RBI published the RBI (Prudential Framework for Resolution of Stressed Assets) Directions 2019, which shall come into force with immediate effect. These directions encompass a framework for early recognition, reporting, and time bound resolution of stressed assets. The provisions of these directions shall apply to scheduled commercial banks (excluding regional rural banks), all India term financial institutions (NABARD, NHB, EXIM Bank, and SIDBI), small finance banks, and systemically important non-deposit taking non-banking financial companies, and deposit-taking non-banking financial companies.
The fundamental principles underlying the regulatory approach for resolution of stressed assets are as under:
- Early recognition and reporting of default in respect of large borrowers by banks, financial institutions, and non-banking financial companies
- Complete discretion to lenders about design and implementation of resolution plans, in suppression of earlier resolution schemes, subject to the specified timeline and independent credit evaluation
- A system of disincentives in the form of additional provisioning for delay in implementation of resolution plan or initiation of insolvency proceedings
- Withdrawal of asset classification dispensations on restructuring. Future upgrades to be contingent on a meaningful demonstration of satisfactory performance for a reasonable period
- For restructuring, the definition of "financial difficulty" to be aligned with the BCBS guidelines
- Signing of inter-creditor agreement by all lenders to be mandatory, which will provide for a majority decision making criteria
RBI will issue directions to banks for initiation of insolvency proceedings against borrowers for specific defaults so that the momentum toward effective resolution remains uncompromised. It is expected that the current circular will sustain the improvements in credit culture that have been ushered in by the efforts of the government and RBI so far and that it will go a long way in promoting a strong and resilient financial system in India.
Effective Date: June 07, 2019
Keywords: Asia Pacific, India, Banking, Prudential Framework, Resolution of Stressed Assets, Reporting, NBFC, Resolution Planning, RBI
Previous ArticleEBA Single Rulebook Q&A: First Update for June 2019
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.