Reserve Bank of India has released frequently asked questions (FAQs) on one-time loan restructuring scheme for COVID-19 related stress. The scheme permits banks to restructure loans of borrowers who were regular in their repayments and did not have overdue of more than 30 days as of 01.03.2020, without demoting their asset classification to a non-performing asset (NPA).
Here are the questions and their answers as per the FAQs list issued by the RBI in Resolution Framework (or Framework):
The stipulation at the said Paragraph is a general clause regarding the date when the eligibility criteria for resolution under the Resolution Framework can be assessed. The particular application of the reference date in regards to deciding the eligibility of accounts for resolution under Part A & Part B of the Annex to the Framework have been specified separately in Paragraphs 6 & 13 respectively, i.e, the requirement that borrowers should be categorised as standard, but not in default for over 30 days with any lending institution as on 01.03.2020. The actual debt that can be considered for resolution will be the outstanding amount as on the date of invocation.
All the farm credit of all lending institutions, including Non-Banking Financial Companies (NBFCs), as listed in Paragraph 6.1 of Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 dated 07.07.2016 (as updated), except for loans to allied activities (dairy, fishery, poultry, animal husbandry, bee-keeping & sericulture) are excluded from the scope of the Resolution Framework. However, subject to the above, loans provided to farmer households will be eligible for resolution under the said Framework if they don’t meet any other conditions for exclusions that are listed in the Resolution Framework.
The basic feature of Prudential Framework for Resolution of Stressed Assets dated 07.06.2019 is the requirement of ICA in regards to the entity to which lending institutions have exposure, and consequently of the Resolution Framework too. There is enough flexibility to the lending institutions to formulate ICAs regarding a legal entity to which they have exposure and that address the specific requirements of each borrower on a case to case basis, including developing different resolution approaches for different projects under the same borrower within an ICA. In the same way, apart from the escrow account needed to be set up at the legal entity level as demanded by the Resolution Framework, there is no restriction in setting up additional separate escrow accounts at each project level, in case the lenders desire. Only in respect of borrowers who belong to real estate sector, and have residential as well commercial real estate business, the stipulated thresholds for the financial parameters can be applied at the project level.
For the borrowers who are eligible for resolution under the circular dated 06.08.2020 of Resolution Framework for COVID-19-related Stress, the circular dated 06.08.2020 will be applicable if a resolution process under the circular is invoked. The extant instructions as otherwise applicable will still be in force for other borrowers. However, if any entity is otherwise eligible under the Resolution Framework, only this Framework can be used for resolving the stress emerging out of the pandemic.
All loans that meet the eligibility criteria, unless covered by any specific exclusion listed in Paragraph 2 of the Annex to the Framework, subject to the clarification at Sl. No. 2 above, come under the scope of resolution under the Framework. These loans, if they don’t fall under any of the categories mentioned in Paragraph 2 of the Annex to the Framework, are eligible for resolution under Part A of the Annex if they come under the purview of “personal loans” as defined in the Circular DBR.No.BP.BC.99/08.13.100/2017-18 dated 04.01.2018 on “XBRL Returns – Harmonization of Banking Statistics”, even if they are not clearly classified as so in any regulatory/supervisory reporting, or under Part B of the Annex otherwise.
In respect of eligible personal loans, the definitions of invocation & implementation have been given in Paragraphs 7 & 10 respectively of the Annex to the Framework. In respect of other eligible loans, invocation will be as per Paragraphs 14 & 15 of the Annex to the Framework whereas implementation will have the meaning as per Paragraphs 14-16 of the circular dated 07.06.2019 on Prudential Framework for Resolution of Stressed Assets.
The Resolution Framework can be invoked for resolution of all exposures of lending institutions to the eligible borrowers, including investment exposure. However, the Framework is without prejudice to all applicable guidelines as issued by the relevant financial sector regulators & other RBI departments in respect of any particular exposure.
NBFCs that are required to comply with IndAS shall, as hitherto, continue to be directed by the guidelines duly approved by their Boards & as per ICAI Advisories for recognition of remarkable increase in credit risk & computation of Expected Credit Losses. However, various additional provisions prescribed in the circular dated 06.08.2020 will constitute the prudential floors for the purpose of Paragraph 2 of the Annex to the circular DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated 13.03.2020 on Implementation of Indian Accounting Standards.
The instructions in the circular dated 07.09.2020 are applicable in the case of all borrowers in respect of whom the resolution is being undertaken in terms of Part B of the Annex to the circular dated 06.08.2020 on Resolution Framework.
The various additional provisions given under the Resolution Framework are specific provisions that are to be maintained in respect of each exposure under consideration.
Restructuring of under implementation projects involving deferment of DCCO are excluded from the purview of the Resolution Framework. The extant regulations contained in Paragraph 4.2.15 of DBR.No.BP.BC.2/21.04.048/2015-16 dated 01.07.2015, DOR.No.BP.BC.33/21.04.048/2019-20 dated 07.02.2020 & the other relevant instructions as applicable to the specific category of lending institutions, already allow revisions of the DCCO & consequential move in repayment schedule without being treated as restructuring, subject to a maximum of 4 years for infrastructure projects and a maximum of 2 years for non-infrastructure projects (including commercial real estate exposures). Also, DCCO of projects may be extended by a further 2 years in case of change in ownership, subject to the conditions as specified in the above instructions.
If there are multiple lending institutions having exposure to a borrower whose resolution is undertaken in as per Part B of the Annex to the Framework, all lending institutions with exposure to such borrower are needed to enter into ICA.
Only those resolution plans that receive a credit opinion of RP4 or better for the residual debt from a CRA will be considered for implementation under the Framework. In case credit opinion is acquired from more than one CRA, all the credit opinions must be RP4 or better.
For the determining the eligibility for resolution under the Framework, the applicable definition of MSME is the one that existed as on 01.03.2020.
Resolution Framework is applicable to all eligible borrowers subject to the exclusions mentioned in Paragraph 2 of the Annex to the circular dated 06.08.2020. In case of those sectors where the sector-specific thresholds are not been specified in the circular dated 07.09.2020, lending institutions will make their own internal assessments regarding TOL/ATNW & Total Debt/EBITDA. However, the current ratio & DSCR in all cases will be 1.0 or above, and ADSCR will be 1.2 or above.
Such accounts will be considered ineligible for resolution under the Framework as the said Framework is applicable only for eligible borrowers who were classified as standard, but not in default for more than 30 days as on 01.03.2020. However, such accounts can still be resolved under the Prudential Framework dated 07.06.2019.
In terms of the circular DBR.No.BP.BC.99/08.13.100/2017-18 dated 04.01.2018, the above exposures are not qualified as personal loans. In these cases, the resolution of eligible borrowers can be undertaken under Part B of the Annex to the Framework.