RBI issues new guidelines on bad loans, replaces one-day default rule

Reserve Bank of India | File Photo
The Reserve Bank of India (RBI) on Friday issued new guidelines on resolving bad loans, replacing a circular that the Supreme Court rejected.

The RBI said that lenders should review accounts within 30 days of default and initiate a resolution plan before the default--revising its earlier 1-day default norm. All lenders must put in place board-approved policies for resolution of stressed assets, the RBI said.

Lenders will have to submit weekly report of instances of default by all borrowers with aggregate exposure of Rs 5 crore and above.

Here are key points of the RBI circular, as reported by Reuters:
  • RBI says lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts
  • It is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default
  • Lenders shall report credit information on all borrowers having aggregate exposure of Rs crore and above with them
  • Lenders shall enter into an inter-creditor agreement (ICA) 
  • ICA to provide rules for finalisation, implementation of RP for those with credit facilities from more than one lender
  • RBI says intent to evergreen stressed accounts by lenders will be subjected to stringent actions including higher provisioning & monetary penalties
  • Resolution plans shall provide for payment not less than the liquidation value due to the dissenting lenders
  • On accounts with aggregate exposure above a threshold with lenders, resolution plan to be implemented within 180 days from review period end
  • Lenders shall undertake a review of the borrower account within thirty days from default 
  • Joint lenders' forum (JLF) as mandatory institutional mechanism for resolution of stressed accounts stands discontinued

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