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Banks are planning to revisit some of the large stressed accounts (₹2,000 crore and above) against whom they invoked the Insolvency and Bankruptcy process as per the defunct February 12 RBI circular on ‘Revised Framework for Resolution of Stressed Assets’.
New circular
With the central bank coming up with a new circular on ‘Prudential Framework for Resolution of Stressed Assets’, lenders are expected to extend its terms to the accounts that were referred to the National Company Law Tribunal (NCLT) under the defunct circular (Revised Framework for Resolution of Stressed Assets), which was quashed by the Supreme Court on April 2.
However, in the case of large stressed assets (₹5,000 crore and above), the resolution/ liquidation process that lenders had initiated under the Insolvency and Bankruptcy Code (IBC), prior to the issuance of the February 12 circular, will continue unhindered.
Under the new circular, lenders have 30 days time to put in place a resolution strategy, including the resolution plan (RP), the approach for its implementation, and stitch together an inter-creditor agreement. They have 180 days thereafter to roll out the plan.
If a resolution does not work out within 180 days, banks can either refer the stressed account to the NCLT or take more time to make it work. The latter, however, will entail additional provisioning.
Underscoring that the new RBI circular is a well-thought-out one, addressing the concerns of bankers, Union Bank of India MD and CEO Rajkiran Rai G, observed that only those accounts that have gone to the NCLT because of the February 12 circular will need to be revisited. In such cases, lenders can either come up with a new RP or continue with the existing one.
“We need to revisit such accounts as per the new circular and take a call. However, accounts which have gone to the NCLT in the normal course will continue there,” he added.
A fresh process
Bankers say they may have to start a fresh process, entailing a 30-day review period, and implement either a new RP or continue with the old one within 180 days for stressed accounts that were referred to the NCLT on account of the February 12 circular.
Credit rating agency ICRA, in a note, said the revised framework incentivises lenders to be more pro-active in pursuing resolution of stressed accounts in a time-bound manner, failing which they run the risk of accelerated credit provisions on large-sized borrowers, which will be higher than the regulatory minimum requirements.
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