New RBI Framework for Revitalization of Distressed Assets

RBI has issued a framework for revitalising distressed assets to ensure that banks identify financial distress early and take remedial steps to resolve such distress. This framework aims at cutting down non-performing assets (“NPAs”) in the books of banks.

Under the framework:

  • Refinancing of any infrastructure or project loan by way of takeout financing and fixing a longer repayment period would not amount to restructuring of the loan if (i) such loan is a ‘standard’ asset and has not been restructured previously; and (ii) more than 50% (Fifty Percent) of such loan is taken over from existing banks/financial institutions.
  • Banks must report underlying stressed asset to the Central Repository for Information on Large Credit (“CRILC”). Further, banks are now required to sell distressed financial asset(s) to a securitisation company or a reconstruction company which offers a bid price of more than the reserve price of such asset provided 50% (Fifty Percent) of such sale proceeds is payable in cash.
  • Banks are now permitted to sell NPAs to other banks/financial institutions/non-banking finance companies without any initial holding period (as opposed to the minimum 2 year requirement earlier). The purchaser of such NPA is however, required to hold such asset for a minimum period of 12 (Twelve) months before down selling it further.
  • All mortgages are required to be registered with the Central Registry of Securitisation, Asset Reconstruction and Security Interest of India.
  • A joint lender’s forum (“JLF”) is envisaged for consortium lending. If the principal or interest payment of any distress asset is overdue beyond 61 (Sixty One) days and up to 90 (Ninety) days, the JLF is required to work out a corrective action plan to resolve such distress. The corrective action plan may restructure the loan or its terms thereof provided it secures the consent of 75% (Seventy Five Percent) of the lenders in value and 60% (Sixty Percent) of the lenders in number.
  • Securitization companies and reconstruction companies are now allowed to participate in auctioning of NPAs by their sponsor banks provided such auction is conducted in a transparent manner, on arms length basis and at prices determined by market factors.
  • The defaulting borrower and/or its promoters are permitted to buy back their assets from securitisation companies and reconstruction companies, on certain conditions which include (i) such buyback settlement minimizes the costs and time involved in the recovery process and prevents diminution in the value of the underlying asset; and (ii) present value of recovery, if made by any alternative modes, must be factored into the settlement value.