Clarifications on Framework for Revitalizing Distressed Assets

The RBI has, by a notification dated May 5, 2017, issued clarifications on the Framework for Revitalizing Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (‘JLF’) and Corrective Action Plan (‘CAP’) after observing delays in finalizing and implementation of the CAP, leading to delays in resolution of stressed assets in the banking system. These clarifications include:

i. CAP can also include resolution by following the process stipulated under the ‘Flexible Structuring of Project Loans’ (‘5-25 Scheme’) – the change of ownership under the ‘Strategic Debt Restructuring Scheme’ (‘SDR Scheme’) and the ‘Scheme for Sustainable Structuring of Stressed Assets’, (‘S4A Scheme’), etc.

ii. Lenders must adhere to the prescribed timelines for finalizing and implementing the CAP decisions and decisions agreed upon by a minimum of 60% of creditors by value and 50% of creditors by number in the JLF would be considered binding on all lenders.

iii. RBI has additionally noted that the stand of the participating banks while voting on the final proposal before the JLF shall be unambiguous and unconditional. Any bank which does not support the majority decision on the CAP may exit subject to substitution within the stipulated timelines, failing which it shall abide the decision of the JLF (as decided above) and that the bank shall implement the JLF decision without any additional conditions. Non-adherence to the instructions and frameworks under the timeline may attract monetary penalties.

Published In:Inter Alia - Quarterly Edition - July 2017 [ English Chinese japanese ]
Date: July 1, 2017