Loan accounts that were in default for over 30 days as on March 1 will not be eligible for restructuring under the Covid resolution scheme even if they cleared their dues thereafter, the Reserve Bank of India (RBI) said in a set of frequently asked questions (FAQs). Sectors for which no eligibility ratios have been laid out by the central bank will be able to avail of recast in accordance with banks’ assessments, the FAQs said. Also, the actual debt that may be considered for resolution will be the outstanding as on the date of invocation.
“Such accounts (which were more than 30 DPD on March 1, 2020, but subsequently got regularised through receipt of overdue) are ineligible for resolution under the Resolution Framework as the Resolution Framework is applicable only for eligible borrowers which were classified as standard, but not in default for more than 30 days as on March 1, 2020. However, such accounts may still be resolved under the Prudential Framework dated June 7, 2019,” the RBI said.
Loans against property (LAPs), availed for business purposes but are secured by immovable assets, will not be treated as individual loans and they will be eligible for resolution under Part B of the framework. The same applies to loans granted to individuals where the property is in the name of an individual and a related company or a non-individual entity has been taken as co-borrower on the loan structure to supplement the income for repayment of loan.
For the purpose of eligibility for resolution under the framework, the definition of micro, small and medium enterprises (MSME) that would be applicable is the one that existed as on March 1, and not the revised one under the gazette notification dated June 26. Only such resolution plans which receive a credit opinion of RP4 or better for the residual debt from a credit rating agency (CRA) shall be considered for implementation under the framework. In case credit opinion is obtained from more than one CRA, all such opinions must be RP4 or better, the central bank said.
The resolution framework is applicable in respect of all eligible borrowers subject to the exclusions prescribed in the circular dated August 6. “In respect of those sectors where the sector-specific thresholds have not been specified in the circular dated September 7, 2020, lending institutions shall make their own internal assessments regarding TOL (total outstanding liabilities)/ATNW (adjusted tangible net worth) and Total Debt/EBITDA (earnings before interest, taxes, depreciation, and amortisation),” the FAQs said, adding, “However, the current ratio and DSCR (debt service coverage ratio) in all cases shall be 1.0 and above, and ADSCR (average DSCR) shall be 1.2 and above.”