India – RBI Notifies Special Framework For One-Time Restructuring of ‘ÇOVID-19 Stress’.

Applicability

The Framework is applicable to commercial banks, primary cooperative banks, state cooperative banks, district level cooperative banks, all India term financial institutions and all NBFCs including HFCs.
 

Eligibility

• Only those borrower accounts a) which were classified as standard, but not in default for more than 30 days with any lending institution as on March 1, 2020, and b) having stress on account of COVID-19, are eligible for resolution under this Framework.
   

• Banks and financial institutions are required to put in place board approved policies to ensure these criteria are met.
   

Exceptions

• Micro, Small and Medium Enterprises (MSME) borrowers whose aggregate exposure to lending institutions collectively, is ₹25 crore or less as on March 1, 2020^[2];
   

• Farm credit;
   

• Loans to financial service providers (as defined under the Insolvency and Bankruptcy Code);
   

• Central and State Governments, Local Government bodies (eg. Municipal Corporations), and body corporates established by an Act of the legislature; and
   

• Borrower exposures to HFCs which are restructured under certain existing guidelines.
   

Invocation

• Invocation is the date on which borrower and lender (by applicable majority) have agreed to proceed with a resolution plan.
   

• If there are multiple lending institutions with exposure to the borrower, the invocation must be with agreement of lenders being 75 % (value) and 60 % (number).
   

ICA

• In all cases involving multiple lenders, an inter-creditor agreement is required to be signed by all lenders within 30 days from invocation.
   

• In cases where the resolution process has been invoked but lenders representing at least 75% (value) and 60% (number), do not sign the ICA within 30 days, then the invocation will be treated as lapsed and the resolution process cannot be invoked again under the Framework.
   

• Lenders to the borrower which are not covered in this Framework may also sign the ICA, if they so desire. Lenders must ensure that the ICA contains a dispute redressal mechanism that clearly lays down the recourse available to its signatories.
   

Resolution Mechanisms

• The resolution plans under this Framework may involve any of the mechanisms under the Prudential Framework, such as sale of exposure, change in ownership or restructuring or reschedulement of debt.
   

• Lenders are also permitted to extend the tenor of the facilities by up to 2 years.
   

• The plan may also involve sanctioning of additional facilities.
   

Implementation

• Plan to be ‘implemented’ within 180 days from invocation. The conditions that must be met for a plan to be ‘implemented’ are specified in the Prudential Framework.
   

Asset Classification Relief

• For existing credit facilities –
   

  • If a resolution plan is implemented – ‘standard classification to continue or classification to be upgraded to ‘standard’ (if slipped into NPA) on implementation;
     

  • If no resolution plan is implemented – no reliefs, asset classification as per prudential norms (from date of NPA).
     

• For additional finance –
   

  • From ‘invocation’ until implementation – ‘standard’;
     

  • On implementation – ‘standard’ asset classification to continue;
     

  • If not implemented – as per asset classification applicable with respect to remaining credit facilities or performance (which ever is worse).
     

• Any default by the borrower with any of the signatories to the ICA during the monitoring period^[3] will trigger a Review Period of 30 days. If default continues at end of review period – asset classification to be downgraded to NPA from original date of NPA classification/ date of implementation of plan (which ever is earlier).
   

Provisioning Relief

• Additional provisioning on account of extant guidelines can be reversed on invocation of resolution process under this Framework.
   

• On implementation – provisioning to be 10% or as per prudential norms (which ever is higher).
   

• If lenders didn’t sign the ICA – then 20% or as per prudential norms (which ever is higher).
   

• If not implemented – as per prudential norms.
   

Other Aspects

• The Reserve Bank has set up an Expert Committee (EC) chaired by Mr. K. V. Kamath which will make recommendations on the required parameters and sector specific benchmark ranges to be factored into each resolution plan.
   

• The EC will also validate plans for accounts with aggregate debt of Rs. 1,500 crore / more.
   

• Resolution plan for accounts where the aggregate exposure at the time of invocation is INR 100 crore or more require independent credit evaluation by any credit rating agency authorized by the RBI.
   

• In respect of accounts involving consortium / multiple banking arrangements, all receipts and repayments by the borrower and disbursals to the borrower, are to be routed through one lender escrow account.
   

• Other members of the EC include Mr. Diwakar Gupta, Mr. TN Manoharan, Mr. Ashvin Parekh and the IBA CEO.