The Reserve Bank of India on Thursday released a framework to streamline and improve the working structure of Joint Lenders Forum’ as it aims to help banks to get back their money from distressed assets.
As a first step, the central bank has introduced a JLF-Empowered Group, which would approve proposals by executives within JLF. This is because some bank boards are reluctant to approve proposals that have been decided by junior executives at the forum, RBI said. The JLF-Empowered Group will constitute members who hold a designation of an executive director in a state-run bank, or equivalent to that position, it said.
The Joint Lenders’ Forum – Empowered Group, will have one representative each from The State Bank of India, and ICICI Bank, the top two banks in India. It will also have one representative from the next three top lenders, and a representative of the two largest banks by advances, who do not have exposure to the borrower, it said.
In February last year, the RBI had directed banks to provide credit information of their exposure above Rs 5 crore to the Central Repository of Information on Large Credits (CRILIC). As soon as an account is classified under SMA-2 (repayment overdue of 61 days), banks have to form a lenders’ committee called JLF to look into the problem and for early resolution of the stress in the account. Then, in December, RBI allowed banks to refinance existing infrastructure projects under the 5/25 model provided where the repayment period was extended to a maximum of 25 years with the loan getting refinanced every five years. The JLF had helped companies to restructure their debt, while banks were able to get some of the repayments.
The central bank has also given the option to the JLF to initiate strategic debt restructuring to effect change in management of the borrower company, as per its earlier rules, in case of failure of rectification or restructuring as decided by the JLF members.
The RBI has allowed the JLF to decide on restructuring of an account as “doubtful” if one or more lenders agree, similar to that of SMA2 and substandard assets. This should be have beena assessed as viable by the TEV and the JLF-EG should concur and approve the proposal, it said.
The central Bank has allowed dissenting members within the JLF to exit to another new lender. The new lender need not commit any additional finance. In that case, if there is an additional payment variable to be made, then all the members of the JLF will make payments on a pro-rata basis, it said.
The RBI has also detailed the duration for each of the penal provisions, which includes a 5% for standard accoutn and accelrated provisions ifor non-performing assets.