recovery.docx

[FRAMEWORK FOR RESOLUTION OF STRESSED ASSETS] --------------------------------------------------------- **EARLY IDENTIFICATION AND REPORTING OF STRESS:** Lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA) a...

[FRAMEWORK FOR RESOLUTION OF STRESSED ASSETS] --------------------------------------------------------- **EARLY IDENTIFICATION AND REPORTING OF STRESS:** Lenders shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA) as per the following categories. **SMA Sub-categories** **Basis for classification -- Principal or interest payment or any other amount wholly or partly overdue between** ------------------------ -------------------------------------------------------------------------------------------------------------------- SMA-0 Up to 30 days SMA-1 More than 30 days and up to 60 days- SMA-2 More than 60 days and up to 90 days In the case of revolving credit facilities like cash credit/overdraft, the SMA sub-categories will be as follows: **SMA Sub-categories** **Basis for classification -- Outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for a period of:** ------------------------ ------------------------------------------------------------------------------------------------------------------------------------------------------------------- SMA-1 More than 30 days and up to 60 days SMA-2 More than 60 days and up to 90 days - The above-mentioned instructions on classification of borrower accounts into SMA categories are applicable for all loans (including retail loans), other than agricultural advances governed by crop season-based asset classification norms. - Classification of borrower accounts as SMA as well as NPA shall be done as part of day-end process for the relevant date and the SMA or NPA classification date shall be the calendar date for which the day end process is run. In other words, the date of SMA/NPA shall reflect the asset classification status of an account at the day-end of that calendar date. - Example: If due date of a loan account is March 31, 2022, and full dues are not received before the bank runs the day-end process for this date, the date of overdue shall be March 31, 2022. If it continues to remain overdue, then this account shall get tagged as SMA-1 upon running day-end process on April 30, 2022 i.e. upon completion of 30 days of being continuously overdue. Accordingly, the date of SMA-1 classification for that account shall be April 30, 2022. Similarly, if the account continues to remain overdue, it shall get tagged as SMA-2 upon running day-end process on May 30, 2022 and if continues to remain overdue further, it shall get classified as NPA upon running day-end process on June 29, 2022. - Scheduled commercial banks shall report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC), on all borrowers having aggregate exposure of ₹5 crore and above with them. The CRILC-Main Report shall be submitted on a monthly basis. In addition, the lenders shall submit a weekly report of instances of default by all borrowers (with aggregate exposure of ₹5 crore and above) by close of business on every Friday, or the preceding working day if Friday happens to be a holiday. **IMPLEMENTATION OF RESOLUTION PLAN:** - All lenders must put in place Board-approved policies for resolution of stressed assets, including the timelines for resolution. The lenders initiate the process of implementing a resolution plan (RP) even before a default. - **Once a borrower is reported to be in default by any of the lenders, lenders shall undertake a prima facie review of the borrower** account **within thirty days** from such default ("**Review Period**"). During this Review Period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery. - In cases where RP is to be implemented, all lenders shall enter into an inter-creditor agreement (ICA), during the above-said Review Period, to provide for ground rules for finalisation and implementation of the RP in respect of borrowers with credit facilities from more than one lender. The ICA shall provide that any decision agreed by lenders representing **75 per cent by value** of total outstanding credit facilities (fund based as well non-fund based) and **60 per cent of lenders by number** shall be binding upon all the lenders. - In respect of accounts with aggregate exposure above a threshold with the lenders, as indicated below, on or after the 'reference date', RP shall be implemented within 180 days from the end of Review Period. The Review Period shall commence not later than: The reference date, if in default as on the reference date; or the date of first default after the reference date.The reference dates for the above purpose shall be as under: **Aggregate exposure of the borrower to lenders** **Reference date** --------------------------------------------------- ------------------------------- ₹2000 crore and above June 7, 2019 ₹1500 crore and above, but less than ₹2000 crore January 1, 2020 Less than ₹1500 crore To be announced in due course - The RP may involve any action / plan / reorganization including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership and restructuring. **IMPLEMENTATION CONDITIONS FOR RP:** RPs involving restructuring / change in ownership in respect of accounts where the aggregate exposure of lenders is **₹100 crore and above**, shall require independent credit evaluation (ICE) of the residual debt by credit rating agencies (CRAs) specifically authorised by the Reserve Bank for this purpose. While accounts with aggregate exposure of **₹500 crore and above shall require two such ICEs**, others shall require one ICE. Only such RPs which receive a credit opinion of **RP4** or better for the residual debt from one or two CRAs, as the case may be, shall be considered for implementation. A RP in respect of borrowers to whom the lenders continue to have credit exposure, shall be deemed to be 'implemented' only if the following conditions are met: - A RP which does not involve restructuring/change in ownership shall be deemed to be implemented only if the borrower is not in default with any of the lenders as on 180th day from the end of the Review Period. Any subsequent default after the 180-day period shall be treated as a fresh default, triggering a fresh review. - A RP which involves restructuring/change in ownership shall be deemed to be implemented only if all of the following conditions are met: (I) All related documentation, including execution of necessary agreements between lenders and borrower / creation of security charge / perfection of securities, are completed by the lenders concerned, (II) the new capital structure and/or changes in the terms of conditions of the existing loans get duly reflected in the books of all the lenders and the borrower; and (III) the borrower is not in default with any of the lenders. - A RP which involves lenders exiting the exposure by assigning the exposures to third party or a RP involving recovery action shall be deemed to be implemented only if the exposure to the borrower is fully extinguished. **DELAYED IMPLEMENTATION OF RESOLUTION PLAN:** Where a viable RP in respect of a borrower is not implemented within the timelines given below, all lenders shall make additional provisions as under: **Timeline for implementation of viable RP** **Additional provisions to be made as a % of total outstanding (funded+non-funded), if RP not implemented within the timeline** ------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- 180 days from the end of Review Period 20% 365 days from the commencement of Review Period 15% (i.e. total additional provisioning of 35%) The additional provisions shall be made over and above the higher of the provisions already held or the provisions required to be made as per the asset classification status of the borrower account, subject to the total provisions held being capped at 100% of total outstanding. The additional provisions shall also be required to be made in cases where the lenders have initiated recovery proceedings, unless the recovery proceedings are fully completed. The above additional provisions may be reversed as under: a. Where the RP involves only payment of overdues by the borrower -- the additional provisions may be reversed only if the borrower is not in default for a period of 6 months from the date of clearing of the overdues with all the lenders; b. Where RP involves restructuring/change in ownership outside IBC -- the additional provisions may be reversed upon implementation of the RP; c. Where resolution is pursued under IBC -- half of the additional provisions made may be reversed on filing of insolvency application and the remaining additional provisions may be reversed upon admission of the borrower into the