Will set up a central repository of data that lenders can access

The Reserve Bank of India, on Tuesday, outlined a corrective action plan to minimise rising non-performing assets (NPAs). The plan would include incentivising early identification of problem cases, timely restructuring of accounts, which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts.

In a discussion paper on ‘Early recognition of financial distress, prompt steps for resolution and fair recovery for lenders: framework for revitalising distressed assets in the economy’, the RBI said it would set up a Central Repository of Information on Large Credits (CRILC) to collect, store, and disseminate credit data to lenders. “The credit information would also include all types of exposures as defined under RBI Circular on exposure norms, and will include data on lenders’ investments in bonds/debentures issued by the borrower/obligor,” said the RBI, in the paper.

The RBI invited comments on the paper, which should reach it by January 1, 2014.

Banks will have to furnish credit information to CRILC on all their borrowers having aggregate fund-based and non-fund based exposure of Rs.5 crore and above.

While all scheduled commercial banks will mandatorily contribute their credit information on their borrowers/customers as proposed, the RBI said that systemically important non-banking financial companies (NBFC-SI) would also be asked to furnish such information.

In addition, banks would have to furnish details of all current accounts of their customers with outstanding balance (debit or credit) of Rs.1 crore and above.

The RBI said that before a loan account turns into an NPA, banks should identify incipient stress in the account by creating a new sub-asset category, ‘Special Mention Accounts’ (SMA). Within the SMA category, there should be three sub-categories: SMA-NF non-financial (NF) signals of incipient stress; SMA-1 principal or interest payment overdue between 31-60 days; SMA-2 principal or interest payment overdue between 61-90 days.

Banks will be required to report, among others, the SMA status of the borrower to the CRILC. Individual banks will have to closely monitor the accounts reported as SMA-1 or SMA-NF as these are the early warning signs of weaknesses in the account. “They should take up the issue with the borrower with a view to rectifying the deficiencies at the earliest.”

The RBI also said that reporting of an account as SMA-2 by one or more lending banks/NBFC-SIs will trigger the mandatory formation of a joint lenders’ forum (JLF) and formulation of corrective action plan (CAP). Further, with a view to limiting the number of JLFs to be formed, it is proposed that JLF formation would be made mandatory for distressed corporate borrowers, engaged in any type of activity, with aggregate fund based and non-fund based exposure of Rs.100 crore and above.

The RBI said that the lenders in the JLF would sign an inter creditor agreement (ICA) and also require the borrower to sign the debtor creditor agreement (DCA), which would provide the legal basis for any restructuring process.

The decisions agreed upon by a minimum of 75 per cent of creditors by value and 60 per cent of creditors by number in the JLF would be considered as the basis for proceeding with the restructuring or recovery action of the account, and will be binding on the lenders under the terms of the ICA.

The RBI further said that “wilful defaulters will normally not be eligible for restructuring.”

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