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RBI makes ICA framework mandatory: Here is what the experts say about new NPA rules

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The Reserve Bank of India (RBI) on Friday announced new rules for resolving stressed assets. In its earlier avatar, issued on February 12 last year, the RBI said that even a day's delay in repayment will be termed a default.

The Reserve Bank of India (RBI) on Friday announced new rules for resolving stressed assets. The circular has an interesting history. In its earlier avatar, issued on February 12 last year, the RBI said that even a day's delay in repayment will be termed a default.
The central bank also said that all stressed loans above Rs 2,000 crore will have to be taken to the NCLT in six months. The circular was struck down by the Supreme Court, and last week the RBI again announced a new version of it.
CNBC-TV18 has spoken to CFO and Deputy MD of SBI Prashant Kumar, MD of Edelweiss ARC RK Bansal, Founding Partner at AZB and Partners Bahram Vakil and Chief Executive of IBA VG Kannan to get their views on the RBI circular.
“As per the circular on June 7 as against the one on February 12, it is mandatory for those people who have to start a resolution to have an Inter-Credit Agreement (ICA). So we are planning to have the ICA amended to include this provision. We may actually add one or two clauses and then ask those additional members to sign these clauses which will effectively means they will continue with their old ones. By and large, most of the provisions of the ICA remain the same. It is only one or two clauses,” Kannan said.
“We have already started work on this. We are planning to have a master agreement. Another thing that we had requested the RBI is the addition of the NBFCs which is something which has been considered probably. In a few cases, the NBFCs were part of the lenders but were not on board because they were not part of the ICA. That will be a welcome feature. So we expect a holistic picture to be taken by the entire lending company,” he added.
According to Bansal, the circular talks specifically for asset reconstruction companies (ARCs) for ICA purposes. "ARCs basically represent the banks on whose behalf the loan is bought by the ARCs. Very rarely it happens that ARC might have given a loan. Certainly in the interest of resolution we will like to be a party in that sense, if it helps the resolution why not,” he opined.
“The maximum objection to the February 12 circular was from power sector. Their basic objection was why they are being forced to take the asset to NCLT, knowing well that NCLT also may not find a solution. This circular gives flexibility that banks can take a call, the RBI is happy with making additional provision if you cannot find a solution within 180 days but you keep on making additional provision and you have incentive or disincentive. So, banks will take this call whether it should take the asset to NCLT not just because of the fear of investigation. So, they are able to prove that we have followed a process and in that sense I think they won't be worried. So, I am not thinking that NCLT decision will be based on this only, may be a few banks will do that but otherwise not likely,” Bansal added.
According to Vakil,  the market wanted a pre-Insolvency and Bankruptcy Code (IBC) resolution. "The number of cases are so many that if you leave it all to IBC, that is going to block the system. As people have said, there are some which are better dealt with pre IBC, so hopefully this will achieve the purpose," he adds.
Kumar has pointed out that at the time of a default, now there are three options -- either go for the recovery path, go for the resolution outside IBC or go for the resolution within the IBC. "Depending on the prospects and on what type of provisioning requirement you need to make, the banks would take that call that what should be the preferred route,” he says.

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