RBI modifies NPA resolution norms;to penalise banks for delays

Within hours of getting new powers, the RBI today made substantial changes in the norms for dealing with stressed loans and warned banks they will be penalised for missing NPA resolution timelines.
Earlier in the day, the government notified an ordinance empowering the Reserve Bank to issue directions to banks to initiate insolvency resolution process in case of a default under the Insolvency and Bankruptcy Code (IBC), 2016.
The RBI, through a notification, eased the decision making process in the Joint Lenders' Forum (JLF) and Corrective Action Plan (CAP) under the 'Framework for Revitalising Distressed Assets in the Economy'.
"To facilitate timely decision making, it has been decided that, henceforth, the decisions agreed upon by a minimum of 60 percent of creditors by value and 50 percent of creditors by number in the JLF would be considered as the basis for deciding the CAP...," the notification said.

Earlier, the decision could have been taken by a minimum of 75 per cent of creditors by value and 60 per cent by number.
The RBI also warned that "any non-adherence to these instructions and timelines specified under the Framework shall attract monetary penalties on the concerned banks...".

As per the framework, banks are required to implement decision of the JLF within 90 days of the approval. There are different timelines for finalisation of restructuring package by the JLF.
It also asked the banks to ensure that their representatives in the JLF are equipped with appropriate mandates, and that decisions taken at the JLF are implemented by them.

Further, the boards of banks should "empower their executives to implement the JLF decision without requiring further approval from the Board".
Noting that delays have been "observed" in implementing decision of the CAP, the notification said the banks should implement the JLF decision without any additional conditionalities and the stand of the participating banks should "unambiguous and unconditional".
The notification also said any bank which does not support the majority decision on the CAP "may exit" subject to substitution within the stipulated time line, "failing which it shall abide the decision of the JLF".