INSUBCONTINENT EXCLUSIVE:
RBI has made provisions for restructuring of personal and corporate loansIn a major relief to corporate and retail borrowers, the Reserve
with a view to mitigating risks to financial stability
The restructuring will be allowed as per the prudential framework issued on June 7, 2019, RBI Governor Shaktikanta Das said
RBI also announced setting up of an expert committee headed by veteran banker K V Kamath which will give recommendations on various
parameters to be factored into each resolution plan for corporate loans."With the intent to facilitate revival of real sector activities and
mitigate the impact on the ultimate borrowers, it has been decided to provide a windowto enable the lenders to implement a resolution plan
in respect of eligible corporate exposures without change in ownership, and personal loans, while classifying such exposures as standard,
subject to specified conditions," RBI said in its Statement on Developmental and Regulatory Policies.While announcing the monetary policy,
Governor Das said, "The underlying theme of this resolution window is preservation of the soundness of the Indian banking sector."Bankers
had pitched for a one-time loan recast of accounts facing challenges due to the pandemic
The Indian Banks Association (IBA) had also given its recommendation on the same to RBI.Last week, Finance Minister Nirmala Sitharaman had
said the government is working with the RBI on the need for restructuring of loans to help the industry tide over the impact of
COVID-19."The focus is on restructuring
Finance ministry is actively engaged with RBI on this
In principle, the idea that there may be a restructuring required, is well taken," Sitharaman had said.RBI further said the resolution under
this window is extended only to borrowers facing stress on account of COVID-19
In light of past experiences with regard to use of regulatory forbearances, necessary safeguards are being incorporated, including prudent
entry norms, clearly defined boundary conditions, specific binding covenants, independent validation and strict post-implementation
performance monitoring, RBI said.Only those borrower accounts shall be eligible for resolution under this framework which were classified as
standard, but not in default for more than 30 days with any lending institution as on March 1, 2020, it said.The central bank said the
resolution plan may be invoked anytime till December 31, 2020 and shall have to be implemented within 180 days from the date of invocation
Lenders shall have to keep additional provisions of 10 per cent on the post-resolution debt."The lending institutions may allow extension of
the residual tenor of the loan, with or without payment moratorium, by a period not more than two years," it said.RBI said it is
constituting an expert committee under the chairmanship of K V Kamath which shall make recommendations to it on the required financial
parameters, along with the sector specific benchmark ranges for such parameters, to be factored into each resolution plan.The expert
committee shall also undertake a process validation of resolution plans for accounts above a specified threshold.RBI said wherever the
resolution plans involve conversion of a portion of debt into equity and other debt instruments, the debt instruments with terms similar to
the loan shall be counted as part of the post-resolution debt, whereas the portion converted into other non-equity instruments shall be
fully written down.With respect to personal loans, a separate framework is being prescribed, RBI said."The resolution plan for personal
loans under this framework may be invoked till December 31, 2020 and shall be implemented within 90 days thereafter," it said.The shorter
timeline for personal loans is assessed to be adequate since unlike larger corporate exposures, there will not be any requirement for
third-party validation by the expert committee, or by credit rating agencies, or need for inter-creditor agreement (ICA), RBI said.The
contours of the plan may be decided based on the board approved policies of the lenders subject to extension of the residual tenor of the
loan, with or without payment moratorium, by a period not more than two years, it said.The central bank said lenders will have to make
disclosures on the number of accounts where one-time restructuring has been implemented under this window on a quarterly basis starting
March 31, 2021.Speaking on the one-time loan recast, State Bank of India Chairman Rajnish Kumar said the RBI has addressed the need to offer
some form of restructuring facility for standard accounts that are facing difficulty in debt restructuring."We welcome the fact that a new
resolution framework for COVID-19-related stress facility has been extended to large corporate, SME and personal loans with necessary
safeguards in each segment," Kumar said.Indian Bank Managing Director and CEO Padmaja Chunduru said the RBI has announced a well-rounded
step as it addresses stress not only in the corporate segment but in MSMEs and retail sectors also."Banks wanted some flexibility in
assessing the restructuring requirement and I think that is met now," she said.Bank of Maharashtra MD and CEO A S Rajeev said the regulatory
changes like setting up of an expert committee for corporate and personal loans resolution plans and increased loan-to-value for gold will
provide adequate support to the financial industry and to the wider economy
L Viswanathan, Partner, Cyril Amarchand Mangaldas, said the restructuring guidelines are an appropriate balance of being cognizant of the
immediate distress as well as the longer term safeguards.PwC Partner Kuntal Sur said the proposed restructuring window covers all sectors
by TheIndianSubcontinent staff and is auto-generated from a syndicated feed.)
