The Reserve Bank of India (RBI) has set an aggregate exposure threshold of ₹1,500 crore and above for the process validation of resolution plans by the Expert Committee headed by KV Kamath under the ‘Resolution Framework for Covid-19-related stress’.
Besides Kamath (former President of Shanghai-based New Development Bank), there are four other members on the Committee — Diwakar Gupta (effective September 1, 2020, after the completion of his term as Vice President, ADB); TN Manoharan (effective August 14, 2020, after the completion of his term as Chairman, Canara Bank); Ashvin Parekh, Strategy Advisor; and Sunil Mehta, Chief Executive, Indian Banks’ Association.
The committee, which has been constituted by the RBI to make recommendations on the required financial parameters to be factored into the resolution plans (with sector specific benchmark ranges for such parameters), will submit its recommendations to the RBI. The central bank will then notify the same along with modifications, if any, in 30 days.
The RBI on Thursday decided to provide a window under the “Prudential Framework on Resolution of Stressed Assets” to enable 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.
It said such conditions are considered necessary to ensure the facility is available only to Covid-related stressed assets.
Only those borrower accounts will 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. Further, the accounts should continue to remain standard till the date of invocation.
All other accounts may be considered for resolution under the June 7th Prudential Framework, or the relevant instructions as applicable to specific category of lending institutions where the Prudential Framework is not applicable, the RBI said.
The resolution plan can be invoked any time till December 31, 2020 and will have to be implemented within 180 days from the date of invocation. Lenders have to keep additional provisions of 10 per cent on the post-resolution debt.
Under the framework, the lending institutions may allow extension of the residual tenor of the loan, with or without payment moratorium, by a period of not more than two years.
Further, 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 will be counted as part of the post-resolution debt, whereas the portion converted into other non-equity instruments will be fully written down.