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RBI’s Resolution Framework for COVID-19 Related Stress

01 Sep 2020

Tax Updates
The Reserve Bank of India has issued a 'Resolution Framework for COVID-19 Related Stress'. It provides for a window to allow lending institutions to implement a resolution plan for accounts which would have had a good track record but for the COVID-19 pandemic, without requiring a change in ownership, while classifying such exposures as standard assets.

Introduction

The Reserve Bank of India (RBI) has been considering various measures to provide a much needed breathing space to borrowers and lenders due to the prevailing COVID-19 related financial distress and has on 6 August 2020 issued the ‘Resolution Framework for COVID-19 Related Stress’ (Special Framework). The Special Framework provides a window under the existing RBI (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated 7 June 2019 (Prudential Framework) enabling lending institutions (Lenders) to implement a resolution plan for personal loans and corporate exposures, without requiring a change in ownership while continuing to classify such exposures as standard assets. It has also broadened the ambit of Lenders to include all non-banking financial companies (NBFCs) and housing finance companies.

The Special Framework

  • Eligible Borrowers

    The Special Framework broadly identifies the class of personal loans and other set of loans (Other Loans), which will have access to the relief measures as set out under the Special Framework. Personal loans (classified under RBI’s Circular dated 4 January 2018 on XBRL Returns – Harmonization of Banking Statistics) are essentially loans to individual borrowers for consumer credit, education loans, housing loans and loans for investment in financial assets. All exposures that are covered under the Special Framework and some key exposures that are excluded are broadly described below:

    Exposures covered Borrowers who would have had a good track record but for the COVID-19 pandemic are covered. The reference date for examining the performance of a borrower is 1 March 2020, i.e. only those loan accounts which were classified as standard and had not been in default for more than 30 days as on 1 March 2020, are eligible to be resolved under the Special Framework.
    Exposures excluded –  Loans to financial service providers.
    –  Loans to central and state governments, local government bodies and body corporates established under a legislation.
    –  Micro, small and medium enterprises (MSME) borrowers whose aggregate exposure to all its lending institutions collectively is INR 250 million or less as on 1 March 2020.
    –  Loans provided by Lenders to their own personnel/staff.
    –  Loan accounts which are not classified as standard as on the date of invocation of the resolution process.
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