RBI allows lenders to recast 'doubtful' loans

MUMBAI: The Reserve Bank of India (RBI) has allowed lenders to restructure loans of even those borrowers whose loans were classified as doubtful assets, a step short of writing off. It has also allowed restructuring of large loans where the borrower has sought bankruptcy protection under the Board for Industrial and Financial Reconstruction. RBI on Wednesday issued new rules on `Corporate Debt Restructuring' (CDR) where even high valued BIFR cases and doubtful cases could be referred for restructuring. The revised guidelines are based on recommendations made by a panel headed by Vepa Kamesan, deputy governor of the RBI. The panel was set up after the budget announcement that the new CDR mechanism would be more efficient. The new CDR system has two categories of accounts: those which are classified as 'standard' and 'sub-standard' will be restructured under category 1, while those classified as 'doubtful' would be restructured under category 2. Most features of the new CDR proposals are similar to the old one. These include a three-tier structure: CDR standing forum and its core group, CDR empowered group and the CDR cell. The membership and functioning of the CDR also remain more-or-less unchanged. The RBI has said that although the BIFR cases are not eligible for restructuring under the CDR system, large-value BIFR cases may be eligible for restructuring under the CDR system if specifically recommended by the CDR core group. The core group shall recommend exceptional BIFR cases on a case-to-case basis for consideration under the CDR system. It should be ensured that the lending institutions complete all the formalities in seeking the approval from BIFR before implementing the package. RBI has asked the CDR-empowered group to frame some viability benchmark before restructuring an account. RBI has indicated that these parameters should include return on capital employed, debt service coverage ratio, gap between the internal rate of return and the cost of funds and the extent of sacrifice. Those eligible case where the exposure of banks and FI is over Rs 100 crore should be referred to CDR system, RBI has said adding that alternatively, they should proceed under the new Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 or to file a suit in DRT. The CRD will cover multiple banking accounts with outstanding exposure of Rs 20 crore and the initiative to resolve the case under the CDR system should be taken only if 75% or more lenders (by value) agree.

RBI allows lenders to recast 'doubtful' loans

The Reserve Bank of India (RBI) has allowed lenders to restructure loans of even those borrowers whose loans were classified as doubtful assets, a step short of writing off. It has also allowed restructuring of large loans where the borrower has s...

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