Individuals who have availed of loans and advances for business purposes; and small businesses, other than those classified as micro, small and medium enterprises as on March 31, 2021 eligible for resolution
The Reserve Bank of India (RBI) has asked lenders to frame Board approved policies within a month to implement viable resolution plans for stressed advances of individuals and small businesses under the “Resolution Framework – 2.0” relating to Covid-19 related stress.
The borrowers who will be eligible for the window of resolution to be invoked by lenders are: individuals who have availed of loans and advances for business purposes; and small businesses, including those engaged in retail and wholesale trade, other than those classified as micro, small and medium enterprises as on March 31, 2021. In both the aforementioned cases, the lending institutions’ aggregate exposure should not be than ₹25 crore as on March 31, 2021. Further, the credit facilities / investment exposure to the borrower was classified as Standard by the lending institution as on March 31, 2021.
RBI said the Board approved policy should be sufficiently publicised and should be available on the website of the lending institutions in an easily accessible manner. As per RBI circular,the decision on the application should be communicated in writing to the applicant by the lending institutions within 30 days of receipt of such applications. The last date for invocation of resolution permitted under this window is September 30, 2021. The resolution plan should be finalised and implemented within 90 days from the date of invocation of the resolution process under this window.
In order to optimise the processing time, lending institutions may prepare product-level standardized templates as part of their Board approved policies for resolution under this window.
The resolution plans implemented under this window may inter alia include rescheduling of payments, conversion of any interest accrued or to be accrued into another credit facility, revisions in working capital sanctions, granting of moratorium etc. based on an assessment of income streams of the borrower. However, compromise settlements are not permitted as a resolution plan for this purpose.
RBI said the moratorium period, if granted, may be for a maximum of two years, and will come into force immediately upon implementation of the resolution plan. The extension of the residual tenor of the loan facilities may also be granted to borrowers, with or without payment moratorium. The overall cap on extension of residual tenor, inclusive of moratorium period if any permitted, will be two years.
The resolution plan may also provide for conversion of a portion of the debt into equity or other marketable, non-convertible debt securities issued by the borrower, wherever applicable, and the same will be governed in terms of the Resolution Framework 1.0.