insolvency resolution process under IBC; or, d. Where assignment of debt/recovery proceedings are initiated -- the additional provisions may be reversed upon completion of the assignment of debt/recovery. **DISCLOSURES:** Lenders shall make appropriate disclosures in their financial statements, under 'Notes on Accounts', relating to RPs implemented. **EXEMPTIONS: The above guidelines on resolution of stressed assets** shall not be applicable to revival and rehabilitation of MSMEs, restructuring of agricultural advances on occurrence of natural calamity or for borrower entities in respect of which specific instructions have already been issued or are issued by the Reserve Bank to the banks for initiation of insolvency proceedings under the IBC. **[PRUDENTIAL NORMS APPLICABLE TO RESTRUCTURING]** - Restructuring is an act in which a lender, for economic or legal reasons relating to the borrower\'s financial difficulty, grants concessions to the borrower. Restructuring may involve modification of terms of the advances / securities, which would generally include, among others, alteration of payment period / payable amount / the amount of instalments / rate of interest; roll over of credit facilities; sanction of additional credit facility/ release of additional funds for an account in default to aid curing of default / enhancement of existing credit limits; compromise settlements where time for payment of settlement amount exceeds three months. - For this purpose, the board-approved policies of lenders on resolution of stressed assets, required to be in place in terms of these guidelines, shall also have detailed policies on various signs of financial difficulty, providing quantitative as well as qualitative parameters, for determining financial difficulty as expected from a prudent bank. A default, as per the definition provided in the framework, shall be treated as an indicator for financial difficulty, irrespective of reasons for the default. **ASSET CLASSIFICATION:** In case of restructuring, the accounts classified as \'standard\' shall be immediately downgraded as NPA, i.e., 'sub-standard' to begin with. The NPAs, upon restructuring, would continue to have the same asset classification as prior to restructuring. **CONDITIONS FOR UPGRADETION**: **For MSME accounts where aggregate exposure of the lenders is less than ₹25 crores:** An account may be considered for upgradation to 'standard' only if it demonstrates satisfactory performance during the specified period. 'Specified Period' means a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium under the terms of restructuring package. 'Satisfactory Performance' means no payment (interest and/or principal) shall remain overdue for a period of more than 30 days. In case of cash credit / overdraft account, satisfactory performance means that the outstanding in the account shall not be more than the sanctioned limit or drawing power, whichever is lower, for a period of more than 30 days. **For all other accounts:** - Standard accounts classified as NPA and NPA accounts retained in the same category on restructuring by the lenders may be upgraded only when all the outstanding loan / facilities in the account demonstrate 'satisfactory performance' (Satisfactory performance means that the borrower entity is not in default at any point of time during the period concerned) during the period from the date of implementation of RP up to the date by which at least 10 per cent of the sum of outstanding principal debt as per the RP and interest capitalisation sanctioned as part of the restructuring, if any, is repaid (**'monitoring period'**).Provided that the account cannot be upgraded before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium under the terms of RP. - Additionally, for accounts where the aggregate exposure of lenders is ₹100 crores and above at the time of implementation of RP, to qualify for an upgrade, in addition to demonstration of satisfactory performance, the credit facilities of the borrower shall also be rated as investment grade (BBB- or better), at the time of upgrade, by CRAs accredited by the Reserve Bank for the purpose of bank loan ratings. While accounts with aggregate exposure of ₹500 crores and above shall require two ratings, those below ₹500 crores shall require one rating. If the ratings are obtained from more than the required number of CRAs, all such ratings shall be investment grade for the account to qualify for an upgrade. - If the borrower fails to demonstrate satisfactory performance during the monitoring period, asset classification upgrade shall be subject to implementation of a fresh restructuring/ change in ownership. Lenders shall make an additional provision of 15% for such accounts at the end of the Review Period. - Any default by the borrower in any of the credit facilities with any of the lenders (including any lender where the borrower is not in **"specified period")** subsequent to upgrade in asset classification as above but before the end of the specified period, will require a fresh RP to be implemented within the above timelines as any default would entail. However, lenders shall make an additional provision of 15% for such accounts at the end of the Review Period. - "Specified period" means the period from the date of implementation of RP (For accounts restructured under IBC, the specified period shall be deemed to commence from the date of implementation of the resolution plan as approved by the Adjudicating Authority) up to the date by which at least 20 per cent of the sum of outstanding principal debt as per the RP and interest capitalisation sanctioned as part of the restructuring, if any, is repaid. **PROVISIONING NORMS**: Accounts restructured under the revised framework shall attract provisioning as per the asset classification category as laid out above. In respect of accounts of debtors where a final RP, as approved by the Committee of Creditors, has been submitted by the Resolution Professional for approval of the Adjudicating Authority (in terms of section 30(6) of the IBC), lenders may keep the provisions held as on the date of such submission of RP frozen for a period of six months from the date of submission of the plan or up to 90 days from the date of approval of the resolution plan by the Adjudicating Authority in terms of section 31 (1) of the IBC, whichever is earlier. This facility of freezing the quantum of the provision shall be available only in cases where the provisioning held by the lenders as on the date of submission of the plan for approval of the Adjudicating Authority is more than the expected provisioning required to be held in the normal course upon implementation of the approved resolution plan. **ADDITIONAL FINANCE:** Any additional finance approved under the RP (including any resolution plan approved by the Adjudicating Authority under IBC) may be treated as \'standard asset\' during the monitoring period under the approved RP, provided the account demonstrates satisfactory performance during the monitoring period. If the restructured asset fails to perform satisfactorily during the monitoring period or does not qualify for upgradation at the end of the monitoring period, the additional finance shall be placed in the same asset classification category as the restructured debt. **INCOME RECOGNITION NORMS:** Interest income in respect of restructured accounts classified as \'standard assets\' may be recognized on accrual basis and that in respect of the restructured accounts classified as \'non-performing assets\' shall be recognised on cash basis. In the case of additional finance in accounts where the pre-restructuring facilities were classified as NPA, the interest income shall be recognised only on cash basis except when the restructuring is accompanied by a change in ownership. **CHANGE IN OWNERSHIP:** In case of change in ownership of the borrowing entities, credit facilities of the concerned borrowing entities may be continued/upgraded as 'standard' after the change in ownership is implemented, either under the IBC or under this framework. If the change in ownership is implemented under this framework, then the classification as 'standard' shall be subject to the following conditions: - Lenders shall conduct necessary due diligence in this regard and clearly establish that the acquirer is not a person disqualified in terms of Section 29A of the IBC. Additionally, the 'new promoter' should not be a person/entity/subsidiary/associate etc. (domestic as well as overseas), from the existing promoter/promoter group. - The new promoter shall have acquired at least 26 per cent of the paid up equity capital as well as voting rights of the borrower entity and shall be the single