New Delhi, Dec 18 (KNN) Amidst increasing sickness from industries, a draft RBI paper has proposed measures to help banks recover bad loans and on dealing with wilful defaulters by making it more difficult for them to access loans from the banking system.

The paper outlines a corrective action plan that will incentivize early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts.

One of the main proposals made by the RBI is the early formation of a lenders’ committee called the Joint Lenders’ Forum (JLF) with timelines to agree to a plan for resolution.

For speedy resolution of distressed assets, RBI plans to introduce a central repository of information on large credits (CRILC) that will store and disseminate credit data to lenders.
 
In case an account is classified as a stressed asset, with repayment due for more than 60 days, by one or more lending banks or non-banking finance companies (NBFCs), they will be required to form a JLF, which will look at formation of an action plan for resolution of the case.

“JLF may explore various options to resolve the stress in the account. The intention of this Framework is not to encourage a particular resolution option, e.g. restructuring or recovery, but to arrive at an early and feasible resolution to preserve the economic value of the underlying assets as well as the lenders’ loans,” the RBI paper said.

The apex bank will allow banks incentives and better treatment of the stressed asset if they are quick to resolve issues relating to bad loans.

“Incentives for lenders to agree collectively and quickly to a plan – better regulatory treatment of stressed assets if a resolution plan is underway, accelerated provisioning if no agreement can be reached,” RBI said.

RBI further proposes to allow firms specializing in turnarounds to buy troubled companies with the help of bank loans.

“In terms of extant instructions, an NPA in the books of a bank is eligible for sale to other banks only if it has remained as NPA for at least two years in the books of the selling bank. The Reserve Bank will withdraw this minimum holding period for any initial loan sale. However, the bank purchasing the NPA will, have to hold the asset in its books for at least one year before selling the asset,” it said.

The paper also discusses how banks would be required to take a tough stance against wilful defaulters, by making it more difficult for them to access loans from the banking system

“Wilful defaulters will normally not be eligible for restructuring. However, the JLF may review the reasons for classification of the borrower as a wilful defaulter and satisfy itself that the borrower is in a position to rectify the wilful default,” RBI said.

Similarly, if a borrower is non-cooperative and tries to create too many hurdles for banks in their recovery process, banks would be required to take on a much tougher stand.
 
The RBI favours an independent evaluation of recasts of Rs 500 crore and above, which it believes, will improve the current restructuring process; the regulator is hoping that they will come up with workable plans and will ensure that any losses are borne equally between the promoters and creditors.
 
Further, the RBI paper said, “ARCs should be construed as a supportive system for stressed asset rather than the last resort to dispose of NPAs by banks. Sale of assets to ARCs at a stage when the assets have good chance of revival and fair amount of realizable value, for rehabilitation and reconstruction is encouraged.”
 
“The promoters of the company/defaulting borrowers shall be barred from directly/ indirectly buying back the asset from the ARCs. Legal issues involved, if any, would be examined by RBI,” it added.

Sale of assets between ARCs is not permitted under the SARFAESI Act provisions. In order to encourage liquidity and price discovery of stressed assets, sale of assets between ARCs may be permitted. The issue will be taken up with the Government. (KNN/SD)