The Reserve Bank of India (RBI) has given small and medium-sized
defaulters enough time to come out from the stressed account books of
banks and regularise their repayments while maintaining its tough stance
vis-a-vis big defaulters.
The RBI, which announced the revised ‘Prudential framework for resolution of stressed assets’ on Friday June 7, 2019 has given a significant portion of the mid-sized corporate loans time till December 2019 to regularise their repayments.
“Effectively these borrowers have time till June 6, 2020, to repay their loans,” Care Ratings said.
The review period for defaulters between Rs 1,500 crore and less than Rs 2,000 crore will start only from January 1, 2020
For loans below Rs 1,500 crore, the RBI is yet to announce a date, indicating that the central bank is expected to take a lenient approach to small defaulters
The review period for big defaulters of Rs 2,000 crore and above will start with immediate effect.
According to Care Ratings, the ICA (inter-creditor agreement) would provide for rights and duties of majority lenders, duties and protection of rights of dissenting lenders, treatment of lenders with priority in cash flows/differential security interest, etc. In particular, the resolution plans (RPs) should provide for payment not less than the liquidation value due to the dissenting lenders, it said
“Dissenting lenders would have to exit at the liquidation value which may not be in their interest and would effectively pressurise them into accepting the terms agreed by the majority of the lenders. Further, if liquidation value becomes miniscule or negative, such lenders may end up not receiving any portion from the recovery,” it said
On Friday June 7,2019 two months after the Supreme Court declared the RBI’s now-famous “February 12 circular” on resolution of stressed loans as unconstitutional, the RBI unveiled a new circular by relaxing several provisions in the earlier circular, including the one-day default norm, consent of lenders and more freedom to lenders in implementing the asset resolution plan. Scrapping its earlier norm of initiating resolution plan after a one-day default, the RBI has now said that the lenders should now review the accounts within 30 days of default and initiate a resolution plan under new norms.
The RBI, which announced the revised ‘Prudential framework for resolution of stressed assets’ on Friday June 7, 2019 has given a significant portion of the mid-sized corporate loans time till December 2019 to regularise their repayments.
“Effectively these borrowers have time till June 6, 2020, to repay their loans,” Care Ratings said.
The review period for defaulters between Rs 1,500 crore and less than Rs 2,000 crore will start only from January 1, 2020
For loans below Rs 1,500 crore, the RBI is yet to announce a date, indicating that the central bank is expected to take a lenient approach to small defaulters
The review period for big defaulters of Rs 2,000 crore and above will start with immediate effect.
According to Care Ratings, the ICA (inter-creditor agreement) would provide for rights and duties of majority lenders, duties and protection of rights of dissenting lenders, treatment of lenders with priority in cash flows/differential security interest, etc. In particular, the resolution plans (RPs) should provide for payment not less than the liquidation value due to the dissenting lenders, it said
“Dissenting lenders would have to exit at the liquidation value which may not be in their interest and would effectively pressurise them into accepting the terms agreed by the majority of the lenders. Further, if liquidation value becomes miniscule or negative, such lenders may end up not receiving any portion from the recovery,” it said
On Friday June 7,2019 two months after the Supreme Court declared the RBI’s now-famous “February 12 circular” on resolution of stressed loans as unconstitutional, the RBI unveiled a new circular by relaxing several provisions in the earlier circular, including the one-day default norm, consent of lenders and more freedom to lenders in implementing the asset resolution plan. Scrapping its earlier norm of initiating resolution plan after a one-day default, the RBI has now said that the lenders should now review the accounts within 30 days of default and initiate a resolution plan under new norms.
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