largest shareholder of the borrower entity. - The new promoter shall be in 'control' of the borrower entity as per the definition of 'control' in the Companies Act, 2013 / regulations issued by the Securities and Exchange Board of India/any other applicable regulations / accounting standards as the case may be. - Upon change in ownership, all the outstanding loans/credit facilities of the borrowing entity need to demonstrate satisfactory performance during the monitoring period. If the account fails to perform satisfactorily at any point of time during the monitoring period, it shall trigger a fresh Review Period. - The quantum of provisions held (excluding additional provisions) by the bank against the said account as on the date of change in ownership of the borrowing entities can be reversed only after the end of monitoring period subject to satisfactory performance during the same. **CLASSIFICATION OF SALE AND LEASE BACK TRANSACTIONS AS RESTRUCTURING:** A sale and leaseback transaction of the assets of a borrower or other transactions of similar nature will be treated as an event of restructuring for the purpose of asset classification and provisioning in the books of lenders with regard to the residual debt of the seller as well as the debt of the buyer if all the following conditions are met: - The seller of the assets is in financial difficulty; - Significant portion, i.e. more than 50 per cent, of the revenues of the buyer from the specific asset is dependent upon the cash flows from the seller; and - 25 per cent or more of the loans availed by the buyer for the purchase of the specific asset is funded by the lenders who already have a credit exposure to the seller. **RESTRUCTURING OF FRAUDS/WILLFUL DEFAULTERS:** Borrowers who have committed frauds/ malfeasance/ willful default will remain ineligible for restructuring. However, in cases where the existing promoters are replaced by new promoters, and the borrower company is totally delinked from such erstwhile promoters/management, lenders may take a view on restructuring such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/management. **ADDITIONAL PROVISION IN CASE OF WILFUL DEFAULTERS AND NON-COOPERATIVE BORROWERS:** The provisioning in respect of existing loans/exposures of banks to companies having director/s (other than nominee directors of government/financial institutions brought on board at the time of distress), whose name/s appear more than once in the list of wilful defaulters, will be 5% in cases of standard accounts; if such account is classified as NPA, it will attract accelerated provisioning as under: ------------------------------------------------------------------------------------------------------------------------------------ **Asset Classification** **Period as NPA** **Regular provisioning (%)** **Accelerated provisioning (%)** -------------------------- -------------------- -------------------------------------- --------------------------------------------- Sub- standard\ Up to 6 months 15 No change (secured) 6 months to 1 year 15 25 Sub-standard\ Up to 6 months 25 (other than infrastructure loans) 25 (unsecured ab-initio) 20 (infrastructure loans) 6 months to 1 year 25 (other than infrastructure loans) 40 20 (infrastructure loans) Doubtful I 2nd year 25 (secured portion) 40 (secured portion) 100 (unsecured portion) 100 (unsecured portion) Doubtful II 3rd & 4th year 40 (secured portion) 100 for both secured and unsecured portions 100 (unsecured portion) Doubtful III 5th year onwards 100 100 ------------------------------------------------------------------------------------------------------------------------------------ **Dissemination of Information:** At present, the list of suit filed accounts and non-suit filed accounts of Wilful Defaulters (₹25 lakh and above) is submitted by banks to the Credit Information Companies (CICs) of which they are members. Banks are advised to forward data on wilful defaulters to the CICs at the earliest but not later than a month from the reporting date. **SPECIFICATION OF DUE DATE/REPAYMENT DATE:** The exact due dates for repayment of a loan, frequency of repayment, breakup between principal and interest, examples of SMA/NPA classification dates, etc. shall be clearly specified in the loan agreement and the borrower shall be apprised of the same at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms/loan agreement till full repayment of the loan. In cases of loan facilities with moratorium on payment of principal and/or interest, the exact date of commencement of repayment shall also be specified in the loan agreements. RBI advised Banks to comply these instructions by December 31, 2021, in respect of fresh loans. In case of existing loans, however, compliance to these instructions shall necessarily be ensured as and when such loans become due for renewal/review. [FRAMEWORK FOR REVIVAL AND REHABILITATION OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)] ----------------------------------------------------------------------------------------------------- *(Extract of RBI Circular dated 17 March 2016)* **ELIGIBILITY:** The framework shall be applicable to MSMEs having loan limits up to Rs.25 crore, including accounts under consortium or multiple banking arrangements (MBA). **COMMITTEES FOR STRESSED MICRO, SMALL AND MEDIUM ENTERPRISES:** In order to enable faster resolution of stress in an MSME account, every bank shall form Committees for Stressed Micro, Small and Medium Enterprises at each District level or Regional Office level, depending upon the number of MSME units financed in the region. These Committees will be Standing Committees and will resolve the reported stress of MSME accounts of the branches falling under their jurisdiction. For MSME borrowers having credit facilities under a consortium of banks or multiple banking arrangement (MBA), the consortium leader, or the bank having the largest exposure to the borrower under MBA, as the case may be, shall refer the case to its Committee. The Composition of the Committee shall be as under: - The regional or zonal head of the convener bank, shall be the Chairperson of the Committee; - Officer-in-charge of the MSME Credit Department of the convener bank at the regional or zonal office level, shall be the member and convener of the Committee. - One external expert with expertise in MSME related matters to be nominated by bank. - One representative from the concerned State Government. In case State Government does not nominate any member, then a retired executive of another bank of the rank of AGM and above. - When handling accounts under consortium or MBA, senior representatives of all banks / lenders having exposure to the borrower. While decisions of the Committee for restructuring / recovery etc will be by simple majority, the Chairperson shall have the casting vote, in case of a tie. In case of accounts under consortium / MBA, lenders should sign an Inter-Creditor Agreement (ICA) on the lines of Joint Lenders' Forum (JLF) Agreement. **ACCOUNTS WITH AGGREGATE LOAN LIMITS ABOVE RS.10 LAKH**: On the basis of early warning signals (Account turning into SMA), the branch should forward the stressed accounts with aggregate loan limits above Rs.10 lakh to the Committee as referred above within five working days for a suitable corrective action plan (CAP). Forwarding the account to the Committee for CAP will be mandatory in cases of accounts reported as SMA-2. **ACCOUNTS WITH AGGREGATE LOAN LIMITS UP TO RS.10 LAKH:** With regards to accounts with aggregate loan limits up to Rs.10 lakh identified as SMA-2; the account should be mandatorily examined for CAP by the Branch manager / such other designated official. However, the cases, where the branch manager / designated official has decided the option of recovery under CAP instead of restructuring should be referred to the Committee for their concurrence. **IDENTIFICATION BY THE BORROWER ENTERPRISE**- Any MSME borrower may voluntarily initiate proceedings under this Framework, if the enterprise apprehends failure of its business or its likely inability to pay debts or there is erosion in the net worth due to accumulated losses to the extent of 50% of its net worth during the previous accounting year, by making an application to the branch or directly to the Committee. When such a request is received by lender, the account with aggregate loan limits above Rs.10 lakh should be referred to the Committee. The Committee should convene its meeting at the earliest but not later than five working days from the receipt of the application, to examine the account for a suitable CAP. The accounts with aggregate loan limit up to Rs.10 lakh may be dealt with by the branch manager / designated official for