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FAQs on Resolution Framework for Covid-19 related stress (Revised on December 12, 2020) (Updated as on August 19, 2022)

11. Can lending institutions implement resolution plans involving deferment of date of commencement of commercial operations (DCCO) in respect of projects under implementation under the Resolution Framework? +

Restructuring in respect of projects under implementation involving deferment of DCCO are excluded from the scope of the Resolution Framework. The extant regulations contained in Paragraph 4.2.15 of DBR.No.BP.BC.2/21.04.048/2015-16 dated July 1, 2015, DOR.No.BP.BC.33/21.04.048/2019-20 dated February 7, 2020 and the other relevant instructions as applicable to specific category of lending institutions, already permit revisions of the DCCO and consequential shift in repayment schedule without being treated as restructuring subject to a maximum of four years in the case of infrastructure projects and a maximum of two years in the case of non-infrastructure projects (including commercial real estate exposures). In addition to the above, DCCO of projects may be extended by a further two years in case of change in ownership subject to the conditions specified in the above instructions.

12. Is there any minimum cut off with respect to aggregate outstanding exposure with banking system for mandatorily signing ICA under the Resolution Framework? Also, whether the ICA norms are applicable to loans availed by individuals for business purpose from two or more banks? +

If there are multiple lending institutions with exposure to a borrower whose resolution is undertaken in terms of Part B of the Annex to the Resolution Framework, all lending institutions having exposure to such borrower are required to enter into ICA.

13. In Paragraph 33 of the Annex to the Resolution Framework, it is stated that Resolution plans in respect of accounts where the aggregate exposure of the lending institutions at the time of invocation of the resolution process is ₹100 crore and above, shall require an independent credit evaluation (ICE) by any one credit rating agency (CRA) authorized by the Reserve Bank under the Prudential Framework. What will be the minimum desirable ICE symbol for this purpose?

Only such resolution plans which receive a credit opinion of RP4 or better for the residual debt from a CRAs shall be considered for implementation under the Resolution Framework. In case credit opinion is obtained from more than one CRA, all such credit opinions must be RP4 or better.

14. The definition of MSME had been changed by the Government vide Gazette notification dated June 26, 2020. As the reference date for the Resolution Framework is March 1, 2020, which definition of MSMEs will be applicable for the purpose of eligibility or otherwise for resolution under the Resolution Plan? +

For the purpose of eligibility for resolution under the Resolution Framework, the definition of MSME that would be applicable is the one that existed as on March 1, 2020.

15. The circular dated September 7, 2020 has listed only a few sectors in respect of which the threshold values for the mandatory financial parameters have been prescribed. Does this mean that Resolution Framework is not applicable to borrowers belonging to other sectors?

Resolution Framework is applicable in respect of all eligible borrowers subject to the exclusions prescribed in Paragraph 2 of the Annex to the circular dated August 6, 2020. 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/ATNW and Total Debt/EBITDA. However, the current ratio and DSCR in all cases shall be 1.0 and above, and ADSCR shall be 1.2 and above.

16. If a loan account was more than 30 DPD on March 1, 2020, but subsequently got regularised through receipt of overdue, will such accounts be eligible for resolution plan under this framework? +

Such accounts 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.

17. Will the following categories of loans be classified as personal loans:

“Loan Against Property” loans which are availed for business purpose but are secured by immovable assets

Loans granted to individuals where the property is in name of individual and a related company/non individual entity has been taken as co-borrower on the loan structure to supplement the income for repayment of loan.

If not, where would such set of customers would be covered for Covid-19 related stress?

In terms of the circular DBR.No.BP.BC.99/08.13.100/2017-18 dated January 4, 2018, the above exposures do not qualify as personal loans. In such cases, the resolution of eligible borrowers may be undertaken under Part B of the Annex to the Resolution Framework.

18. Does invocation under the Resolution Framework require the borrowers to submit any specific resolution plan and the lenders to agree on implementation of the same before December 31, 2020?

No. The Resolution Framework does not require any resolution plan in any form to be submitted to the lending institutions at the time of request for invocation. Rather, for invocation, the borrowers are required to merely submit a request to the lending institutions for being considered under the Resolution Framework. Thereafter, the lending institutions will take an in-principle decision – as per their Board approved policy – on invoking the Resolution Framework. After such invocation, the specific contours of resolution plan to be implemented may be decided by the lending institutions, in consultation with the borrower. While for personal loans the resolution plan is to be implemented within 90 days from the date of invocation, for all other loans a period of 180 days from the date of invocation has been prescribed.

19. In case only term loan facility of a borrower has been restructured, whether a lender having only working capital exposure to the same borrower is required to create provisions under the Resolution Framework, even if working capital exposure has not been restructured?

Para 17 read with para 21 of the Resolution Framework for COVID-19-related Stress dated August 6, 2020 (RF 1.0) makes signing of ICA mandatory for all the lending institutions who have exposure to the concerned borrower (subject to para 19¹). Since the borrower has opted for restructuring as a consequence of stress in the account, all the exposures to the borrower shall be treated as restructured and provisions shall be held on the entire residual debt, including the working capital facility.

20. In case a lender has only working capital exposure, what will be the criteria for reversal of provisions?

For an exclusive working capital lender, where the exposure is in the form of facilities other than term loans, provisions can be reversed after satisfactory performance² of the working capital facility for one year, post implementation of the Resolution Plan.

In respect of outstanding ‘loan component’ of working capital limit (Working Capital Loan), paragraphs 45³ of RF 1.0 shall apply, which provides for two-stage reversal of provisions on repayment of the stipulated proportion of the residual/carrying debt at each stage, subject to the prescribed conditions.