Review of Timelines for Resolution of Stressed Assets

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Jun 30, 2020

Review of Timelines for Resolution of Stressed Assets

The RBI had, by way of its Circular dated April 17, 2020 on ‘COVID19 Regulatory Package – Review of Resolution Timelines under the Prudential Framework on Resolution of Stressed Assets’ (‘Revised Framework’), provided detailed instructions in relation to the extension of resolution timelines under the Prudential Framework on Resolution of Stressed Assets dated June 7, 2019 (‘Original Framework’). As per the Original Framework, once a borrower is reported to be in default, lenders have a period of 30 days from the date of default (‘Review Period’), within which they must undertake a prima facie review of the borrower account. Thereafter, lenders have 180 days from the end of the Review Period to implement a resolution plan in respect of entities in default.

Under the Revised Framework:

i. In respect of accounts which were within the Review Period under the Original Framework as on March 1, 2020, the period from March 1, 2020 to May 31, 2020 is excluded from the calculation of the 30-day timeline for the Review Period and therefore, the residual Review Period will resume from June 1, 2020, upon expiry of which the lenders will have the usual 180 days for resolution of the stressed asset; and

ii. In respect of accounts where the Review Period under the Original Framework was over but the 180-day resolution period had not expired as on March 1, 2020, the timeline for resolution of the stressed asset under the Original Framework is extended by 90 days from the date on which the 180-day period was originally set to expire.

The RBI has, by way of its Circular dated May 23, 2020, further extended the above period by another 3 months i.e. June 1, 2020 to August 31, 2020. Accordingly, in paragraph (a) above, the residual Review Period will resume from September 1, 2020 and in paragraph (b) above, the timeline for resolution will get extended by 180 days from the date on which the original 180-day period was originally set to expire.

The RBI has clarified that the requirement of making additional provisions specified in paragraph 17 of the Original Framework will be triggered as and when the extended resolution period, as stated above, expires.

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