a suitable CAP. **APPLICATION RECEIVED BY THE COMMITTEE:** Where an application is filed by a bank / lender and admitted by the Committee, the Committee shall notify the concerned enterprise about such application within five working days and require the enterprise to respond to the application or make a representation before the Committee; and disclose the details of all its liabilities, including the liabilities owed to the State or Central Government and unsecured creditors, if any, within fifteen working days of receipt of such notice; Provided that if the enterprise does not respond within the above period, the Committee may proceed ex-parte. On receipt of information relating to the liabilities of the enterprise, the Committee may send notice to such statutory creditors as disclosed by the enterprise as it may deem fit, informing them about the application under the Framework and permit them to make a representation regarding their claims before the Committee within fifteen working days of receipt of such notice. It is mentioned here that these information are required for determining the total liability of the Enterprise in order to arrive at a suitable CAP and not for payments of the same by the lenders. Within 30 days of convening its first meeting for a specific enterprise, the Committee shall take a decision on the option to be adopted under the corrective action plan and notify the enterprise, within five working days from the date of such decision. If the corrective action plan decided by the Committee envisages restructuring of the debt of the enterprise, the Committee shall conduct the detailed Techno-Economic Viability (TEV) study and finalise the terms of such a restructuring within 20 working days (for accounts having aggregate exposure up to Rs.10 crore) and within 30 working days (for accounts having aggregate exposure above Rs.10 crore and up to Rs.25 crore) and notify the enterprise about such terms, within five working days. Upon finalisation of the terms of the corrective action plan, the implementation of that plan shall be completed by the concerned bank within 30 days (if the CAP is Rectification) and within 90 days (if the CAP is restructuring). In case recovery is considered as CAP, the recovery measures should be initiated at the earliest. **DECISION OF THE COMMITTEE:** The committee based on viability of proposal may take decision for Ratification, Restructuring or Recovery. The decisions agreed upon by a majority of the creditors (75% by value and 50% by number) in the Committee would be considered as the basis for proceeding with the restructuring of the account, and will be binding on all lenders under the terms of the Inter-Creditor Agreement. **TIME-LINES:** If the Committee is not able to decide on CAP and restructuring package due to non-availability of information on statutory dues of the borrower, the Committee may take additional time not exceeding 30 days for deciding CAP and preparing the restructuring package. However, they should not wait beyond this period and proceed with CAP. **ELIGIBILITY FOR RESTRUCTURING BY THE COMMITTEE:** - Restructuring cases shall be taken up by the Committee only in respect of Standard, SMA or Sub-Standard Assets reported by one or more lenders of the Committee.However, the Committee may consider restructuring the account classified as doubtful with one or two lender/s but it is Standard or Sub-Standard in the books of majority of other lenders (by value). - Wilful defaulters shall not be eligible for restructuring. However, the Committee may review the reasons for classification of the borrower as a wilful defaulter and satisfy itself that the borrower is in a position to rectify the wilful default. The decision to restructure such cases shall have the approval of the Board of concerned bank. - Cases of Frauds and Malfeasance remain ineligible for restructuring. However, in cases of fraud / malfeasance where the existing promoters are replaced by new promoters and the borrower company is totally delinked from such erstwhile promoters / management, banks and the Committee may take a view on restructuring of such accounts. **Review:** In case the Committee decides that recovery action is to be initiated against an enterprise, such enterprise may request for a review of the decision by the Committee within a period of ten working days from the date of receipt of the decision of the Committee. A review application shall be decided by the Committee within a period of thirty days from the date of filing and if as a consequence of such review, the Committee decides to pursue a fresh corrective action plan, it may do so. [RESTRUCTURING OF AGRICULTURE ACCOUNTS AS RELIEF MEASURES BY BANKS IN AREAS AFFECTED BY NATURAL CALAMITIES] ----------------------------------------------------------------------------------------------------------------------- In terms of the National Disaster Management Framework, there are two funds constituted viz. National Disaster Response Fund (NDRF) and State Disaster Response Fund (SDRF) for providing relief in the affected areas. The NDRF framework currently recognizes twelve types of natural calamities viz. cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack and cold wave/frost. The Ministry of Agriculture is the nodal point for four of the calamities i.e. drought, hailstorms, pest attack and cold wave/frost and for the remaining eight, the Ministry of Home Affairs is the nodal ministry to make the necessary administrative arrangements. The area, time of occurrence and intensity of a natural calamity cannot be anticipated. It is therefore, imperative that banks have a blueprint of action duly approved by the Board of Directors for such eventualities so that the required relief and assistance are provided with utmost speed and without any loss of time.The Divisional/Zonal Managers of scheduled commercial/SF banks may be vested with certain discretionary powers to avoid the need to seek fresh approval from their Head Office regarding the line of action decided by the District Consultative Committee/State Level Bankers' Committee with respect to restructuring of loans, extension of loan period, margin, security, sanction of new loan etc to farmers affected by natural calamity. **MEETING OF SLBC / DISTRICT CONSULTATIVE COMMITTEE (DCC):** In the event of occurrence of a natural calamity which covers a larger part of a State, the SLBC convener bank shall convene a special SLBC meeting immediately to evolve a coordinated action plan for implementing the relief programme. If the calamity has affected only a small part of the state/few districts, the convener of the DCC of the affected district(s) shall convene a meeting immediately. In the special SLBC/DCC meeting, the position of the affected areas may be assessed so as to ensure speedy formulation and implementation of suitable relief measures. **DECLARATION OF NATURAL CALAMITY:** Declaration of a natural calamity is the domain of the Central/ State Governments. The declarations/certificates are called by different names such as Annewari, Paisewari, Girdawari, etc. in different States. For rescheduling/restructuring of agriculture loans by banks, the crop loss assessed should be **33% or more.** For assessing this loss, while some States are conducting crop cutting experiments to determine the loss in crop yield, some others are relying on the eye estimates/visual impressions. In extreme situations such as wide-spread floods, suffered a wide-spread damage, the matter shall be deliberated by State Government/District Authorities in a specially convened SLBC/DCC meeting where the concerned Government functionary/District Collector shall explain the reasons for not estimating 'Annewari' (percentage of crop loss) through crop cutting experiments and that the decision to provide relief for the affected populace needs to be taken based on the eye estimate/visual impressions. In both the cases, however, SLBC/DCC shall satisfy themselves fully that the crop loss has been 33% or more before acting on these pronouncements. **RESTRUCTURING OF EXISTING LOANS:** **Agriculture Short-term Production Credit (Crop Loans):**All short-term loans except those which are overdue at the time of occurrence of the natural calamity shall be eligible for restructuring. The principal as well as interest due in the year of occurrence of the natural calamity shall be converted into term loan. The repayment period of the restructured loan may be up to two years (including the moratorium period of one year) if the loss is between 33% and 50%. If the crop loss is 50% or more, repayment period may be extended up to a maximum of five years (including the one-year moratorium period). In all restructured loan