RBI issues timeline for faster resolution of banks' NPAs

Backed by new powers to deal with banks' bad assets, Reserve Bank of India (RBI) on Friday issued a fresh directive to banks for timely implementation of corrective action plans decided by the 'joint lending forums' (JLF).

RBI had, in February, issued a framework for early identification of stressed assets and timely implementation of a corrective action plan (CAP) to preserve the economic value of stressed assets.

However, RBI said early and expeditious formulation and implementation of corrective action is key to resolution of banks' bad asset problem.

The framework (Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders' Forum and Corrective Action Plan) specifies various timelines within which lenders have to decide and implement the CAP.

The Framework also contains disincentives, in the form of asset classification and accelerated provisioning where lenders fail to adhere to the provisions of the framework.

RBI noted that delays have been observed in finalising and implementation of the CAP, leading to delays in resolution of stressed assets in the banking system.

In this context, RBI has now clarified that while corrective action plans can also include resolution by way of flexible structuring of project loans, change in ownership under strategic debt restructuring, scheme for sustainable structuring of stressed assets (S4A), etc, these have to be implemented in an expeditious manner.

RBI has directed lenders to scrupulously adhere to the timelines prescribed in the framework for finalising and implementing the CAP.

To facilitate timely decision making, RBI said, ''the decisions agreed upon by a minimum of 60 per cent of creditors by value and 50 per cent of creditors by number in the JLF would be considered as the basis for deciding the CAP, and will be binding on all lenders, subject to the exit (by substitution) option available in the framework.''

RBI said, lenders should ensure that their representatives in the JLF are equipped with appropriate mandates, and that decisions taken at the JLF are implemented by the lenders within the timelines.

RBI has specified:

  • The stand of the participating banks while voting on the final proposal before the JLF should be unambiguous and unconditional;
  • Any bank which does not support the majority decision on the CAP may exit subject to substitution within the stipulated time line, failing which it should abide by the decision of the JLF;
  • The bank should implement the JLF decision without any additional conditionalities; and
  • Banks' boards should empower their executives to implement the JLF decision without requiring further approval from the board.

RBI has cautioned banks that non-adherence to the instructions and timelines specified under the framework will attract monetary penalties on the concerned banks under the provisions of the Banking Regulation Act 1949.