Government, legal experts and analysts welcomed the new RBI framework for NPA resolution saying the new norms offer leeway to both capital-starved lenders as well as borrowers at the same time ensure that credit discipline is maintained.
Welcoming the new norms announced by the central bank, which whittles down the February 12, 2018 circular struck down by the Supreme Court in April, commerce minister Piyush Goyal said the new stressed assets resolution framework offers "relief to businesses facing temporary financial issues, empower lenders to make decisions, improve credit availability in the economy and protect jobs, thereby boosting the economy."
Legal experts said the new framework retains the core of February 12, 2018, circular intact and provides a more implementable mechanism enabling faster resolutions.
"The new framework builds on the February 12 circular and provides for a mechanism that will enable resolution through requisite majority. One of the major apprehensions of the February 12 circular was 100 per cent consent of lenders, which has been addressed now.
"Also, the stipulation of an inter-creditor agreement will enable banks to collectively decide resolutions outside IBC," L Viswanathan, a partner at the leading law firm Cyril Amarchand Mangaldas told PTI.
Karthik Srinivasan, group head for financial sector ratings at Icra said, "overall the revised framework is positive as it incentivises banks for accelerated resolution of stressed assets" even though it increases the default recognition period to 30 days from the earlier one-day.
He further said lowering the provisions from 50 per cent to 35 per cent will incentivise lenders to refer such stressed cases to IBC for faster resolution, even though the RBI allows lenders to adopt a case-specific approach for such reference.
Even though the criterion for upgrades has been relaxed, which now requires at least 10 per cent of debt repayments at the time of restructuring from 20 per cent earlier, the requirement of an investment grade ratings will ensure that upgrades are done only for viable cases, he noted.
Dhir & Dhir Associates' Ashish Pyasi said the new circular is more liberal than the February 12 one as the emphasis is more on reporting and resolution of stressed accounts are bank level.
"Since stringent norms are made for provisioning, this circular gives another opportunity to promoters to resolve credit crisis before they are sent to NCLTs," he said.
However, Sapan Gupta, the national practice head for banking & finance at Shardul Amarchand Mangaldas said, the circular is a mixed bag.
"The provisions on signing inter-creditor agreement within 30 days of the default will be practically difficult.
Also, additional provisioning is not a strong deterrent for delayed implementation. So the resolutions may get delayed," he argued.
On the positive side, he said, provisioning will be frozen when the resolution plan under IBC is pending with NCLT, hence banks won't be penalised for court delays.
"It will also boost in the interim, the finance market as that would be treated as standard asset," he added.