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Wednesday, October 28, 2020

Loan restructuring applies to all credit substitutes: RBI

All microfinance institutions and self-help group loans meeting the basic eligibility criteria, unless covered by the specific exclusions, are eligible resolution but personal loans from these categories will not be recast, the RBI said.

By: ENS Economic Bureau | Mumbai | Updated: October 15, 2020 10:32:27 am
GST compensation, RBI, GST meet, Centre state GST talk, Centre to borrow from state, RBI GST news, Nirmala SItharaman, Coronavirus, Indian economy, Indian expressA senior official said the RBI insisted on the Centre borrowing, rather than states.

The Reserve Bank of India (RBI) has clarified that the loan resolution framework can be invoked for investment exposures that are credit substitutes like corporate bonds and commercial papers.

“The resolution framework may be invoked for resolution of all exposures of lending institutions to eligible borrowers, including investment exposures,” the RBI said in a clarification on resolution framework for Covid-related stress. However, the resolution framework is without prejudice to all applicable guidelines issued by the relevant financial sector regulators and other departments of the RBI in respect of any particular exposure.

All microfinance institutions and self-help group loans meeting the basic eligibility criteria, unless covered by the specific exclusions, are eligible resolution but personal loans from these categories will not be recast, the RBI said.

The RBI has clarified that loans which have remained standard without any defaults as of March 1, 2020, will be eligible for restructuring under the pandemic-related resolution framework issued in August. The RBI said a loan account that was due for more than 30 days as on March 1, 2020, but subsequently got regularised, will not be ineligible for resolution under the resolution framework.

Explained

Allied farm activities out of scope

All farm credit exposures, including NBFCs, can be recast under this scheme, but loans to allied activities such as dairy, fisheries, and animal husbandry, are excluded from the scope of the resolution framework.

This is because the restructuring framework is applicable only for eligible borrowers who were classified as standard as of March 1, 2020, it said. However, such accounts may still be resolved under the prudential framework dated June 7, 2019, the central bank said.

Similarly, the regulator said restructuring of under-implementation project loans involving deferment of date of commencement of commercial operations (DCCO) are excluded from the scope of resolution framework and that such accounts will continue to be governed by the February 7, 2020, and the other relevant instructions as applicable to specific category of lending institutions. Also, in the case of multiple lenders to a single borrower whose resolution is undertaken, all lending institutions will have to enter into an inter-creditor agreement.

The clarification also said the new definition of micro, small and medium enterprises (MSMEs) effective June 26, will not impact their eligibility for resolution but will be based on the definition that existed as of March 1, 2020.

It also clarified that all farm credit exposures, including NBFCs, can be recast under this scheme, but loans to allied activities such as dairy, fisheries, animal husbandry, poultry, bee-keeping and sericulture are excluded from its scope.

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