From UPSC perspective, the following things are important :
Prelims level : Not Much
Mains level : Steps for stressed asset resolution
- The RBI has released revised set of norms on stressed asset resolution which are substantially less stringent from the previous one.
Inter-Creditor Agreement (ICA)
- The inter-creditor agreement is aimed at the resolution of loan accounts with a size of ₹50 crore and above that are under the control of a group of lenders.
- It is part of the Sashakt plan approved by the government to address the problem of resolving bad loans.
- The lenders may also choose to initiate legal proceedings for insolvency or recovery as per the news circular.
- If the RP is to be implemented, lenders have been asked to enter into an inter-creditor agreement (ICA), within the review period, to provide for ground rules for finalization and implementation of the RP.
- The ICA shall provide that any decision agreed by lenders representing 75% by value of total outstanding credit facilities (fund-based as well as non-fund based) and 60% of lenders by number shall be binding upon all the lenders.
- The RP will have to implement within 180 days from the end of review period.
- The new circular asked lenders to undertake a prima facie review of the borrower account within 30 days from a default, which is termed as review period.
- During this review period, lenders may decide on the resolution strategy, including the nature of the resolution plan (RP), the approach for implementation of the RP etc.
- The review period shall commence not later than the date of the this circular for loans above Rs. 2000 crore; January 1 ,2020 for loans above Rs. 1,500 crore to Rs. 2,000 crore.
What if Resolution Plan delayed?
- There is a disincentive for banks if they delay implementing a viable resolution plan.
- In case the plan is not implemented within 180 days from the end of review period, banks have to make additional provision of 20% and another 15% if the plan is not implemented within 365 days from the start of the review period.
- The additional provisions would be reversed if resolution is pursued under Insolvency and Bankruptcy Code (IBC).