The RBI had launched several schemes over the past few years to strengthen the lenders’ ability to deal with stressed assets, including the scheme for ‘Flexible Structuring of Project Loans’ (‘5-25 Scheme’), the ‘Strategic Debt Restructuring Scheme’ (‘SDR Scheme’), and the ‘Scheme for Sustainable Structuring of Stressed Assets’ (being the scheme permitting extension of date of commencement of commercial operations (‘DCCO’) of a project without change in asset classification). By way of a circular dated November 10, 2016, the RBI has introduced certain amendments to these schemes for harmonizing the asset classification benefits and prescribing provisioning and prudential norms applicable to banks on implementation. A few notable changes include the following:

i. The 5-25 Scheme, which was available to lenders of long term project loans to infrastructure and core industries, has now been extended to new project loans in all sectors and to existing project loans in which the aggregate exposure of all institutional lenders exceeds Rs. 250 crores (approximately US$ 36.89 million) in all sectors. Banks may also apply such flexible structuring to funded exposures to construction companies, provided that the revised amortisation schedule of such funded exposure will be restricted upto the DCCO of the underlying projects and in case of existing exposures, the aggregate exposure of all institutional lenders exceeds Rs. 250 crores (approximately US$ 36.89 million).

ii. In the SDR Scheme, the benefits of asset classification have been subjected to the condition that the new promoter should have acquired at least 26% of the paid up equity capital of the borrower and should have become the single largest shareholder and acquire ‘control’ of the borrower.

iii. The RBI had issued a circular on September 24, 2015 (‘SDR Circular’), providing certain asset classification benefits to lenders upon the lenders effecting a change in control of the borrower outside the SDR Scheme. In the event that a change in ownership of the borrower is effected outside of the SDR Scheme and the lenders propose to avail the asset classification benefits offered by the RBI under the SDR Circular, an over-all stand-still period of 18 months will apply, from the date on which the majority of the lenders of the joint lenders’ forum (comprising a minimum of 75% of creditors by value and 50% of creditors by number) resolve to effect a change in ownership of the borrower, during which, the lenders are required to complete the process of change in ownership. Additionally, such change in ownership is required to be undertaken within 12 months from the date of the borrower/existing promoter and the new promoter entering into a binding agreement. The circular also clarifies that other instructions as applicable to the SDR Scheme will also apply to cases where banks decide to change ownership of borrowing entities (outside the SDR Scheme).

iv. In respect of the scheme for deferment of DCCO of project loans (and consequential shift in repayment schedule) without triggering a downgrade of the asset, the RBI has stated that a project with multiple independent units may be deemed to have commenced commercial operations from the date on which the independent units representing 50% (or higher) of the originally envisaged capacity have commenced commercial operations at the final output as originally envisaged, subject to the following conditions: (a) the units representing the remaining 50% (or lower) of the originally envisaged capacity will commence commercial operations within a maximum period of one year of the deemed DCCO; (b) commercial viability of the project is reassessed beyond doubt; and (c) capitalisation of interest obligation in respect of the project debt attributable to the units of the plant that have commenced commercial operations has ceased and revenue expenditure is booked under revenue account. However, if the remaining units do not commence commercial operations within the stipulated time, the account will attract asset classification norms and accordingly be treated as non-performing assets upon expiry of the one year period set out above. Guidelines relating to project loans that are applicable after the DCCO of a project, including the 5-25 Scheme, will not be applicable to project loans attributable to units that have not commenced commercial operations.