Guidelines on Restructuring of Advances by Banks
The RBI, vide its Master Circular No.DBR.No.BP.BC.2/21.04.048/2015- 16 dated July 1, 2015 issued prudential guidelines on restructuring of advances by banks. The Guidelines also contain the organisational framework for restructuring of advances under consortium/ multiple banking/ syndication arrangements, i.e., the CDR mechanism.
In line with the recommendation of the Working Group under the Chairmanship of Shri B. Mahapatra, to review the existing prudential guidelines on restructuring of advances by banks/financial institutions, the extant incentive for quick implementation of restructuring package and asset classification benefits (paragraphs 3.121 to 3.123 (available on restructuring on fulfilling the conditions will however be withdrawn for all restructurings effective from April 1, 2015 with the exception of provisions related to changes in DCCO in respect of infrastructure as well as non-infrastructure project loans. It implies that with effect from April 1, 2015, a standard account on restructuring (for reasons other than change in Date of Commencement of Commercial Operations (DCCO)) would be immediately classified as sub-standard on restructuring as also the
non-performing assets, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per the extant asset classification norms with reference to the pre-restructuring repayment schedule.
The guidelines issued by the Reserve Bank of India on restructuring of advances (other than those restructured under a separate set of guidelines issued by the Rural Planning and Credit Department (RPCD) of the RBI on restructuring of advances on account of natural calamities) are divided into the following four categories:
Guidelines on restructuring of advances extended to industrial units.
Industrial units under the Corporate Debt Restructuring (CDR) Mechanism.
Small and Medium Enterprises (SME).
All other advances.
In these four sets of guidelines on restructuring of advances, the differentiations were broadly made based on whether a borrower is engaged in an industrial activity or a non-industrial activity. In addition, an elaborate institutional mechanism was laid down for accounts restructured under CDR Mechanism. The major difference in the prudential regulations was in the stipulation that subject to certain conditions, the accounts of borrowers engaged in industrial activities (under CDR Mechanism, SME Debt Restructuring Mechanism and outside these mechanisms) continued to be classified in the existing asset classification category upon restructuring. This benefit of retention of asset classification on restructuring was not made available to the accounts of borrowers engaged in non-industrial activities except to SME borrowers.
In the backdrop of extraordinary rise in restructured standard advances, these prudential norms were further revised by taking into account the recommendations of the Working Group under the Chairmanship of Shri B. Mahapatra, to review the existing prudential guidelines on restructuring of advances by banks/financial institutions. The details of the institutional / organizational framework for CDR Mechanism and SME Debt Restructuring Mechanism are given in Annex – 4 to the RBI’s Master Circular on “Prudential Norms on Income Recognition, Asset Classification and Provisioning to Advances” dated July 1, 2015 to be read along with circular no. DBOD.BP.BC.No.45/21.04.132/2014-15.
The CDR Mechanism (Annex – 4 of the Master circular) will also be available to the corporates engaged in non-industrial activities, if they are otherwise eligible for restructuring as per the criteria laid down for this purpose. Further, banks are also encouraged to strengthen the co-ordination among themselves in the matter of restructuring of consortium / multiple banking accounts, which are not covered under the CDR Mechanism.