RBI's carrot & stick to borrowers, lenders to revive bad loans

Tags: News
The RBI today made future loans more expensive for borrowers who don't cooperate in resolving existing bad loans and offered a liberal regulatory treatment for distressed asset sales.

Releasing 'Framework for Revitalising Distressed Assets', the RBI said new guidelines aimed at reducing bad loans would be effective April 1.

The framework proposes allowing lenders to spread loss on sale of such assets over two years provided loss is fully disclosed, among others.

It said the corrective action plan will incentivise early identification of problem cases, timely restructuring of accounts which are considered to be viable, and prompt steps by banks for recovery or sale of unviable accounts.

The framework calls for early formation of a lenders' committee with time-line to agree to a plan for resolution, apart from extending the take-out financing/ refinancing time for longer period, which won't be construed as restructuring. Under existing norms a recast loan attracts higher provision.

The framework also offers incentives for lenders to agree collectively and quickly to a restructuring plan under which it will offer a better regulatory treatment of stressed assets if a resolution plan is underway, but will attract accelerated provisioning if no agreement can be reached.

Seeking improvements in the current restructuring process, the framework allows independent evaluation of large value restructuring, with a focus on viable plans and a fair sharing of losses (and future possible upsides) between promoters and creditors.

It also moots steps to enable better functioning of asset reconstruction companies, apart from encouraging sector-specific companies/private equity firms to play active role in stressed assets market.

EDITORIAL OF THE DAY

  • HDFC Bank has triggered market competition by lowering base rate

    Even nine months after the Reserve Bank of India (RBI) changed its monetary stance and started reducing key policy rates, both public and private sect

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

Sarthak Raychaudhuri

vice-president, HR, Asia South Whirlpool of India

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

TODAY'S COLUMNS

Roopen Roy

Startups to bring change for good

It is a widely held belief that our new generation ...

Rajgopal Nidamboor

The quest for the greater self

All of us have our own outlook, or view, of ...

Dharmendra Khandal

Elephants are killed for those ivory bangles

Wildlife lovers always curse China for making products out of ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture