RBI issues new guidelines on bad loans, replaces one-day default rule

The Reserve Bank of India (RBI) on Friday issued new guidelines on resolving bad loans, replacing a circular that the Supreme Court rejected.

The RBI said that lenders should review accounts within 30 days of default and initiate a resolution plan before the default--revising its earlier 1-day default norm. All lenders must put in place board-approved policies for resolution of stressed assets, the RBI said.

Lenders will have to submit weekly report of instances of default by all borrowers with aggregate exposure of Rs 5 crore and above.

Here are key points of the RBI circular, as reported by Reuters:

• RBI says lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts
• It is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default
• Lenders shall report credit information on all borrowers having aggregate exposure of Rs crore and above with them
• Lenders shall enter into an inter-creditor agreement (ICA) 
• ICA to provide rules for finalisation, implementation of RP for those with credit facilities from more than one lender
• RBI says intent to evergreen stressed accounts by lenders will be subjected to stringent actions including higher provisioning & monetary penalties
• Resolution plans shall provide for payment not less than the liquidation value due to the dissenting lenders
• On accounts with aggregate exposure above a threshold with lenders, resolution plan to be implemented within 180 days from review period end
• Lenders shall undertake a review of the borrower account within thirty days from default 
• Joint lenders' forum (JLF) as mandatory institutional mechanism for resolution of stressed accounts stands discontinued