The Reserve Bank of India on 6th August 2020 has issued a principle-based resolution framework for addressing borrower defaults due to COVID-19 stress.
The RBI intends to facilitate the revival of real sector activities and mitigate the economic fallout of the COVID-19 pandemic on the ultimate borrowers. Therefore, the Prudential Framework provides a window for lenders to implement a resolution plan in respect of eligible corporate exposures and personal loans. These eligible exposures, however, do not include those accompanied by a change in ownership. Furthermore, it classifies such eligible exposures as Standard, subject to specified conditions.
The following categories of borrowers/ credit facilities are not eligible for a resolution plan under this framework:
- MSME borrowers whose aggregate exposure to all lending institutions, collectively, is ₹25 crore or less as on March 1, 2020.
- Farm credit as listed in Master Direction dated July 7, 2016 (as updated) or other relevant instructions as applicable to a specific category of lending institutions.
- Loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture.
- Exposures of lending institutions to financial service providers,
- Exposures of lending institutions to Central and State Governments; Local Government bodies (eg. Municipal Corporations); and, body corporates established by an Act of Parliament or State Legislature.
- Exposures of housing finance companies where the account has been rescheduled.
The lending institutions must frame Board approved policies concerning the implementation of viable resolution plans. It must ensure that the resolution is provided only to the borrowers having stress on account of COVID-19. The Board approved policy shall, inter alia, specify the eligibility of borrowers to be considered for the resolution. It will also prescribe a system of due diligence for the lending institution to adhere to, in determining the need for implementation of the resolution for a particular borrower.
