RBI’s Latest Framework For Resolution Of Stressed Assets Is A Win-Win Situation, Feels Experts

The Reserve Bank of India (RBI) revised norms for resolution of stressed assets in the wake of the judgment of the Honourable Supreme Court of India is a win-win situation for many industry players. On June 7, the RBI announced a few fundamental principles underlying the regulatory approach when it comes to the resolution of the stressed assets. This includes early detection and recognition of reporting with respect to large borrowers by banks, financial institutions and NBFCs. Commenting on the latest development,Mustafa Nadeem, CEO, Epic Research said, “This is a welcome step since there was a lag between the noting the default and then having a resolution to it. Earlier it was mandated to identify it on Day 1 which was a losing situation for the borrower. This was actually creating a stressful situation for the lender and the borrower.”

These fresh norms apply to all the lenders including scheduled commercial banks, All-India financial institutions (NHB, EXIM, NABARD and SIDBI), Small Finance Banks, Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-ND-SI) and Deposit taking Non-Banking Financial Companies (NBFC-D).  Rajat Bahl, Chief Analytical Officer & Head Financial Institutions, Brickwork ratings said, “Against the earlier applicability on scheduled commercial banks and All-India financial institutions only, this would bring in a level playing field.”

The resolution plan (RP) has some positive impact, when it comes to financial markets. Nadeem believes, there were many policies that were in place related to the framework of financial markets. Firstly, incentivising the earlier resolution will help the banks. Secondly, it will completely make the other entire framework as CDR, SDR, etc obsolete. Hence this leads to a thorough and concrete policy structure under "Prudential Framework for Resolution of Stressed assets”. As per the new circular the earlier requirement of 100 per cent approval from creditors for implementation of the resolution has come to 75 per cent required approval, thereby increasing the chances of successful implementation of RP within the stipulated timeline of 180 days.

“Against earlier norm of implementation of RP on a single day default, the new norm allows lenders to review the accounts within 30 days from the default, imbibing a smoother transition while ensuring better credit discipline. Reduction from Rs 2000 crores threshold to Rs 1500 crores with a reference date of Jan 1, 2020, is the first step towards covering all the stressed assets, laying a clear roadmap to ensure better resolution of stressed assets,” said Bahl.  Agreeing on the same Nadeem said: “This new 30-Day window will now actually put a cushion for the borrower. Secondly, the powers that have been now given to lender brings a lot of clarity on the table. Since it will now be able to identify the bad loans, study the books and make a concrete resolution for the same. We believe it is a win-win situation for both - The lender and the borrower as it brings logically much-needed clarity.”