accounts, moratorium period of at least one year shall be considered. Banks may not insist on additional collateral security for such restructured loans. **Long term Agriculture Loans (Investment) Credit:** The existing term loan instalments shall be rescheduled keeping in view the repaying capacity of the borrower and the nature of natural calamity. In case where only crop of that year is damaged and productive assets are not damaged, banks shall reschedule the payment of instalment during the year of natural calamity and extend the loan period by one year. In a natural calamity where the productive assets are partially or totally damaged and borrowers are in need of a new loan, the rescheduling by way of extension of loan period shall be determined on the basis of overall repaying capacity of the borrower vis-a-vis total liability (old term loan, restructured crop loan, if any, and the fresh crop/term loan being given) less the subsidies received from the Government Agencies and compensation available under the insurance schemes etc. While the total repayment period for the restructured/fresh term loan may differ on case-to-case basis, generally it shall not exceed a period of five years. **ASSET CLASSIFICATION:** The restructured portion of the short term as well as long-term loans may be treated as current dues and need not be classified as NPA. The asset classification of these term loans would thereafter be governed by the revised terms and conditions. Nevertheless, banks are required to make higher provisions for the restructured standard advances. The asset classification for the remaining dues, that does not form a part of the restructured portion, shall continue to be governed by the original terms and conditions of its sanction. Additional finance, if any, shall be treated as "standard asset" and its future asset classification will be governed by the terms and conditions of its sanction. The benefit of asset classification of the restructured account as on the date of natural calamity shall be available only if the restructuring is completed within a period of three months from the date of declaration of the natural calamity by the Government. In the event of extreme calamity, when the SLBC/DCC is of the view that this period shall not be sufficient for the banks to reschedule all the affected loans, it shall approach the Chief General Manager, RBI, FIDD Mumbai through the concerned Regional Director of RBI. The accounts that are restructured for the second time or more on account of recurrence of natural calamities shall retain the same asset classification category on each restructuring. Accordingly, for a restructured standard asset, the subsequent restructuring necessitated on account of a natural calamity shall not be treated as second restructuring, i.e., the standard asset classification shall be maintained. **UTILIZATION OF INSURANCE PROCEEDS:** While restructuring loans in an area affected by a natural calamity, banks shall also take into account the insurance proceeds, if any, receivable from an insurance company. The insurance proceeds shall be adjusted towards the 'restructured accounts' in cases where fresh loans have been granted to the borrower. However, banks shall act with empathy and consider restructuring and granting fresh loans without waiting for the receipt of the insurance claim in cases where there is reasonable certainty of receiving the claim. **PROVIDING FRESH LOANS:** Once the decision to reschedule loans is taken by SLBC/DCC, pending conversion of short-term loans, banks shall grant fresh crop loan to the affected farmers based on the scale of finance of the crop and the cultivation area as per the extant guidelines. Banks shall also grant consumption loan up to ₹. 10,000/- to existing borrowers without any collateral. The limit may, however, be enhanced beyond ₹. 10,000/- at the bank's discretion. Credit shall not be denied for want of a personal guarantee alone. Where the bank's existing security has been eroded because of damage or destruction by floods, assistance shall not be denied merely for want of additional fresh security. Where land is taken as security, in the absence of original title record, a certificate issued by the Revenue Department officials shall be accepted for financing to farmers who have lost proof of their title such as title deed or registration certificate issued to registered share-croppers. In the areas covered by the Sixth Schedule of the Constitution, whereby the land is owned by the community, certificate issued by community authorities may be accepted. **RATE OF INTEREST:** As notified by the Government of India from time to time, to provide relief to farmers availing short term crop loans and affected by a natural calamity, an interest subvention of 2 percent per annum shall be made available to banks for the first year on the restructured loan amount. Such restructured loans shall attract normal rate of interest from the second year onwards. **PROVIDING ACCESS TO BANKING SERVICE:** Banks may operate its natural calamity affected branches from temporary premises under advice to the concerned Regional Office of RBI. For continuing the temporary premise beyond 30 days, banks may obtain specific approval from the concerned Regional Office of RBI. [GUIDELINES ON SALE OF ASSETS] ------------------------------------------ ***SALE OF FINANCIAL ASSETS TO SECURITISATION COMPANY (SC)/ RECONSTRUCTION COMPANY:*** A financial asset may be sold to the SC/RC by any bank/ FI where the asset is an NPA, including a non-performing bond/ debenture or a Standard Asset where the asset is under consortium/ multiple banking arrangements and at least 75% by value of the asset is classified as NPA in the books of other banks/FIs, and at least 75% (by value) of the banks / FIs who are under the consortium / multiple banking arrangements agree to the sale of the asset to SC/RC. **Other Important criteria for sale of assets:** - In the case of consortium / multiple banking arrangements, if 75% (by value) of the banks / FIs decide to accept the offer, the remaining banks / FIs will be obligated to accept the offer. - Banks using auction process for sale of NPAs to SCs / RCs should be more transparent, including disclosure of the Reserve Price, specifying clauses for non-acceptance of bids, etc. If a bid received is above the Reserve Price and a minimum of 50 per cent of sale proceeds is in cash, and also fulfils the other conditions specified in the Offer Document, acceptance of that bid would be mandatory. - Banks/ FIs may receive cash or bonds or debentures as sale consideration for the financial assets sold to SC/RC. **PRUDENTIAL NORMS FOR THE SALE TRANSACTIONS** If the sale to SC/ RC is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall should be debited to the profit and loss account of that year. Banks can also use countercyclical / floating provisions for meeting any shortfall on sale of NPAs. Banks may reverse the excess provision on sale of NPAs, if the sale value is higher than the NBV, to its profit and loss account in the year the amounts are received. Further, reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the asset. When banks/ FIs invest in the security receipts/ pass-through certificates issued by SC/RC in respect of the financial assets sold by them to the SC/RC, the sale shall be recognised in books of the banks / FIs at the lower of the redemption value of the security receipts/ pass-through certificates, and the NBV of the financial asset. All instruments received by banks/FIs from SC/RC as sale consideration for financial assets sold to them and also other instruments issued by SC/ RC in which banks/ FIs invest will be in the nature of non SLR securities. ***SALE OF FINANCIAL ASSETS OTHER THAN TO SC/ RC:*** These guidelines would be applicable to banks, FIs and NBFCs purchasing/ selling non performing financial assets, from/ to other banks/FIs/NBFCs (excluding securitisation companies/ reconstruction companies). A financial asset, including assets under multiple/consortium banking arrangements, would be eligible for purchase/sale in terms of these guidelines if it is a non-­ performing asset/non performing investment in the books of the selling bank. **PROCEDURE FOR PURCHASE/ SALE OF NPAS:** - Banks while selling NPAs should work out the net present value of the estimated cash flows associated with the realisable value of the available securities net of the cost of realisation. The sale price should generally not be lower than the net present value arrived and the same principle should be used in compromise settlements. - The estimated cash flows are normally expected to be realised within a period of **three years** and at least 