After criticism from various quarters on February 12 circular on treatment of bad loans by Reserve Bank of India (RBI), a government official today said that 1 day default period needs to be extended to 30 days for 1 year.
The official said that RBI’s non-performing assets (NPA) circular is a “serious problem” for industry and banks.
He expect power, discoms and public sector undertakings to be worst hit and added that credit growth is likely to suffer by the new rule.
Batting for more time to bankers and borrowers, he said RBI should give more “breathing space” while managing bad loans and expect more representations from the central bank for relaxing the circular.
Yesterday, RBI Deputy Governor NS Vishwanathan defended the 1-day default clause and said that circular of February 12 is more outcome-oriented and leaves considerable flexibility to banks to determine the process as well as the contours of the restructuring plan.
As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default.
As soon as a borrower defaults to any bank, all banks must come together to resolve the default – either by recovering dues, ensuring a change in promoter, sell-down of the exposure to or through a restructuring scheme.
All lenders will be required to put in place Board- approved policies for resolution of stressed assets under this framework, including the timelines for resolution, it said, adding, “As soon as there is a default in the borrower entity’s account with any lender, all lenders – singly or jointly – shall initiate steps to cure the default.”
The resolution plan may involve any actions/plans/ reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership, or restructuring.