In an attempt to reduce the woes of the companies (owning stressed assets and carrying bad debts on their shoulders), the Central Government has urged the Reserve Bank of India (RBI) to relax the norms related to resolution of the stressed assets.

The perspective of the Central Government on the norms related to stressed assets resolution is that these rules are practically difficult to implement and need to be reviewed. The Central Government has emphasized that the existing norms will impact the lenders big time and force small companies towards bankruptcy – as payments to the small companies (having business equations with government agencies and larger corporations) often got delayed for some reason or the other.

As per the existing norms, if companies are in default of loan payment, the lenders are authorized to implement the resolution plan for stressed assets on the day following the loan payment due date.

Another norm is that if no resolution is found in any loan default case within 180 days following the default then banks are at liberty to instigate insolvency proceedings.

Certain experts are of the opinion that the implementation of the existing norms will be difficult in reality and lenders balance sheet may get exposed to massive disruption due to the higher provisioning requirement.

Following the receipt of the request from the central government and other stakeholders (banks and lenders), the RBI is deliberating the prospect of easing certain norms related to non-performing assets.

The RBI ideology is to re-align the norms without diluting the spirit of the norms to safeguard the interest of small and medium enterprises and prevent loss of jobs and to evade the embarrassment of pushing the banks to the brink.

Accordingly, it is expected that any loan payment made within 30 days following the due date will not be considered as default and requirement of approval of lenders for resolution plan would be lowered to 75% majority.

The RBI is also considering the prospect of common guidelines in relation to resolution of stressed assets as viable option to the existing provisions which mandate board approved policies of resolution of stressed assets which lead to diversified treatment in policy making by different boards.

It is also expected that non-banking financial institutions may be included in broaden norms which are previously excluded under the norms.

The RBI consideration of all the requests and concerns received from various quarters is a welcome step and accordingly started taking curative measures for good of banks and small/medium companies.

One can hope that the implementation of the broaden norms will speed up the process of resolution plan and enhance the transparency in the transactions related to non-performing assets along with safeguarding the interests of all the stakeholders. 

Research inputs by Paruchuri Baswanth Mohan