10% of the estimated cash flows should be realized in the first year and at least 5% in each half year thereafter, subject to full recovery within three years. - A bank may purchase/sell non-­ performing financial assets from/to other banks only on 'without recourse' basis, i.e., the entire credit risk associated with the non-­ performing financial assets should be transferred to the purchasing bank. - Banks shall sell non-­ performing financial assets to other banks only on cash basis. The entire sale consideration should be received upfront and the asset can be taken out of the books of the selling bank only on receipt of the entire sale consideration. - Banks are also permitted to sell/buy homogeneous pool within retail non­performing financial assets, on a portfolio basis. The pool of assets would be treated as a single asset in the books of the purchasing bank. - A non-­ performing financial asset should be held by the purchasing bank in its books **at least for a period of 12 months** before it is sold to other banks. Banks should not sell such assets back to the bank, which had sold the NPA. **PRUDENTIAL NORMS FOR BANKS FOR THE PURCHASE/ SALE TRANSACTIONS** - The NPA purchased, may be classified as 'standard' in the books of the purchasing bank for a period of 90 days from the date of purchase. Thereafter, the asset classification status of the financial asset purchased shall be determined by the record of recovery in the books of the purchasing bank. - Any recovery in respect of a NPA purchased from other banks should first be adjusted against its acquisition cost. Recoveries in excess of the acquisition cost can be recognised as profit. - For the purpose of capital adequacy, banks should assign 100% risk weights to the non-­ performing financial assets purchased from other banks. In case the non­performing asset purchased is an investment, then it would attract capital charge for market risks also. **[RESERVE BANK OF INDIA (TRANSFER OF LOAN EXPOSURES) DIRECTIONS, 2021]** Loan transfers are resorted to by lending institutions for multitude of reasons ranging from liquidity management, rebalancing their exposures or strategic sales. RBI issued master direction in this regard applicable to all scheduled commercial Banks, RRBs, UCBs/SCBs, All India Financial Institutions, Small Finance Banks and NBFC. The important aspects of the guidelines are as follows; - **RRBs and Co-operative Banks are permitted as only transferor(s) of stressed loans and are not permitted as transferors(s) or transferee(s) in any other type of loan transfers.** - **Overseas Branches of scheduled commercial Banks shall be permitted to acquire only 'not in default' loan exposures from a financial entity operating and regulated as a bank in the host jurisdiction.** **Transfer exposures 'in default' as well as 'not in default' pertaining to resident entities/non-resident s to a financial entity operating and regulated as a bank in the host jurisdiction.** - "Loan participation" means a transaction through which the transferor transfers all or part of its economic interest in a loan exposure to transferee(s) without the actual transfer of the loan contract, and the transferee(s) fund the transferor to the extent of the economic interest transferred which may be equal to the principal, interest, fees and other payments, if any, under the transfer agreement; - The lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures under these guidelines. - Loan transfers should result in transfer of economic interest without being accompanied by any change in underlying terms and conditions of the loan contract usually. In all cases, if there are any modifications to terms and conditions of the loan contract during and after transfer (eg. in take-out financing), the same shall be evaluated against the definition of 'restructuring' - Lenders, regardless of whether they are transferors or otherwise, should not offer credit enhancements or liquidity facilities in any form in the case of loan transfers. - A transferor cannot re-acquire a loan exposure, either fully or partially, that had been transferred by the entity previously, except as a part of a resolution plan or as part of a resolution plan approved under the Insolvency and Bankruptcy Code, 2016. - The transferor shall have no obligation to re-acquire or fund the re-payment of the loans or any part of it or substitute loans held by the transferee(s) or provide additional loans to the transferee(s) at any time except those arising out of breach of warranties or representations made at the time of transfer. **TRANSFER OF LOANS WHICH ARE NOT IN DEFAULT** - A transferor can transfer a single loan or a part of such loan or a portfolio of such loans to permitted transferees through assignment or novation or a loan participation contract. - In cases where loan transfers result in a change of lender of record under a loan agreement, the transferor and transferee(s) should ensure that the existing loan agreement has suitable enabling provisions including consent by the underlying borrower that allow for such transactions by laying down the required ground rules. - The transfer shall be only on cash basis and the consideration shall be received not later than at the time of transfer of loans. The transfer consideration should be arrived at in a transparent manner on an arm\'s length basis. - The due diligence in respect of the loans cannot be outsourced by the transferee(s) and should be carried out by its own staff with the same rigour and as per the same policies as would have been done for originating any loan. - The above due diligence requirements shall be applicable at the level of each loan. In case of loans acquired as a portfolio, in case a transferee is unable to perform due diligence at the individual loan level for the entire portfolio but can perform due diligence at the individual loan level for not less than one-third of the portfolio by value and number of loans in the portfolio, the due diligence may be performed at the portfolio level for the remaining, in which case, the transferor has to retain at least 10 per cent of economic interest in the transferred loans. - The transferor can transfer loans only after a minimum holding period (MHP), as prescribed below, which is counted from the date of registration of the underlying security interest with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) a) Three months in case of loans with tenor of up to 2 years or b) Six months in case of loans with tenor of more than 2 years. Provided that in case of loans where security does not exist or security cannot be registered with CERSAI, the MHP shall be calculated from the date of first repayment of the loan. Provided further that in case of transfer of project loans, the MHP shall be calculated from the date of commencement of commercial operations of the project being financed. - Provided further that in case of loans acquired from other entities by a transferor, such loans cannot be transferred before completion of six months from the date on which the loan was taken into the books of the transferor. - Provided further that the transfer of receivables, acquired as part of 'factoring business' as defined under the Factoring Regulation Act, 2011, will be exempted from the above specified MHP requirement subject to fulfilment of following conditions: a) The residual maturity of such receivables, at the time of transfer, should not be more than 90 days, and As specified under clauses 10 and 35 of these directions, the transferee conducts proper credit appraisal of the drawee of the bill, before acquiring such receivables. - Any loss or profit arising because of transfer of loans, which is realised, should be accounted for accordingly and reflected in the Profit & Loss account of the transferor for the accounting period during which the transfer is completed. However, unrealised profits, if any, arising out of such transfers, shall be deducted from CET 1 capital or net owned funds for meeting regulatory capital adequacy requirements till the maturity of such loans. - The transferee(s), as well as transferor(s) shall apply the extant income recognition, asset classification and provisioning as well as exposure norms, on individual obligor basis in all cases to the extent of retained economic interest. - For permitted transferees, the acquired loans will be carried at acquisition cost unless it is more than the outstanding principal at the time of the transfer, in which case the premium paid, should be amortised based on straight line method or effective interest rate method, as considered appropriate by the individual permitted transferee. However, the outstanding/unamortised premium need not be