RBI Feb 12 circular: IBA wants one-day default rule scrapped — here’s why

Updated: April 13, 2019 6:52:37 AM

Following RBI governor Shaktikanta Das’ announcement the RBI would issue a revised circular following the apex court’s verdict, the Indian Banks’ Association has written to the RBI with at least seven recommendations.

One suggestion is to do away with the implied requirement for 100% approval from creditors before going ahead with any restructuring plan.

By Mitali Salian

Banks have suggested the ‘one-day default’ rule be done away with recommending instead they be given 30 days post a default to classify a stressed asset as a special mention account.

The suggestion is one of many understood to have been sent by them to the Reserve Bank of India (RBI). Banks are seeking changes to the February 12, 2018, circular on “Resolution of Stressed Assets — Revised Framework”, after the Supreme Court termed the circular ultra vires, two bankers told FE. Following RBI governor Shaktikanta Das’ announcement the RBI would issue a revised circular following the apex court’s verdict, the Indian Banks’ Association has written to the RBI with at least seven recommendations.

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One suggestion is to do away with the implied requirement for 100% approval from creditors before going ahead with any restructuring plan. “We have requested that the approval requirement be lowered to 66% or somewhere thereabouts. Previous mechanisms and even the IBC prescribes a lower threshold of required majority. The 100% majority norm has sometimes made it difficult for lenders to go ahead with plans despite the best intentions,” a senior banker aware of the contents of the letter said.

Other suggestions include removing the clause that requires that compromise settlements or one-time settlements, where time for payment of settlement amount exceeds three months, be considered restructuring. This because as per the circular that currently stands void, resolution plans involving restructuring required independent credit evaluations of the residual debt by credit rating agencies specifically authorised by the RBI for the purpose.

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Another aspect of the circular was that any resolution plan involving restructuring/change in ownership, the account should not be in default at any point of time during a ‘specified period’, failing which the lenders shall file an insolvency application under the IBC within 15 days from date of such default.

This ‘specified period’ was for the period from the date of implementation of the plan up to the date by which at least 20% of the outstanding principal debt as per the plan and interest capitalisation sanctioned as part of the restructuring, if any, is repaid. Bankers have recommended that this 20% repayment requirement threshold be lowered to 10% of the sustainable debt.

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