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