RBI sets up panel for stressed loans resolution norms

The Reserve Bank of India (RBI) constituted the proposed expert committee under the chairmanship of veteran banker K.V. Kamath to make recommendations on norms for the resolution of COVID-19 related stressed loans.

• The Committee will be headed by K.V. Kamath.
  • K V Kamath, a career banker, was till 2009 the MD & CEO of ICICI Bank.
  • Kamath in his last stint was associated with the BRICS led New Development Bank (NDB) as Chairman and Director, a position he had assumed in 2015.
• The other members of the Committee are as follow:
  • Diwakar Gupta (effective September 1, 2020, after the completion of his term as Vice President, ADB)
  • N. Manoharan (effective August 14, 2020, after the completion of his term as Chairman, Canara Bank)
  • Ashvin Parekh, Strategy Advisor (CEO, Indian Banks’ Association, as the Member Secretary)
• The Indian Banks’ Association (IBA) will function as the secretariat to the committee and the committee will be fully empowered to consult or invite any person it deems fit.
  
  

• The committee will submit its recommendations to the apex bank, which will notify them along with modifications, if any, in 30 days.

Background

• As part of the statement on Developmental and Regulatory Policies released along with the Monetary Policy Statement, the Reserve Bank has announced a ‘Resolution Framework for Covid19-related Stress’, as a special window under the Prudential Framework on Resolution of Stressed Assets issued in 2019.
• The resolution framework envisages constitution of an expert committee by the RBI to make recommendations on the required financial parameters to be factored in into the resolution plans, with sector-specific benchmark ranges for such parameters.
• The Expert Committee shall also undertake the process validation for the resolution plans to be implemented under this framework, without going into the commercial aspects, in respect of all accounts with aggregate exposure of Rs 1500 crore and above at the time of invocation

Impact of COVID-19 on new and existing stressed assets:

• COVID 19 and consequent lockdowns have caused economic disruptions across the world, on account of disrupted supply chains and altered consumption patterns.
• In India, this disruption has been aggravated by the migrant labour crisis, and the prevalence of slow growth and high unemployment even prior to the lockdown.
• This is likely to exacerbate the existing twin balance sheet problem. 
  
  

  Stressed assets Stressed assets = NPAs + Restructured loans + Written off assets Non-Performing Assets: A loan whose interest and/or installment of principal have remained ‘overdue ‘ (not paid) for a period of 90 days is considered as NPA Restructured asset: Restructured asset or loan are that assets which got an extended repayment period, reduced interest rate, converting a part of the loan into equity, providing additional financing, or some combination of these measures. Written off assets: Written off assets are those the bank or lender doesn’t count the money borrower owes to it.