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

21. Post-implementation of the resolution plan, will the required provisioning change with the change in the outstanding balance of residual debt, which may arise on account of repayment or disbursal of additional amounts?

The lending institutions shall make provisions on the residual debt at the time of implementation of the Resolution Plan, as stipulated in the relevant Resolution Framework. These provisions need to be held, irrespective of changes in the outstanding balance, until the same is reversed in terms of the provisions contained in the relevant Resolution Framework.

22. Post-implementation of the resolution plan, will the required provisioning change with the change in the outstanding balance of residual debt, which may arise in case of any non-fund based facility getting devolved subsequently into fund-based facility?

The lending institutions shall make provisions on the residual debt at the time of implementation of the Resolution Plan, as stipulated in the relevant Resolution Framework. If any non-fund based facility gets devolved subsequently, the devolved amount shall be reckoned as residual debt⁴ and shall attract provisions as per Paragraph 40⁵ and 41⁶ of RF 1.0, and consequently, the assessment of monitoring period should be updated accordingly. The entire provisions (including the provisions on the devolved amount) shall be held, until the same is reversed in terms of the provisions contained in the relevant Resolution Framework.

¹ Para 19. Lenders to the borrower which are other than the lending institutions as per this circular may also sign the ICA, if they so desire. If such lenders sign the ICA, they shall be fully bound by the stipulations of the ICA

² As defined in the Prudential Framework dated June 07, 2019.

³ Para 45. In case of resolution of other exposures, the provisions maintained by the ICA signatories may be reversed as prescribed in Para 44. However, in respect of the non-ICA signatories while half of the provisions may be reversed upon repayment of 20 percent of the carrying debt, the other half may be reversed upon repayment of another 10 per cent of the carrying debt, subject to the required IRAC provisions being maintained.

⁴ As at the time of implementation of the Resolution Plan

⁵ In other cases where a resolution plan is implemented under this facility, the lending institutions, which had signed the ICA within 30 days of invocation, shall keep provisions from the date of implementation, which are higher of the provisions held as per the extant IRAC norms immediately before implementation, or 10 percent of the total debt, including the debt securities issued in terms of para 30, held by the ICA signatories post-implementation of the plan (residual debt).

⁶ However, lending institutions which did not sign the ICA within 30 days of invocation shall, immediately upon the expiry of 30 days, keep provisions of 20 per cent of the debt on their books as on this date (carrying debt), or the provisions required as per extant IRAC norms, whichever is higher. Even in cases where the invocation lapses on account of the thresholds for ICA signing not being met, in terms of para 18, such lending institutions which had earlier agreed for invocation but did not sign the ICA shall also be required to hold 20 percent provisions on their carrying debt.