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To ensure that they have enough skin in the game, the RBI has insisted promoters cough up at least 15% of the reduction in the fair value of the loan or 2% of the restructured debt, whichever is higher.
As for promoters, who have been getting away with relatively lenient terms, a personal guarantee is now a must. A corporate guarantee can be accepted only where the promoters are not individuals but other corporate bodies or where individual promoters cannot be clearly identified, the central bank clarified.
To safeguard banks interests, the RBI has insisted that, under the right to recompense clause, banks must recover 75% of the amount restructured. In the event that the restructured loan attracts a rate below the base rate, 100% needs to be recovered.
The RBI said that infrastructure projects must become viable within eight years while other projects must be viable in five years.
In the case of infrastructure project loans, where the date of commencement of commercial operations has been delayed due to external circumstances, the asset can be classified as a standard asset and not an non-performing asset (NPA).
Total restructured loans rose a whopping 58% in 2011-12 to an outstanding of Rs 2.18 lakh crore. Corporate debt restructuring formed the bulk of recast loans; in 2012-13, the CDR cell alone restructured loans worth Rs 76,479 crore with bilateral restructuring also a large amount.
By March 2014, banks must hit provisions of 3.5% for restructured loans and progressively hike it to 4.5% in March 2015 and finally 5% by March 2016, the RBI said. Regulatory forebearance for such loans will be discontinued by March 2015, the central bank said. The guidelines are based on the recommendations of the Mahapatra working group formed to study the rising trend in restructured assets and suggest norms that will protect banks.
The central bank has said that banks can upgrade a bad loan only when all the outstanding loans of the borrower perform satisfactorily within one year after the first payment of principal following the moratorium.
Further, this first payment of principal or interest must be on the loan having the longest moratorium, the RBI said.
The RBI has also tightened the definition of specified period in which the performance of the borrower determines the classification of the restructured loan into a standard asset or a bad loan.
Further, the RBI said that rollover of short-term loans for more than three times would get a tag of restructuring.
On promoter sacrifice, the RBI observed that This stipulation is the minimum and banks may decide on a higher sacrifice by promoters depending on the riskiness of the project and promoters ability to bring in higher sacrifice amount, the RBI said.
* Restructured assets to be classified as NPAs
from April 1, 2015
* Provisions for existing rejigged assets upped to 5% from 2% in a phased manner
* New restructured standard accounts to attract 5% provision from June 1, 2013
* NPA a/cs to be standard only when principal & interest on loans paid regularly for 1 year