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RBI’s new norms to speed up resolution of stressed assets

Wednesday, February 14, 2018

RBI's new norms for overhauling the existing mechanism to deal with bad loans -- bringing them line with Insolvency and Bankruptcy Code (IBC) -- will help ensure speedy resolution of stressed assets in the banking system, officials said yesterday.

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.

The latest notification by Reserve Bank of India (RBI) has also withdrawn the existing mechanism which included Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme (SDR), Scheme for Sustainable Structuring of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".

Commenting on the RBI move, Financial Services Secretary Rajiv Kumar told PTI that last night's notification is 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.

The RBI's decision would not have much impact on provisioning norms for banks, he said. Last year, the government had given more powers to the RBI to push banks to deal with non-performing assets (NPAs) or bad loans. The gross NPAs of public sector and private sector banks as on September 30, 2017 were Rs 7,33,974 crore, Rs 1,02,808 crore respectively. "In view of the enactment of the IBC, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets," the RBI said in a notification late Monday evening.

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