The Reserve Bank of India (“RBI”) has issued guidelines addressing the participation of Regulated Entities (“REs”) in Government Debt Relief Schemes (“DRS”). These Schemes are with a view to provide relief to specific segment of borrowers through fiscal support or waivers by the lenders. These guidelines align with the Prudential Framework for Resolution of Stressed Assets dated 7th June 2019 and the Framework for Compromise Settlements and Technical Write-offs dated 8th June, 2023.
Background:
Some of the Regulated Entities (“REs”) may also be involved in implementation of various forms of DRS announced by State Governments that inter alia entail sacrifice / waiver of debt obligations of a targeted segment of borrowers, against fiscal support. If such schemes are announced frequently, incommensurately or without due consideration to the principles of financial discipline, they would negatively affect credit discipline and in the long run, may be counter-productive to the credit flow to such borrowers.
Considering the above, RBI has informed that, REs participating as lenders under such DRS have to comply with specific guidelines (detailed in Annex-1 of the Notification), that lay down certain broad principles in this regard.
These guidelines will apply in respect of DRS notified on or after the date of issue of this guideline and will be without prejudice to the extant guidelines on resolution of stressed assets applicable to the respective REs.
Key Highlights:
- REs are required to evaluate their participation in DRS based on Board-approved policies and existing regulatory norms. Any provision of the scheme that may warrant modification in long term interest of the borrowers or for prudential reasons may be duly brought to the notice of the concerned authority/ies through the State Level Bankers’ Committee (SLBC)/ District level Consultative Committee (DCC), during the consultation phase while designing the DRS;
- REs have to clearly determine the eventual outstanding that may crystallise in their books in respect of the borrowers proposed to be covered under the DRS, including the accumulated interest in non-performing accounts, by the time the dues are settled under the DRS, to enable the Government to suitably arrange for the extent of fiscal participation;
- REs are required to ensure that borrowers covered under DRS must be strictly selected per the scheme’s terms, avoiding technical disqualifications;
- The terms and conditions of the scheme as well as the prudential aspects, including cooling period for extending fresh credit, impact on credit score etc., are required to be clearly communicated to the borrowers at the time of obtaining explicit consent from the borrower for availing benefits under the proposed DRS;
- If the funds received by the RE as part of the DRS covers the entire outstanding dues of the borrower, the same shall lead to extinguishment of borrower’s debt obligations;
- For partial settlements, residual exposure is classified under original loan terms, subject to restructuring tests;
- Any fresh credit exposure to such borrowers will be as per the commercial discretion of the RE under relevant internal policy, subject to extant applicable regulations.
Please note, in respect of relief measures announced prior to the introduction of these guidelines, any dues pending receipt from Government, for more than 90 days will attract specific provision of 100%. REs have to take necessary action and actively follow up with the respective Governments for settlement of such dues at the earliest.
DRS implementation and claim settlements should ideally be completed within 45–60 days.
Please refer to the link provided below for a detailed read of the Notification.
Source: Reserve Bank of India
