While the Reserve Bank of India (RBI) has given its green signal to a one-time loan restructuring, the central bank said an expert committee to be headed by KV Kamath, former chairman of ICICI Bank, will make recommendations to the RBI on the required financial parameters, along with the sector-specific benchmark ranges for such parameters to be factored into each resolution plan for the borrowers.
The committee will also undertake a process validation of resolution plans for accounts above a specified threshold. “The lending institutions may allow extension of the residual tenor of the loan, with or without payment moratorium by a period not more than two years,” RBI Governor Shaktikanta Das said.
The RBI has also decided that the debt of MSME borrowers facing stress on account of the economic fallout of the Covid pandemic can be restructured by lending institutions under the existing framework by March 31, 2021. MSME account which was classified as standard with the lender as on March 1, 2020 will be offered this facility.
The RBI is working out a separate framework for personal loans. The resolution plan for personal loans under this framework may be invoked till December 31, 2020 and it will be implemented within 90 days thereafter. The lending institutions are encouraged to strive for early invocation in eligible cases. The resolution plan may be invoked anytime till December 31, 2020 and will have to be implemented within 180 days from the date of invocation. Lenders will have to keep additional provisions of 10 per cent on the post-resolution debt.
Das said wherever the resolution plans involve conversion of a portion of debt into equity and other debt instruments, the debt instruments with terms similar to the loan will be counted as part of the post-resolution debt, whereas the portion converted into other non-equity instruments shall be fully written down.
The economic fallout on account of the Covid-19 pandemic has led to significant financial stress for a number of borrowers across the board. The RBI has made it clear that only those borrower accounts which were classified as standard, but not in default for more than 30 days with any lending institution as on March 1, 2020 will be eligible for resolution. “Further, the accounts should continue to remain standard till the date of invocation,” it said.
All other accounts will be considered for resolution under the June 7 Prudential Framework issued by the RBI or the relevant instructions as applicable to specific category of lending institutions where the prudential framework is not applicable, the RBI said.
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