One-time window granted to banks by RBI for recasting loans in stressed sectors

In a recent development, the banks have been granted a one-time window by the Reserve Bank of India (RBI) to recast corporate loans to help cap the sharp rise in bad loans. Former chief of Bric Bank, KV Kamath is heading the committee that is going to set the parameters for one-time loan recast.

In the wake of the current pandemic, this window has been granted to bring the stressed sectors back on track. As per the order, banks can restructure corporate loans, extend loan tenor, sanction additional credit and allow moratorium for up to two years. ​​

RBI and banking sectors

In order to prevent the misuse of this window, the central bank said, “necessary safeguards are being incorporated, including prudent entry norms, clearly defined boundary conditions, specific binding covenants, independent validation and strict post-implementation performance monitoring.”

Other than recommending the required financial parameters, the KV Kamath Committee will also lay down sector specific benchmark to be factored into resolution plans. In some cases where the debt is more than 1,500 crore, the committee will also vet resolution plans. 

Under this framework, the resolution may be invoked before 31 December, 2020 and implemented within 180 days from the date of invocation. This facility will be available for standard accounts and reference date for the outstanding debt shall be March 1, 2020. 

RBI Governor Shaktikanta Das said, “The resolution under this facility is provided to the borrowers having stress on account of Covid-19.”

An inter-creditor agreement (ICA) has to be signed by the lenders to resolve account with consent of minimum 75 per cent creditors by value or 60 per cent by numbers. All the lending institutions will be required to sign the ICA within 30 days from the date of invocation.  

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