deducted from capital. **TRANSFER OF STRESSED LOANS** - The instructions contained in this Chapter would cover transfer of stressed loans, including transfer to ARCs. - The transfer of stressed loans must be done through assignment or novation only; loan participation is not permitted in the case of stressed loans. - Transferors should have clear policies with regard to valuation of loan exposures proposed to be transferred. However, in case the credit exposure being transferred (without netting for provisions), singly, jointly or severally, is Rs.100 crore or more, the transferor shall obtain two external valuation reports. The cost of valuation exercise, external or otherwise, shall be borne by the transferor. - In general, lenders shall transfer stressed loans, including through bilateral sales, only to permitted transferees and ARCs. - However, when negotiated on a bilateral basis, such negotiations must necessarily be followed by an auction through Swiss Challenge method if the aggregate exposure (including investment exposure) of lenders to the borrower/s whose loan is being transferred is Rs.100 crore or more. In all other cases, the bilateral negotiations shall be subject to the price discovery and value maximisation approaches adopted by the transferor as part of the Board approved policy, which may also include Swiss Challenge method. - The transferor shall ensure that subsequent to transfer of the stressed loans, they do not assume any operational, legal or any other type of risks relating to the transferred loans including additional funding or commitments to the borrower / transferee(s) with reference to the loan transferred. Subsequently, fresh exposure may be taken on the borrower after a cooling period laid down in the respective Board approved policy of the transferor, which in any case, shall not be less than 12 months from the date of such transfer. - In case such transferee(s) are neither ARCs nor permitted transferees, the transfer shall be additionally subject to the following conditions: - If the transferee(s), except ARCs, have no existing exposure to the borrower whose stressed loan account is acquired, the acquired stressed loan shall be classified as "Standard" by the transferee(s). Thereafter, the asset classification status of the loan acquired, shall be determined by the record of recovery in the books of the transferee(s) with reference to cash flows estimated at the time of transfer of the loan. - In case the transferee(s), except ARCs, have existing exposure to the borrower whose stressed loan account is acquired, the asset classification of the acquired exposure shall be the same as the existing asset classification of the borrower with the transferee. This treatment shall be applicable even if such acquisition is pursuant to the transferee being a successful resolution applicant under the Insolvency and Bankruptcy Code, 2016. - The lender acquiring stressed loans shall make provisions for such loans as per the asset classification status in its books upon acquisition. Regardless of the asset classification, if the net present value of the cash flows estimated while acquiring the loan is less than the consideration paid for acquiring the loan, provisions shall be maintained to the extent of the difference. For this purpose, the discount factor shall be the actual interest rate charged to the borrower as per the original loan contract plus a risk premium to be determined as per the transferee's Board approved policy considering the asset classification of the loan on the books of the transferor. The risk premium will be subject to a floor of 3 per cent. - In the case of ARCs, the asset classification of stressed loans acquired by them and the associated provisions to be maintained shall be continued to be guided by the extant instructions as applicable to them in this regard. - The lenders shall hold the acquired stressed loans in their books for a period of at least six months before transferring to other lenders. Lenders are generally prohibited from acquiring loans that had been transferred as stressed loans in the previous six months. Provided that this clause shall not apply if the transfer of a stressed loan is to an ARC or is undertaken as a resolution plan with the approval of signatories to the ICA representing 75 per cent by value of total outstanding credit facilities (fund based as well non-fund based) and 60 per cent of signatories by number for the exit of all signatories to the ICA from the stressed loan exposure. **ADDITIONAL REQUIREMENTS FOR TRANSFER OF NPAs** - The transferor shall continue to pursue the staff accountability aspects as per the existing instructions in respect of the NPAs transferred to other lenders. - In respect of NPAs acquired from other lenders, the cash flows received by the transferee from holding such asset should first be used to amortise the funded outstanding in the books of the transferee in respect of the loan till the acquisition cost is recovered. The cash flows in excess of the acquisition cost, if any, can be recognised as profit. - The lenders shall assign 100% risk weight to the NPAs acquired from other lenders as long as the loans are classified as 'standard' upon acquisition. If the loans are classified as NPA, risk weights as applicable to NPA shall be applicable. [WILLFUL DEFAULTERS] -------------------------------- Pursuant to the instructions of the Central Vigilance Commission for collection of information on wilful defaults of **Rs.25 lakhs and above** by RBI and dissemination to the reporting banks and FIs, a scheme was framed by RBI with effect from 1st April 1999 under which the banks and notified Financial Institutions were required to submit to RBI the details of their wilful defaulters. Based on the feedback received from the stakeholders on the draft guidelines released in September 2023, RBI came out with this master direction on 30^th^ July 2024, which shall come into force after 90 days from placing it on the website of the Reserve Bank. The important points of the guidelines are as hereunder; **WILFUL DEFAULT:** - Wilful default by a borrower shall be deemed to have occurred when the borrower defaults in meeting payment/ repayment obligations to the lender in spite of having the capacity to repay, or the borrower has diverted/siphoned off the funds availed under the credit facility or has disposed of immovable or movable assets provided for the purpose of securing the credit facility without the approval of the lender. - Wilful default also occurs when the borrower or the promoter has failed in its commitment to the lender to infuse equity despite having the ability to infuse the equity, although the lender has provided loans or certain concessions to the borrower based on this commitment and other covenants and conditions. - Wilful default by a guarantor shall be deemed to have occurred if the guarantor does not honour the guarantee when invoked by the lender, despite having sufficient means to make payment of the dues or has disposed of immovable or movable assets provided for the purpose of securing the credit facility, without the approval of the lender or has failed in commitment to the lender to infuse equity despite having the ability to infuse the equity, although the lender has provided loans or certain concessions to the borrower based on this commitment. **WILFUL DEFAULTER:** Wilful defaulter means a borrower or a guarantor who has committed wilful default and the outstanding amount is **₹25 lakh and above**, or as may be notified by Reserve Bank of India from time to time, and where the borrower or a guarantor committing the wilful default is a company, its promoters and the director (s), subject to provisions mentioned afterwards and In case of entity (other than companies), persons who are in charge and responsible for the management of the affairs of the entity. **DIVERSION OF FUNDS:** Diversion of funds means the occurrence of any of the following events by the borrower. - Utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanction of credit facility. - Deploying funds availed using credit facility for the creation of assets other than those for which the credit was sanctioned. - Transferring funds availed using credit facility to the subsidiaries/group companies or other entities, by whatever modality, without approval of the lender/ all the lenders in the consortium. - Routing of funds through any lender other than the lender or members of consortium without prior written permission of the lender or all the lenders of consortium. - Investing funds availed using credit facility in other companies/entities by way of acquiring equities/debt instruments without the approval of lender or all the