Reserve Bank of India has introduced a Resolution Framework for COVID-19 related stress faced by Borrower.

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The latest news coming from Reserve Bank India that RBI introduced a Resolution Framework for COVID-19 related stress faced by borrowers. I have summarized the detailed guidelines for the benefit of yours.

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The economic fallout on account of the Covid-19 pandemic has led to significant financial stress for borrowers across the country. The resultant stress can potentially impact the long-term viability of many firms, otherwise having a good track record under the existing promoters, due to their debt burden becoming disproportionate relative to their cash flow generation abilities. Such widespread impact could impair the entire recovery process, posing significant financial stability risks.

Considering the above, with the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, it has been decided by RBI to provide a window under the Prudential Framework to enable the lenders(Banks) to implement a resolution plan in respect of eligible corporate exposures without change in ownership, and personal loans, while classifying such exposures as Standard, subject to specified conditions.

The following categories of borrowers / credit facilities shall not be eligible for a resolution plan under this framework:

• MSME borrowers whose aggregate exposure to lending institutions /Banks collectively, is `25 crore or less as on March 1, 2020.

• Farm credit

• 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.

Resolution of Stress in Personal Loan:

The following personal loan borrowers who has faced COVID -19 related stress are eligible under this framework:

• Personal loans sanctioned to individual borrowers by lending institutions/Banks. However, credit facilities provided by lending institutions/Banks to their own personnel/staff shall not be eligible for resolution under this framework.

• Personal loans refers to loans given to individuals and consist of (a) consumer credit, (b) education loan, (c) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), and (d) loans given for investment in financial assets (shares, debentures, etc.).

• Only those borrower accounts shall be eligible for resolution under this framework which were classified as standard, but not in default for more than 30 days with the lending institution as on March 1, 2020.

• Resolution under this framework may be invoked not later than December 31, 2020 and must be implemented within 90 days from the date of invocation. However, the lending institutions should strive for early invocation

• The resolution plans may inter alia include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years. Correspondingly, the overall tenor of the loan may also get modified commensurately. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan.

Resolution of Stress in other loans except Personal Loan.

The following other loan borrowers who has faced COVID -19 related stress are eligible under this framework:

• Other loan borrowers means the borrower which are not covered under personal loan categories.

• Only those borrower accounts shall be eligible for resolution under this framework which were classified as standard, but not in default for more than 30 days with any lending institution as on March 1, 2020. Further, the accounts should continue to remain standard till the date of invocation.

• in cases where there is only one lending institution with exposure to the borrower, the decision regarding the request for resolution by the borrower may be taken by the lending institution as per the Board approved policy of the institution and within the contours of this framework. For this purpose, the date of invocation shall be the date on which both the borrower and lending institution have agreed to proceed with a resolution plan under this framework.

• If there are multiple lending institutions with exposure to the borrower, the resolution process shall be treated as invoked in respect of any borrower if lending institutions representing 75 per cent by value of the total outstanding credit facilities (fund based as well non-fund based) , and not less than 60 per cent of lending institutions by number agree to invoke the same.

• Resolution under this framework may be invoked not later than December 31, 2020 and must be implemented within 180 days from the date of invocation.

• In all cases involving multiple lending institutions, where the resolution process is invoked and consequently a resolution plan has to be implemented, ICA shall be required to be signed by all lending institutions within 30 days from the date of invocation. In case of housing finance companies, this shall be applicable irrespective of whether the account has been rescheduled in terms of para 2(1)(zc)(ii) of the Master Circular - The Housing Finance Companies (NHB) Directions, 2010.

• In cases where the resolution process has been invoked but lending institutions representing not less than 75 per cent by value of the total outstanding credit facilities (fund based as well non-fund based) and not less than 60 per cent of lending institutions by number, do not sign the ICA within 30 days from the invocation, the invocation will be treated as lapsed. In respect of such borrowers, the resolution process cannot be invoked again under this framework.

Friends this guidelines can give relief to the many borrowers especially the personal loan segment who are salaried and looking for some time to repay their loan. Since the many schemes are already implemented for the relief to MSMEs, this framework will be really helpful.

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