RBI, by its circular dated February 12, 2018 on ‘Resolution of Stressed Assets – Revised Framework’ (‘Revised Framework’), has discontinued all existing RBI schemes on the resolution of stressed assets including the Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme, Scheme for Sustainable Structuring of Stressed Assets and the Framework for Revitalising Distressed Assets (collectively, ‘Extant Stressed Asset Schemes’) as well as the Joint Lenders’ Forum (‘JLF’) as an institutional mechanism for resolution of stressed accounts. The Revised Framework accounts for the changes brought about by the Insolvency and Bankruptcy Code, 2016 (‘IBC’) and creates a streamlined framework for the resolution of non-performing assets (‘NPAs’) and other stressed assets. Some of the salient features are set out below:

i. The Revised Framework applies to all accounts, excluding accounts where any of the Extant Stressed Asset Schemes have been implemented [except where the aggregate exposure of lenders is at least Rs. 20 billion (approx. US$ 300 million)]. It currently does not cover NBFCs, Asset Reconstruction Companies or Regional Rural Banks – applicability is limited to Scheduled Commercial Banks and All-India Financial Institutions (such as Exim Bank, National Bank for Agriculture and Rural Development, National Housing Bank and Small Industries Development Bank of India).

ii. All lenders are required to prepare board approved policies for resolution of stressed assets (‘Resolution Plan’) and take steps to resolve accounts immediately upon default. Each lender is required to document a Resolution Plan, even if there is no change in the terms between the Resolution Plans prepared by different lenders.

iii. A Resolution Plan is ‘implemented’ if the borrower is no longer in default with any of the lenders. However, if the Resolution Plan involves ‘restructuring’, then implementation requires certain additional steps.

iv. For accounts where the aggregate exposure of lenders, on or after March 1, 2018, is at least Rs. 20 billion (approx. US$ 300 million) (‘Large Accounts’), a Resolution Plan is required to be ‘implemented’ within 180 days from the date of first default, failing which the lenders are required to file a corporate insolvency application under the IBC before the NCLT within 15 days from the expiry of the above timeline.

v. If the Resolution Plan for a Large Account involves restructuring / change in ownership, lenders are mandated to file a corporate insolvency application under the IBC before the NCLT if such Large Account goes into default before the completion of the ‘Specified Period’, which is the later of: (a) one year from the first payment of principal / interest (whichever is later) of the credit facility with the longest period of moratorium under the terms of the Resolution Plan; or (b) repayment of at least 20% of the outstanding debt. Notwithstanding the above, lenders can file an application under IBC any time, even without attempting a Resolution Plan.

vi. The Revised Framework further prescribes requirements for independent credit evaluation of accounts by the Lenders and imposes stricter reporting norms.

vii. Upon a change of ownership of the borrower, the restructured account would be upgraded to ‘standard’, upon satisfaction of certain conditions.

viii. The Revised Framework further states that the RBI would take ‘stringent supervisory / enforcement actions as deemed appropriate’ including monetary penalties and increased provisioning requirements, in the event of (a) actions by lenders with an intent to evergreen stressed accounts / conceal the actual status of accounts; or (b) failure on part of the lenders to meet the prescribed timelines.