SBI, ICICI Bank get permanent seat at lender's forum for distressed assets

Dissenting lenders should exit consortium, says RBI

The Reserve Bank of India (RBI) has mandated that State Bank of India (SBI) and ICICI Bank will be part of all the empowered committees of any joint lenders forum (JLF) set up by a consortium for addressing stress in loan servicing.

The banking regulator announced this and other measures on Thursday, aimed at hastening decisions in a JLF. These tend to get delayed, as lenders with smaller exposure tend to be reluctant on efforts to revive a stressed asset. A JLF is meant to initiate action to revivea project, if viable.

The central bank has now mandated that after a JLF finalises a corrective action plan (CAP), the proposal should go to an empowered group of the lenders, for approval. "It has been represented to us that sometimes boards of the banks find it difficult to approve the decisions taken by a JLF, as these do not have senior-level representations from the participating lenders," RBI said in a notification.

In the empowered group, a representative each from SBI and ICICI Bank will be there; plus, the top three lenders will have to send representatives. In the empowered group, only an officer of the rank of executive in a public sector bank can participate. If ICICI and SBI are already in the consortium and they are the top two lenders of the project in question, the fourth and fifth largest in terms of advances will participate.

"It has been brought to our notice that sometimes disagreement arises among lenders on deciding the CAP on rectification or restructuring, resulting in delay in initiating timely corrective action," RBI said.

So, it has said, a member not in agreement with a JLF decision should exit the account by selling its loan to another lender. "The exiting lender will not have the option to continue with their existing exposure and simultaneously not agreeing for rectification or restructuring as in the CAP," RBI said.

If the new lender chooses to not participate in additional finance, this share pertaining to the exiting lender will be proportionally met by the existing ones. RBI has also allowed a JLF to restructure 'doubtful' assets, if the account has been assessed as viable and the JLF-EG concurs. A doubtful asset is where interest or principal is unpaid for more than a year.