RBI’s new norms on bad loans wake up call for defaulters: Govt
In a bid to hasten the resolution of bad loans, RBI has tightened rules to make banks identify and tackle any non-payment of loan rapidly, a move the government said should act as a “wake up call” for defaulters.
The Reserve Bank of India abolished half a dozen existing loan-restructuring mechanisms late last night, and instead provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.
Financial Services Secretary Rajiv Kumar said the new rules are a “wake up call” for defaulters.
“The government is determined to clean up things in one go and not defer it. It is a more transparent system for resolution,” he said,” he told PTI here.
Under the new rules, insolvency proceedings would have to be initiated in case of a loan of Rs 2,000 crore or more if a resolution plan is not implemented within 180 days of the default.
Banks will face penalties in case of failure to comply with the guidelines, RBI said.
Financial Services Secretary said the RBI’s decision would not have much impact on provisioning norms for banks.
The revised framework has specified norms for “early identification” of stressed assets, timelines for implementation of resolution plans, and a penalty on banks for failing to adhere to the prescribed timelines.
RBI has also withdrawn the existing mechanism which included Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A).
The Joint Lenders’ Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued, it said, adding that “all accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework”.
Under the new rules, banks must report defaults on a weekly basis in the case of borrowers with more than Rs 5 crore of loan. Once a default occurs, banks will have 180 days within which to come up with a resolution plan. Should they fail, they will need to refer the account to the Insolvency and Bankruptcy Code (IBC) within 15 days.
As carried in PTI