RBI gets cracking

The Reserve Bank of India sprang into action as soon as the government notified the ordinance on bad loans, with the regulator offering more teeth to groups of lenders to deal with recovery proceedings and telling banks to stick to majority-agreed plans or face a penalty. Any resolution plan agreed to by 60% of members in a joint lenders' forum is binding on everyone in the group and no bank board will have the power to overrule the decision, the central bank said. Banks will have to implement the plan agreed upon without any additional conditions and there would be a monetary penalty on those who veer away from the decision.

“Delays have been observed in finalising and implementation of the corrective action plan, leading to delays in resolution of stressed assets in the banking system,“ RBI said in a notification. “It is reiterated that lenders must scrupulously adhere to the timelines prescribed in the framework for finalising and implementing the CAP.“

RBI's strong measures come on a day when the regulator was empowered by law to direct banks to take action against bad loans which have been plaguing the sector for the better part of the last decade. Banks, because of differences between them over the recovery procedures, had often failed to resolve the problem.

In new timelines released, the RBI said henceforth decisions agreed to by a minimum of 60% creditors by value and 50% by number in the forum would be enough to approve a restructuring plan for the loans.The earlier rule required approval of 75% creditors by value and 60% by number.

The new corrective action plan covers restructuring of project loans, change in ownership under strategic debt restructuring and the scheme for sustainable structuring of stressed assets.

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