Western India Regional Council of
The Institute of Chartered Accountants of India

Law Update Details

July 2019 CA. Pravin Navandar, CA. Viral Doshi

The Hon’ble Supreme had on April 2 struck down Reserve Bank India (RBI’s) February 12 circular whereby the central bank had mandated lenders to initiate resolution or restructuring of loans even if the default was recorded for a single day. The Reserve Bank India (“RBI”) today issued a revised circular for resolving stressed assets by offering lenders a 30 days period to review of the borrower account from such default.

These guidelines are issued with a sight to providing a framework for early recognition, reporting and time bound resolution of stressed assets.

Vital Code

Early recognition and reporting of default in respect of large borrowers by Lenders

Complete discretion to lenders regarding design and implementation of resolution plans, in supersession of earlier resolution schemes (S4A, SDR, 5/25 etc.), 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

Signing of inter-creditor agreement (ICA) by all lenders to be mandatory, which will provide for a majority decision making standards


The provisions of these directions shall apply to the following entities:
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 (NBFC-ND-SI) and Deposit taking Non-Banking Financial Companies (NBFC-D)

Classification of accounts

Lenders shall recognise embryonic stress in loan accounts, immediately on non-payment of debt (as defined under the IBC) when whole or any part or instalment of the debt has become due and payable and is not paid by the debtor or the corporate debtor (“Default”), by classifying such assets as special mention accounts (“SMA”) as per the following categories:

SMA Sub-categories Basis for classification – Principal or interest payment or any other amount wholly or partly overdue between
SMA-0 1-30 days
SMA-1 31-60 days
SMA-2 61-90 days

In the case of spinning credit facilities like cash credit, the SMA sub-categories will be as follows:

SMA Sub-categories Basis for classification – Outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for a period of:
SMA-1 31-60 days
SMA-2 61-90 days

Reporting Requirements

The lenders are required to report the credit information / classification as SMA to Central Repository of Information on Large Credits (“CRILC”) for borrowers having aggregate exposure of INR 50 million and above on weekly and monthly basis.


The Resolution timelines have two gears – A review period of 30 days and Resolution period of 180 days

Review Period

• The first period of 30 days starts immediately (i.e. from June 07,2019) in case of borrowers having aggregate exposure of INR 2000 crores or more
• The date of first default after the January 01, 2020 in case of borrowers with aggregate exposure of INR 1500 crores to INR 2000 crores
• The borrowers with aggregate borrowings of less than Rs 1500 crores, there is no defined timeline as of now under the RBI circular
• The Resolution Plan shall be implemented within 180 days (“Implementation timeline”) from the end of review period.

Provisioning requirements

If the implementation timeline is breached, there is an additional provision of 20% for period up to 1 year from the end of the review period, and 35% for period beyond 1 year.


Timelines for implementation of viable RP Additional provision requirement as a % of total outstanding if the RP is not implemented within 180 days
180 days from the end of Review Period 20%
365 days from the commencement of Review Period 15% (i.e. total additional provisioning of 35%)


The additional provisions shall be made over and above the provisions required to be made as per the asset classification status of the borrower account.

It is pertinent to note that the lenders initiate the process of implementing a resolution plan (RP) even before a default.

RBI said in its directions that the intent to evergreen stressed accounts by lenders will be subjected to stringent actions including higher provisioning & monetary penalties.

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