The first tier of the debt recovery body will be a policy-framing forum, with representatives of all banks and financial institutions (FIs). It will frame policies relating to NPA management.

The second tier will be a policy implementing forum and will have select members of the Indian Banks' Association (IBA) and financial institutions. This forum will examine individual loan default cases and pass awards on them.

The third tier will handle the day-to-day functions of the corporate debt recovery body.Apart from examining and passing awards on individual default cases, the proposed body will also identify companies that have defaulted following sickness but have the potential to turn around if they are restructured. The work of identifying such corporate houses will be done by the second tier of the debt restructuring body.

However, the RBI wants to ensure that a company is eligible for restructuring funds only if creditor institutions holding 75 per cent of the total debt of that company agree to the turnaround proposal. A company representative will be allowed to make its case before the body.Sources said the RBI expects a lot of confusion over the fate of defaults by sick corporate houses after the Board for Industrial & Financial Reconstruction (BIFR) is wound up, as has been proposed by finance minister Yashwant Sinha in this budget speech for 2001-2002.

"The proposed corporate debt recovery body will provide a coordinated forum, which can sort out such problems as well as minimise losses arising from NPA," an RBI official said. In the proposal to the finance ministry, the RBI has said that it would like to withdraw as a direct participant in the corporate debt recovery process. The RBI and ministry should restrict themselves to occasional mediation between borrowers and lenders in the case of major disputes, the report says.

However, the RBI will initially help the proposed body with advice and directives, without any direct intervention. It is learnt that country's leading financial institution, Industrial Development Bank of India (IDBI), has agreed to house the entire system of the proposed corporate debt recovery body.