Taking advantage of its new powers to deal with bad assets, the Reserve Bank of India on Friday quickly moved to change norms aimed at timely implementation of corrective action plans decided by the Joint Lending Forums (JLF).

The central bank has also cautioned banks that non-adherence to or delays in implementing decisions by the JLFs will attract monetary penalties on the banks concerned.

The RBI has decided that, henceforth, the decisions agreed upon by a minimum of 60 per cent of creditors by value and 50 per cent of creditors by number in the JLF would be considered as the basis for deciding the corrective action plans (CAP), and will be binding on all lenders.

Until now, the CAP had to be agreed by a minimum of 75 per cent of creditors by value and 60 per cent of creditors by number. Under the new guidelines, the decisions taken by the JLF will not require further approval of the boards of the banks.

While issuing the changes in guidelines, the RBI said, “Delays have been observed in finalising and implementation of the CAP, leading to delays in resolution of stressed assets in the banking system... Boards shall empower their executives to implement the JLF decision without requiring further approval from the Board.” The RBI had issued the earlier framework in 2014 aimed at early identification of stressed assets and timely implementation of a corrective action plan to preserve the economic value of stressed assets.

In order to ensure that the CAP is finalised and formulated swiftly, the framework specifies various timelines within which lenders have to decide and implement the CAP.

Despite these guidelines, delays have been observed, which have compounded the bad loans issue. Further, many banks with smaller loan exposures did not come on board, which defeated the very purpose of the framework for initiating prompt corrective measures in cases of stressed accounts..

“Lenders must scrupulously adhere to the timelines prescribed in the framework for finalising and implementing the CAP. Lenders shall ensure that their representatives in the JLF are equipped with appropriate mandates, and that decisions taken at the JLF are implemented by the lenders within the timelines,” the RBI said.

Penalties on the cards

The central bank said that the stand of the participating banks while voting on the final proposal before the JLF should be unambiguous and unconditional.

“Any non-adherence to these instructions and timelines specified under the framework shall attract monetary penalties on the concerned banks under the provisions of the Banking Regulation Act 1949,” the RBI said.

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