Mumbai: As part of its effort to rein in bad loans, the Reserve Bank of India (RBI) on Thursday modified Joint Lenders' Forum norms to ensure mandatory presence of representatives of two systematically important banks - State Bank of India (SBI) and ICICI Bank - as part of the empowered group (EG).
Banks should send senior-level representative for deliberations and decisions in the meetings of Joint Lenders' Forum (JLF), according to revised guidelines issued by the RBI.
"It has been represented to us that sometimes boards of the banks find it difficult to approve the decisions taken by JLF as the JLFs do not have senior-level representations from the participating lenders," the RBI said.
"In this regard, it is clarified that, although RBI has not explicitly prescribed the level of representation in its guidelines, banks are expected to depute sufficiently empowered senior level officials for deliberations and decisions in the meetings of JLF," it said.
It has been decided that JLF will finalise the corrective action plan (CAP) and the same will be placed before an empowered group of lenders, which will be tasked to approve the restructuring packages, it said.
"The JLF-EG should have a representative each of SBI and ICICI Bank as standing members," it said. Besides, a representative each of the top three lenders to the borrower should also present, it added.
Recently, the RBI named SBI and ICICI Bank as 'systemically important' and subjected them to higher levels of supervision to prevent disruption to financial services in event of any failure.
The RBI further said that participation in the JLF-EG should not be less than the rank of an executive director in a public sector bank or equivalent.
The JLF convening bank will convene the JLF-EG and provide the secretarial support to it, it said.
With regard to restructuring of loans, it said generally no account classified as doubtful should be considered by the JLF for restructuring.
But in cases where a small portion of debt is doubtful that is the account is standard/sub-standard in the books of at least 90 per cent of creditors (by value), the account may then be considered under JLF for restructuring. In partial modification, it has been decided that a JLF may decide on restructuring of an account classified as 'doubtful' in the books of one or more lenders similar to sub-standard assets, if the account has been assessed as viable, it added.
With regard to the exit option, the RBI said irrespective of whether they are within or outside the minimum 75 per cent and 60 per cent, they can exercise the option for providing additional finance only by way of arranging their share of additional finance to be provided by a new or existing creditor.
It has been decided that dissenting lenders who do not want to participate in the rectification or restructuring of the account as corrective action plan, which may or may not involve additional financing, will have an option to exit their exposure completely by selling their exposure to a new or existing lender.
The exit should be within the prescribed timeline for implementation of the agreed corrective action plan, it said.
The exiting lender will not have the option to continue with their existing exposure and simultaneously not agreeing for rectification or restructuring as corrective action plan.
"It has been brought to our notice that sometimes disagreement arises among lenders on deciding the CAP on rectification or restructuring, resulting in delay in initiating timely corrective action," it said.
Although cooperation among lenders for deciding a corrective action plan by consensus is desirable for timely turn-around of a viable account, it is also important to enable all lenders to have an independent view on the viability of account, it said.
On Wednesday, RBI Deputy Governor S S Mundra said the central bank will further fine tune the recently introduced Joint Lenders Forum (JLF) to make the mechanism more effective and transparent.
The purpose of JLF was to make the consortium lending and restructuring process more transparent.
RBI Governor Raghuram Rajan also had twice in as many months said the central bank is going through the complaints and suggestions from the lenders about the irritants in the JLF mechanism and would fine tune the system to make it more effective.
The central bank made consortium lending more transparent and process-driven last year and replaced the then similar mechanism called the CDR cell.
Mumbai: As part of its effort to rein in bad loans, the Reserve Bank of India (RBI) on Thursday modified Joint Lenders' Forum norms to ensure mandatory presence of representatives of two systematically important banks - State Bank of India (SBI) and ICICI Bank - as part of the empowered group (EG).
Banks should send senior-level representative for deliberations and decisions in the meetings of Joint Lenders' Forum (JLF), according to revised guidelines issued by the RBI.
"It has been represented to us that sometimes boards of the banks find it difficult to approve the decisions taken by JLF as the JLFs do not have senior-level representations from the participating lenders," the RBI said.
"In this regard, it is clarified that, although RBI has not explicitly prescribed the level of representation in its guidelines, banks are expected to depute sufficiently empowered senior level officials for deliberations and decisions in the meetings of JLF," it said.
It has been decided that JLF will finalise the corrective action plan (CAP) and the same will be placed before an empowered group of lenders, which will be tasked to approve the restructuring packages, it said.
"The JLF-EG should have a representative each of SBI and ICICI Bank as standing members," it said. Besides, a representative each of the top three lenders to the borrower should also present, it added.
Recently, the RBI named SBI and ICICI Bank as 'systemically important' and subjected them to higher levels of supervision to prevent disruption to financial services in event of any failure.
The RBI further said that participation in the JLF-EG should not be less than the rank of an executive director in a public sector bank or equivalent.
The JLF convening bank will convene the JLF-EG and provide the secretarial support to it, it said.
With regard to restructuring of loans, it said generally no account classified as doubtful should be considered by the JLF for restructuring.
