Banks are of the view that the new bad loan classification norms are harsh and will impair the financials of the companies if they are all driven to the NCLT
Reserve Bank of India (RBI) governor Urjit Patel and chiefs of public sector banks met parliamentary subcommittee headed by T Subbarami Reddy to discuss the central bank's decision to withdraw all circulars on debt restructuring and put in place a strict time-bound resolution process.
The meeting was called to discuss the impact of lifting the restructuring schemes which would impact the large infrastructure loans especially in the power sector that were under various stages of restructuring.
Banks are of the view that the new bad loan classification norms are harsh and will impair the financials of the companies if they are all driven to the National Company Law Tribunal (NCLT).
Even if the account is due for a day it has to be flagged off as a special mention account(SMA) and the details of the account has to be shared with the Central Repository of Information on Large Credits (CRILC) which is maintained with the RBI.
Banks have flagged off concerns about the impact of the withdrawal of the restructuring schemes and the impact it would have on their balance sheet with provisioning requirements being very high. They had earlier made a recommendation to the RBI asking for retaining part of the restructuring schemes and for the definition of default to be eased. They had also asked for the Joint Lenders Forum (JLF) to be continued so that they can discuss and have a common resolution plan. The banking industry has asked the regulator to continue with the joint lenders forum (JLF). Lenders believe the mechanism allowed them to manage stress better by providing a forum for discussing possible resolution plans.
The only reprieve RBI gave was for accounts with an aggregate exposure of Rs 2,000 crore or above where the resolution may have been initiated under any of the existing schemes as well as accounts classified as restructured standard assets, a resolution plan should be implemented in 180 days that is if the company was defaulting from the reference date or it should be implemented within 180 days from the date of default after the company has been referred to any of earlier restructuring schemes like the SDR and S4A.
On February 12, the RBI said that it is doing away with all previous instructions on bad loan management. This included ending JLFs and existing stressed asset resolution schemes like Strategic Debt Restructuring (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A). The rules also said that banks must start working on a resolution plan one day after a corporate borrower has defaulted on dues leaving the door open only for trying the companies under the Insolvency and Bankruptcy Code 2016.
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