On a day when the government vested more power to the Reserve Bank of India (RBI) in the war against bad debt, the central bank imposed a corrective action plan (CAP) on a wide range of restructurings exercised by banks.
Such a CAP was till now applicable for only the Joint Lenders’ Forum (JLF) mechanism. It is enforced to preserve the economic value of stressed assets. A specified timeline is framed by banks, with disincentives in the form of asset classification and accelerated provisioning where lenders fail to adhere to the JLF Framework.
Now, the CAP will be applicable for such schemes as a flexible structuring of project loans, change in ownership under Strategic Debt Restructuring and the Scheme for Sustainable Structuring of Stressed Assets (‘S4A’).
“In this context, it is reiterated that lenders must scrupulously adhere to the timelines prescribed in the framework for finalising and implementing the CAP. To facilitate timely decision making, it has been decided that, henceforth, the decisions agreed upon by a minimum of 60 per cent of creditors by value and 50 per cent of creditors by number in the JLF would be considered as the basis for deciding the CAP, and will be binding on all lenders,” went the RBI notification on its website.
“Lenders shall ensure that their representatives in the JLF are equipped with appropriate mandates, and that decisions taken at the JLF are implemented by the lenders within the timelines.”