Short summary of the RBI guidelines for simplified restructuring Dt.12 th Feb 2018 . Some 28 odd circulars withdrawn with immediate effect
1. Revised guidelines are simplified and generic in nature for resolution of stressed assets applicable for accounts where resolution as per earlier S4A, SDR and outside SDR, JLF CAP, CDR,flexible structuring for long term projects was INVOKED BUT NOT IMPLEMENTED SHALL ALSO FALL UNDER THESE GUIDELINES
2. Reporting to CRILC on a monthly basis (w.e.f 1 Apr 18) on SMA accounts on monthly basis. – for entities with aggregate exposure (FB +NFB) more than INR 5 cr. Reporting on default to occur every Friday i.e weekly basis .
3. Bank boards to put in guidelines for restructuring of the stressed assets including timelines for resooution. On occurance of default , lenders to take steps for implementation of Resolution Plan (RP)
4. RP may include regularisation by payment of overdues ,Reorganisation , sale of exposure to other entities. Change in ownership , Restructuring
5. Implementation would consummate only upon – a) borrower being no more in default with any lender b) execution of documentation c) security perfection d) change in capital structure /changed terms of the exposure reflecting in books of the borrower
6. RP for large accounts ( FB +NFB of Residual debt# >INR 100 cr *) needs – Independent credit evaluation (ICE) by 1 Credit Rating Agencies (CRA) .
Exposure above INR 500 cr would need 2 CRA . Minimum rating of RP 4 required to implement RP . CRA to be engaged by lenders cost on lenders account .
*All lenders collective exposure
# Residual debt=eventually restructured debt, all lenders taken together
7. Stressed Accounts with lenders collective exposure >2000 cr after 1 March 2018 + streseed Accounts where resolution was in process under earlier RBI guidelines to have following fate:
A) RP to be implemented if default subsists on 1st March 2018 – within 180 days .
B) RP to be implemented if first default occurs after 1st March 2018 – within 180 days .
C) application to be mandatorily filed for IBC after expiry of above 180 days period id RP is not implemented
D) accounts where there is default within ‘specified period’ window where RP is being implemented would be directed to IBC within 15 days of default.
Kindly note –
1.sanction + implementation of RP within 180 days is a mammoth task for lenders , failure of which on 195 th day, the account is to be referred to IBC mandatorily .
2. no default within this 180 day window is permitted where RP has been implemented.
3. Default means even 1 day of delay in service of obligations as per sanctioned RP.
4. Specified period = date from implementation of RP till at least 20% repayment of restructured Principal +FITL OR 1 year whichever is later ( 2 year window for accounts with exposures between INR 100 cr – INR 2000 cr)
8. Default after specified period = fresh default = one more cylce of 180 days for RP/195 days for IBC days as applicable
9. Where RBI has already referred cases to IBC , only IBC to be pursued for resolution
10. RBi to supervise stringent implementation and levy monetary penalties on defaulting banks
11. Banks to make disclosures of RPs in notes to accounts
12. Provisioning ( except for under implementation projects DCCO / accounts under IBC where provisioning is already specified ) as under :
standard = sub standard ( immediate downgrade for stressed / Restructured accounts )
Earlier Classification to continue even after RP implementation
Upgrade = only when ALL facilities have NO Default during Specified Period
For IBC cases , specified period starts = upon approval of Resolution plan by Adjudicating Authority
1.For accounts with exposure>100 cr, in addition to satisfactory performance as above , investment grade rating mandatory at the end of specified period
2. investment grade ratings for accounts with exposure >500 cr
Non satisfacotry performance during RP =classification prior to the RP stage
Where accounts restructured and implemented and provisions made as per earlier guidelines before this circular , same will continue
Additional funding during RP to be treated as standard during specified period subject to satisfactory performance criteria being met . Same provisioning as earlier debt if conditions not met at end of specified period
Accrual basis income recognition only for standard accounts , rest on cash basis
FITL to draw same classification as it’s principal originating facilities
Instruments to be valued and marked to market , break up value of equity for non quoted
13. Change in ownership – a) account becomes standard upon change in ownership – IBC cases b) under these guidelines – subject to DD under 29a of IBC by lenders and at least 26 pct equity with new investor AND he being largest shareholder AND Control condition being met as per Companies act /SEBI or other AND condition for RP being implemented . Provisioning as per above terms
14.sale and lease back to be treated as Restructuring , detailed conditions specified
15. Forex debt for refinance of rupee debt and vice versa to be treated as restructuring if the borrower is in financial difficulty .
16.various enabling exemptions granted to give effect to RP like investmebt in non SLR securities ,acquisition of shares due to restructuring , SEBI ICDR and SAST relaxations ,
17.non applicability to MSME and restructuring due to natural calamity
18. Frauds /wilful defaulters not eligible for restructuring . Relaxations only upon change in management
Analysis by CA Siddharth