But in cases where a small portion of debt is doubtful that is the account is standard/sub-standard in the books of at least 90 per cent of creditors (by value), the account may then be considered under JLF for restructuring. In partial modification, it has been decided that a JLF may decide on restructuring of an account classified as 'doubtful' in the books of one or more lenders similar to sub-standard assets, if the account has been assessed as viable, it added.
With regard to the exit option, the RBI said irrespective of whether they are within or outside the minimum 75 per cent and 60 per cent, they can exercise the option for providing additional finance only by way of arranging their share of additional finance to be provided by a new or existing creditor.
It has been decided that dissenting lenders who do not want to participate in the rectification or restructuring of the account as corrective action plan, which may or may not involve additional financing, will have an option to exit their exposure completely by selling their exposure to a new or existing lender.
The exit should be within the prescribed timeline for implementation of the agreed corrective action plan, it said.
The exiting lender will not have the option to continue with their existing exposure and simultaneously not agreeing for rectification or restructuring as corrective action plan.
"It has been brought to our notice that sometimes disagreement arises among lenders on deciding the CAP on rectification or restructuring, resulting in delay in initiating timely corrective action," it said.
Although cooperation among lenders for deciding a corrective action plan by consensus is desirable for timely turn-around of a viable account, it is also important to enable all lenders to have an independent view on the viability of account, it said.
On Wednesday, RBI Deputy Governor S S Mundra said the central bank will further fine tune the recently introduced Joint Lenders Forum (JLF) to make the mechanism more effective and transparent.
The purpose of JLF was to make the consortium lending and restructuring process more transparent.
RBI Governor Raghuram Rajan also had twice in as many months said the central bank is going through the complaints and suggestions from the lenders about the irritants in the JLF mechanism and would fine tune the system to make it more effective.
The central bank made consortium lending more transparent and process-driven last year and replaced the then similar mechanism called the CDR cell.
Mumbai: As part of its effort to rein in bad loans, the Reserve Bank of India (RBI) on Thursday modified Joint Lenders' Forum norms to ensure mandatory presence of representatives of two systematically important banks - State Bank of India (SBI) and ICICI Bank - as part of the empowered group (EG).
Banks should send senior-level representative for deliberations and decisions in the meetings of Joint Lenders' Forum (JLF), according to revised guidelines issued by the RBI.
"It has been represented to us that sometimes boards of the banks find it difficult to approve the decisions taken by JLF as the JLFs do not have senior-level representations from the participating lenders," the RBI said.
"In this regard, it is clarified that, although RBI has not explicitly prescribed the level of representation in its guidelines, banks are expected to depute sufficiently empowered senior level officials for deliberations and decisions in the meetings of JLF," it said.
It has been decided that JLF will finalise the corrective action plan (CAP) and the same will be placed before an empowered group of lenders, which will be tasked to approve the restructuring packages, it said.
"The JLF-EG should have a representative each of SBI and ICICI Bank as standing members," it said. Besides, a representative each of the top three lenders to the borrower should also present, it added.
Recently, the RBI named SBI and ICICI Bank as 'systemically important' and subjected them to higher levels of supervision to prevent disruption to financial services in event of any failure.
The RBI further said that participation in the JLF-EG should not be less than the rank of an executive director in a public sector bank or equivalent.
The JLF convening bank will convene the JLF-EG and provide the secretarial support to it, it said.
With regard to restructuring of loans, it said generally no account classified as doubtful should be considered by the JLF for restructuring.
But in cases where a small portion of debt is doubtful that is the account is standard/sub-standard in the books of at least 90 per cent of creditors (by value), the account may then be considered under JLF for restructuring. In partial modification, it has been decided that a JLF may decide on restructuring of an account classified as 'doubtful' in the books of one or more lenders similar to sub-standard assets, if the account has been assessed as viable, it added.
With regard to the exit option, the RBI said irrespective of whether they are within or outside the minimum 75 per cent and 60 per cent, they can exercise the option for providing additional finance only by way of arranging their share of additional finance to be provided by a new or existing creditor.
It has been decided that dissenting lenders who do not want to participate in the rectification or restructuring of the account as corrective action plan, which may or may not involve additional financing, will have an option to exit their exposure completely by selling their exposure to a new or existing lender.
The exit should be within the prescribed timeline for implementation of the agreed corrective action plan, it said.
The exiting lender will not have the option to continue with their existing exposure and simultaneously not agreeing for rectification or restructuring as corrective action plan.
"It has been brought to our notice that sometimes disagreement arises among lenders on deciding the CAP on rectification or restructuring, resulting in delay in initiating timely corrective action," it said.
Although cooperation among lenders for deciding a corrective action plan by consensus is desirable for timely turn-around of a viable account, it is also important to enable all lenders to have an independent view on the viability of account, it said.
On Wednesday, RBI Deputy Governor S S Mundra said the central bank will further fine tune the recently introduced Joint Lenders Forum (JLF) to make the mechanism more effective and transparent.
The purpose of JLF was to make the consortium lending and restructuring process more transparent.
RBI Governor Raghuram Rajan also had twice in as many months said the central bank is going through the complaints and suggestions from the lenders about the irritants in the JLF mechanism and would fine tune the system to make it more effective.
The central bank made consortium lending more transparent and process-driven last year and replaced the then similar mechanism called the CDR cell.
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