Policy on Resolution of Covid-19 related stress of Individuals & Small Businesses

Policy on Resolution of Covid-19 related stress of Individuals & Small Businesses (RBI Circular dt. 05/05/2021 with regard to Resolution Framework 2.0)

With the objective of alleviating the potential stress to individual borrowers and small businesses due to resurgence of Covid-19 pandemic in India, RBI has vide Circular dt. 05/05/2021 announced set of measures broadly in line with the contours of the Resolution Framework - 1.0, with suitable modifications. Our Bank has devised a policy in line with said RBI circulars in this regard to help the borrowers.

(A) Resolution of advances to individuals & small borrowers:

(i) Eligibility of borrowers for invoking resolution:

  • a. Individuals who have availed of personal loans excluding the credit facilities provided by lending institutions to our own personnel/staff.
  • Individuals who have availed of loans and advances for business purposes and to whom the lending institutions including banks have aggregate exposure of not more than Rs. 50 crore as on 31/03/2021.
  • 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, and to whom the Bank has an aggregate exposure of not more than Rs.50 crore as on 31/03/2021.
  • (** The borrower should not have availed of any resolution in terms of the Resolution Framework – 1.0 & borrower account was classified as standard by the bank as on 31/03/2021)
  • (i) The resolution process shall be treated as invoked when the Bank and the borrower agree to proceed with the efforts towards finalising a resolution plan, i.e. from the date of acceptance of resolution, to be implemented in respect of such borrower. The Bank may assess the eligibility for resolution as per the instructions contained in this circular and the Board approved policy and the decision on the application shall be communicated in writing to the applicant within 30 days of receipt of such applications.
  • (ii) The last date for invocation of resolution permitted under this window is 30/09/2021.
  • (iii) Permitted features of resolution plan under this window may 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.
  • (iv) The moratorium period, if granted, may be for a maximum of two years, and shall 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, shall be two years.
  • (v) The resolution plan should be finalised and implemented within 90 days from the date of invocation of the resolution process under this window. The resolution plan shall be deemed to be implemented only if all the following conditions are met.
    • a. all related documentation, including execution of necessary agreements between Bank and borrower and collaterals provided, if any, are completed by the lenders concerned in consonance with the resolution plan being implemented;
    • b. the changes in the terms of conditions of the loans get duly reflected in the books of the Bank; and,
    • c. borrower is not in default with the lending institution as per the revised terms.

(vi) If a resolution plan is implemented in adherence to the provisions of this circular, the asset classification of borrowers’ accounts classified as Standard may be retained as such upon implementation, whereas the borrowers’ accounts which may have slipped into NPA between invocation and implementation may be upgraded as Standard, as on the date of implementation of the resolution plan.

The subsequent asset classification for such exposures will be governed by the criteria laid out in the Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated July 1, 2015.

In respect of borrowers where the resolution process has been invoked, Bank may sanction additional finance even before implementation of the plan in order to meet the interim liquidity requirements of the borrower. This facility of additional finance may be classified as ‘Standard’ till implementation of the plan regardless of the actual performance of the borrower in the interim. However, if the resolution plan is not implemented within the stipulated timelines, the asset classification of the additional finance sanctioned will be as per the actual performance of the borrower with respect to such additional finance or performance of the rest of the credit facilities, whichever is worse.

(vii) Bank shall keep provisions from the date of implementation, which are higher of the provisions held as per the extant IRAC norms immediately before implementation, or 10 percent of the renegotiated debt exposure of the Bank post implementation (residual debt). Residual debt, for this purpose, will also include the portion of non-fund based facilities that may have devolved into fund based facilities after the date of implementation.

Half of the above provisions may be written back upon the borrower paying at least 20 per cent of the residual debt without slipping into NPA post implementation of the plan, and the remaining half may be written back upon the borrower paying another 10 per cent of the residual debt without slipping into NPA subsequently.

Provided that in respect of exposures other than personal loans, the above provisions shall not be written back before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium.

The provisions required to be maintained under this window, to the extent not already reversed, shall be available for the provisioning requirements when any of the accounts, where a resolution plan had been implemented, is subsequently classified as NPA.

*** Bank should be satisfied that the resolution framework is necessitated / borrowers having stress on account of the economic fallout from Covid-19. Before extending the resolution framework to any borrower, Bank shall invite application from the borrower indicating the reasons for demanding resolution framework.

(B) Disclosures & Credit Rating:

(i) Bank shall make the required disclosures in their annual financial statements, along with other prescribed disclosures in this regard.

(ii) The credit reporting by the Bank in respect of borrowers where the resolution plan is implemented under Part A of this window shall reflect the “restructured due to COVID-19” status of the account.

The above policy is subject to RBI guidelines issued and may be issued from time to time.