Tweaking its earlier guidelines on joint lenders’ forum (JLF), the Reserve Bank of India (RBI) on Thursday asked banks to form a committee of bankers — Joint Lenders’ Forum Empowered Group (JLF – EG) — to approve the decisions of JLF.
The central bank said that, at times, bank boards find it difficult to approve the decisions taken by the JLF as the latter do not have senior-level representations from the participating lenders.
“In this regard, it is clarified that, although RBI has not explicitly prescribed the level of representation in its guidelines, banks are expected to depute sufficiently empowered senior-level officials for deliberations and decisions in the meetings of JLF,” it said.
The empowered group will have a representative each of SBI and ICICI Bank as standing members; a representative each of the top three lenders to the borrower; if SBI or ICICI Bank is among the top three lenders to the borrower, then a representative of the fourth largest or a representative each of the fourth and the fifth largest lenders as the case may be; a representative each of the two largest banks in terms of advances that do not have any exposure to the borrower.
“The participation in the JLF-EG shall not be less than the rank of an executive director in a PSB or equivalent,” RBI added.
The central bank has also allowed dissenting lenders who do not want to participate in the rectification or restructuring of the account as CAP, which may or may not involve additional financing, to have an option to exit their exposure completely by selling their exposure to a new or existing lender.
“The exiting lender will not have the option to continue with their existing exposure and simultaneously not agreeing for rectification or restructuring as CAP,” RBI said. It explained that the new lender to whom the exiting lender sells its stake may not be required to commit any additional finance, if the agreed CAP involves additional finance.
“In such cases, if the new lender chooses to not to participate in additional finance, the share of additional finance pertaining to the exiting lender will be met by the existing lenders on a pro-rata basis,” it said.
With regard to strategic debt restructuring, RBI in cases where a rectification or restructuring fails, the JLF will have the option to initiate SDR to effect change of management of the borrower company. According to guidelines issued by the RBI in December 2013, banks have to strictly monitor loan accounts that run the risk of turning into NPAs.
These guidelines also called for the early detection of stressed assets. This led to the creation of SMA (where repayment is overdue for up to 30 days), SMA-1 (where repayments are overdue between 31 to 60 days), and SMA-2 (where repayments are overdue between 61 and 90 days).
Who’ll be on board
* The empowered group will have a representative each of SBI and ICICI Bank as standing members
* It will also have a representative each of the top three lenders to the borrower
* If SBI or ICICI Bank are among top three lenders to the borrower, a representative of the fourth largest or a representative each of the fourth and the fifth largest lenders, as the case may be, will be part of the committee
* It will also have a representative each of the two largest banks in terms of advances that do not have any
exposure to the borrower