the lenders and communicated to the borrower within next 15 days for implementation.
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