The Reserve Bank of India (RBI) on Friday moved to make the joint lenders’ forum (JLF) more effective, directing banks to not break any rules and to meet all deadlines. The regulator said any breach of rules would attract a monetary penalty.
JLFs are meetings at which banks attempt to red-flag stress early and work to try and keep it in check by putting in place a corrective action plan (CAP). Although the mechanism has been place for some time now, decisions have been few and far between thanks to disagreements between lenders.
With a view to facilitating consensus, the RBI lowered the threshold needed for implementing a CAP — decisions agreed to by a minimum of 60% of creditors by value and 50% of creditors by number will now be valid. Earlier, 75% of the lenders by value and 60% by number needed to sign off on a CAP.
Once a decision was taken, the RBI said, it would be binding on all the others and must be implemented without any additional conditionalities. If a lender wanted to exit, it could do so by resorting to the substitution option but if it failed to exit within the given time, it would need to go along with the decision taken.
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The regulator said all banks needed to ensure their representatives on the JLF were armed with appropriate mandates; it also reiterated that executives should take an unambiguous and unconditional stand and vote accordingly. Moreover, once a decision was taken, executives should be suitably empowered to implement them without necessitating any board approvals.
The CAP can include resolution via by way of flexible structuring of project loans, change in ownership under strategic debt restructuring or S4A or scheme of sustainable structuring of stressed assets.