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Only standard loan accounts as of March 1 can be recast under pandemic scheme: RBI

The Reserve Bank of India (RBI) has clarified that loans which have remained standard without any defaults as of March 1, 2020, will be eligible for restructuring under the pandemic-related resolution framework issued in August.

In clarifications issued on Tuesday night to borrowers as well as lenders about the August 6 circular, the RBI said a loan account that was due for more than 30 days as on March 1, 2020, but subsequently got regularised, would not be ineligible for resolution under the COVID-19 resolution framework.

This is because the restructuring framework is applicable only for eligible borrowers who were classified as standard as of March 1, 2020.

However, such accounts may still be resolved under the prudential framework dated June 7, 2019, the central bank said.

Similarly, the regulator said restructuring of under-implementation project loans involving deferment of date of commencement of operations (DCCO) are excluded from the scope of resolution framework and that such accounts will continue to be governed by the February 7, 2020, and the other relevant instructions as applicable to specific category of lending institutions.

Also, in case of multiple lenders to a single borrower whose resolution is undertaken, all lending institutions will have to enter into an inter-creditor agreement.

On whether loans of Rs 100 crore and above will require an independent credit evaluation by any one credit rating agency, the apex bank said in case credit opinion is obtained from more than one rating agency, all such credit opinions must be RP4 rating or above.

The clarification also said the new definition of micro, small and medium enterprises (MSMEs) effective June 26 will not impact their eligibility for resolution but will be based on the definition that existed as of March 1, 2020.

It also clarified that any company from any sector is eligible for resolution subject, except those exclusions prescribed in paragraph 2 of the annex to the August 6 circular and also those sector-specific thresholds not specified in the circular dated September 7. But lenders shall make their own internal assessments regarding eligibility.

Loans against property will also be eligible for recast if they don’t fall under the personal loan category.

The quantum of the loan eligible for recast depends on the outstanding as on the date of invocation, which is March 1, 2020, provided it was a standard account then.

It has also been clarified that all farm credit exposures, including non-banking financial institutions (NBFCs), can be recast under this scheme, but loans to allied activities such as dairy, fisheries, animal husbandry, poultry, bee-keeping and sericulture are excluded from the scope of the resolution framework.

But loans given to farmer households are eligible for resolution if they are not under other exclusion conditions listed in the framework.

On the loans to the realty sector, the RBI said the requirement of inter-creditor agreement is a basic feature of the prudential framework for resolution issued on June 7, 2019, and consequently that of the pandemic resolution framework as well.

However, the RBI said there is sufficient flexibility to the lenders to formulate such pacts in respect of a legal entity to which they have exposure that address the specific requirements of each borrower on a case-to-case basis, including designing different resolution approaches for different projects under the same borrower within a pact.

For borrowers not eligible for resolution under the circular dated August 6, 2020, all the extant instructions shall still be in force. However, if any entity is otherwise eligible to be resolved under the new resolution framework, only this framework can be used for resolving the stress arising out of the pandemic.