lenders of consortium and; - Shortfall in the deployment of funds vis-à-vis the amounts disbursed/ drawn under the credit facility and the difference not being accounted for. **SIPHONING OF FUNDS:** Siphoning of funds shall be construed to have occurred if any funds availed using credit facility from lenders are utilised for purposes unrelated to the operations of the borrower. **IDENTIFICATION AND CLASSIFICATION OF WILFUL DEFAULTERS:** The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/ incidents following the below mentioned process; - The evidence of wilful default shall be examined by an Identification Committee which in case of commercial Banks (other than foreign banks and RRBs) shall be comprising of a whole-Time Director other than the Managing Director and Chief Executive Officer (MD & CEO)/ CEO or equivalent official as chairperson and two senior officials as members, not more than two ranks below the chairperson of the committee. Provided that in respect of credit facilities below a suitable threshold, commercial banks (excluding Foreign Banks, Small Finance Banks, LABs and RRBs) may, as per their board-approved policy, set up the Identification Committee, with an officer just below the rank of the Whole-Time Director as chairperson and two senior officials as members, not more than two ranks below the chairperson of the committee. In case of RRBs, an officer not more than one rank below the chairman of the RRB as chairperson and two senior officials, not more than two ranks below the chairperson of the committee, as members. - If the Identification Committee is satisfied that an event of wilful default has occurred, it shall issue a show-cause notice to borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity, and call for the submissions from them **within 21 days** of issuance of show cause notice. Director (s)/ persons who are in charge and responsible for the management of the affairs of the entity means who were associated with the company/ entity at the time when the acts of omission or commission by the company/ entity led to the default. - After considering the submissions and where satisfied, the Identification Committee shall make a proposal to the Review Committee for classification as a wilful defaulter by explaining the reasons in writing. - An opportunity shall be provided to borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity for making a written representation to Review Committee **within 15 days of such a proposal** from the Identification Committee. - The proposal of the Identification Committee along with the written representation received shall be considered by the Review Committee. - Review committee in case of commercial banks (other than foreign banks and RRBs) and AIFIs, shall comprise of the Whole-Time Director who is the MD & CEO/ CEO or equivalent official of the lender as chairperson and two independent directors or non-executive directors or equivalent officials as members. In case of RRBs, the chairman of the RRB shall be the chairperson of the committee and two directors nominated under clause 9.1 (a) or 9.1 (d) of the Regional Rural Banks Act, 1976 shall be the members. The Review Committee shall not be comprised of members who are part of the Identification Committee. - The Review Committee shall provide an opportunity for a personal hearing also to the borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity. Before considering the proposal of the Identification Committee and take a decision. The Review Committee shall pass a reasoned order and the same shall be communicated to the wilful defaulter. - A director other than whole-time director, including an independent director/ nominee director, shall not be considered as wilful defaulter unless it is conclusively established that: the wilful default by the borrower or the guarantor has taken place with their consent or connivance or he/ she was aware of the fact of wilful default by the borrower or the guarantor but has not recorded his/ her objections. - Before transferring a defaulted loan with outstanding of ₹25 lakh and above, irrespective of its classification as NPA, to other transferees, the lender must internally conduct a comprehensive investigation from a wilful default perspective. This process need not necessarily involve a two-stage committee but should ensure a thorough examination of wilful default aspects for each defaulted loan. **REVIEW OF ACCOUNTS FOR IDENTIFICATION OF WILFUL DEFAULT:** The lender shall examine the \'wilful default\' aspect in case of all NPA accounts with outstanding amount **of ₹25 lakh and above**. If wilful default is observed in the internal preliminary screening, the lenders shall complete the process of classification/ declaring the borrower as a wilful defaulter within six months of the account being classified as NPA. **SPECIFIC MEASURES AGAINST WILFUL DEFAULTERS:** - **Criminal proceedings**: Based on the facts and circumstances of each case, lenders can examine whether initiation of criminal proceedings against wilful defaulters under the provisions of the applicable law, is warranted. - **Publishing of photographs of wilful defaulters:** The lenders shall formulate a non-discriminatory board-approved policy that clearly sets out the criteria based on which the photographs of persons classified and declared as wilful defaulter shall be published. - No additional credit facility shall be granted by any lender to a wilful defaulter or any entity with which a wilful defaulter is associated and this restriction shall be effective for a period of **one (1) year** after the name of wilful defaulter has been removed from the List of Wilful Defaulters (LWD) by the lender. - No credit facility shall be granted by any lender for floating of new ventures to a wilful defaulter or any entity with which a wilful defaulter is associated for a period of **five (5) years** after the name of wilful defaulter has been removed from the LWD by the lender. - Wilful defaulters or any entity with which a wilful defaulter is associated shall not be eligible for restructuring of credit facility. Subsequent to removal of the name of wilful defaulter from the LWD, the wilful defaulter or any entity with which a wilful defaulter is associated shall be eligible for restructuring one (1) year after the name of wilful defaulter has been removed from the List of Wilful Defaulters (LWD) by the lender. **REPORTING AND DISSEMINATION OF CREDIT INFORMATION ON LARGE DEFAULTERS:** Large defaulter means a defaulter with an outstanding amount of ₹1 crore and above (including unapplied interest), and where suit has been filed (includes accounts where action under SARFAESI has been initiated); or whose account has been classified as doubtful or loss. All entities regulated by the Reserve Bank shall submit information in Annex I to all credit information companies (CICs) in respect of the large defaulters at monthly intervals a list of suit filed accounts of large defaulters; and a list of non-suit filed accounts of large defaulters whose account has been classified as doubtful or loss. The CICs shall display the list of suit-filed accounts of large defaulters on their website. The lender, or the ARC to which the account has been transferred, shall inform all CICs the removal of the name of the wilful defaulter from the LWD, promptly and not later than 30 days, from the date when the outstanding amount falls below the threshold of ₹25 lakh. **TREATMENT OF COMPROMISE SETTLEMENTS:** The compromise settlement with the wilful defaulter shall be in terms of the board approved policy of the lender/ ARC. Any account included in LWD, where the lender/ ARC has entered into a compromise settlement with the borrower, shall be removed from the LWD only when the borrower has fully paid the compromise amount even if the outstanding amount becomes less than the threshold of ₹25 lakh. The compromise settlement shall be without prejudice to the continuation of criminal proceedings against the wilful defaulter. **TREATMENT OF ACCOUNTS WHERE RESOLUTION IS DONE UNDER IBC) RESOLUTION FRAMEWORK GUIDELINES ISSUED BY THE RESERVE BANK:** In case an account which is included in LWD and has subsequently undergone liquidation or where the resolution results in a change in the management and control of the entity/ business enterprise, the name of such a borrower or guarantor who were classified as wilful defaulter shall be removed from the LWD after implementation of the resolution plan under IBC or aforesaid prudential framework. However, the penal measures shall continue to apply to the erstwhile promoter(s)/ director(s)/ guarantor(s)/ persons who were in charge and responsible for the management of the affairs of the entity.