India: RBI Fast Tracks The Stressed Asset Resolution Process

On 5 May 2017, a day after the recent Banking Regulation (Amendment) Ordinance, 2017 (Ordinance) received Presidential assent, the Reserve Bank of India (RBI) issued a circular on 'Timelines for Stressed Assets Resolution' (Circular). The Circular amends the existing "Framework for Revitalising Distressed Assets in the Economy – Guidelines on JLF and CAP" dated 26 February 2014 (JLF Framework) and mandates members of a joint lenders forum (JLF) to follow strict timelines in implementing the corrective action plan (CAP) or suffer penal consequences for non-compliance.

This Circular has been issued against the backdrop of the Ordinance which empowered the RBI to, inter alia, direct banks to initiate insolvency proceedings and issue directions for resolving stressed assets. The Circular constitutes the first set of directions issued by the RBI under the Ordinance, and clearly demonstrates that the RBI is exercising its powers under the Ordinance to achieve successful resolution of stressed asset situations.

Brief Background of the JLF Framework

The JLF Framework was formulated by the RBI with the objective of enabling lenders to identify stressed assets at an early stage and arrive at a feasible solution for timely restructuring of stressed accounts or dispensing with unviable accounts before such accounts are declared as non-performing assets. The JLF Framework sets out inter-alia detailed guidelines on:

  • segregation of accounts under three categories of 'special mention accounts', basis their principal and interest overdues;
  • formation of JLF and adoption of CAP for operationalisation of the JLF Framework;
  • minimum consent requirements of the members of the JLF for agreeing on a restructuring process and timelines for decisions by lenders; and
  • implementation of the agreed CAP (for instance, JLFs were required to evaluate the restructuring package to be adopted for CAP within 45 days of an account being reported as SMA-2 and to implement the approved package within 90 days of approval).

This however did not achieve the desired effect as there were disagreements amongst lenders with respect to each of their individual accounts and delays in the decision making process for the CAP. In the Circular, the RBI has observed that while the JLF Framework required each member of the JLF to implement the CAP in a time bound manner and scrupulously adhere to specified timelines, failure by the lenders to effectively implement the CAP within the agreed timeframe has largely defeated the very purpose of the JLF Framework for initiating prompt corrective measures in cases of stressed accounts.

Amendments under the Circular

The key features of the Circular are set out below:

  • Minimum votes slashed: While the extant JLF Framework stipulated consent of a minimum of 75% of creditors by value and 50% of creditors by number in the JLF for the basis of a binding restructuring process, the quantitative criteria for deciding and approving the CAP has been reduced to a minimum of 60% of creditors by value and 50% of creditors by number. This decision would be binding on all members of the JLF. With this amendment, the RBI has departed from the 75% majority lender consent benchmark that is widely accepted in market practice and continues to exist under key regulations like the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Insolvency and Bankruptcy Code as well as the Corporate Debt Restructuring Framework. The reduced minimum voting percentage will help to expedite the decision making in the JLF and prevent individual banks from derailing the resolution process.
  • Lenders representatives to be clearly mandated to implement CAP: Lenders are required to ensure that their representatives in the JLF are equipped with appropriate mandates and that decisions taken by the JLF are implemented within the timelines agreed under the CAP. This is to avoid lender representatives causing delays by citing lack of authority to sign off on key decisions for the CAP.
  • Clubbing of various restructuring mechanisms under the CAP: While the Framework provides for broadly three options under the CAP, viz (1) rectification or regularisation of the debtor's account to bring it out of its SMA status, (2) providing need-based additional financial assistance as a part of the rectification process and (3) a recovery process and restructuring process, the Circular clarifies that the CAP can also include resolution by way of flexible structuring of project loans, change in ownership under the strategic debt restructuring and scheme for sustainable structuring of stressed assets (S4A). This clarifies the uncertainty as to whether the restructuring modes issued under various RBI circulars could be combined for efficacious resolution.
  • Unconditional nature of vote for banks with no additional conditionalities allowed to be imposed: The Circular imposes unconditional obligations on the participating banks to comply with the agreed CAP with no scope for any change in conditions or ambiguity and therefore confers the much-needed finality to an approved CAP, eliminating the possibility of banks causing roadblocks even after the CAP has been finalized.
  • Monetary penalties under Banking Regulation Act, 1949 (as amended): The extant JLF Framework stipulated disincentives for banks like asset classification and accelerated provisioning requirements without providing any severe penal consequences for non-compliance. The Circular now stipulates that the non‑compliant banks may be subject to monetary penalties of the higher of one crore rupees or twice the amount involved in such contravention and for a continuing contravention, a further penalty of one lakh rupees may be chargeable for the time during which such contravention or default continues.
  • Bank executives can implement JLF decisions without going back to the board: The Circular empowers banks to bypass Board approval for implementation of the CAP and can now depute their bank executives for deliberations and final decision making thereby reducing the bureaucratic challenges faced by many banks in obtaining internal authorizations.
  • Exit option given to banks who do not agree with majority decision: Any dissenting lender who does not agree with the JLF's decision will have the option of exiting their exposure completely by selling their exposures to a new or existing lender within the prescribed timeline for implementation of the agreed CAP.

Given the mounting NPAs in the Indian banking sector, the Circular is an aggressive yet efficacious move by RBI in the right direction. Under the current scenario where the Indian economy is burdened with challenges of bad debt and stressed accounts of 135 per cent from Rs 261,843 crore in the last two years, this move by the RBI is a panacea for the banking sector. The Indian banking sector lying under a bell jar of regulations on restructuring and stressed assets can now heave a sigh of relief given that the multifarious modes of resolution like flexible structuring of project loans, change in ownership under the strategic debt restructuring and scheme for sustainable structuring of stressed assets (S4A) can be a part of the CAP. Further, the unconditional voting requirement by banks without the option to reverse its decision or attach post consent conditionality will substantially fast track the process. The monetary penalties for non-compliance will make banks more conscious of their decisions and accountable for their actions. The penal consequences may also serve to give teeth to other similar RBI directives which do not contain express monetary penalties.

Khaitan Comment

The Circular will definitely further the JLF Framework's key objective of speedy implementation of the JLF decisions and preservation of the economic value of stressed assets. The effectiveness of the Circular however, like any other regulatory policy, would have to be put to a severe test. There is nothing to suggest that the Circular would apply retrospectively. However, banks have been advised to take similar action for past cases. It is also pertinent to note that the RBI has issued this Circular exercising its powers under the Ordinance which are limited to directions to 'banking companies' (public sector and private sector banks) and does not extend to non-banking finance companies (NBFCs) which are also heavily burdened with rising level of unrecovered loans. In this context, the RBI would need to issue separate clarification for NBFCs given that the JLF Framework also applies to NBFCs. There is also some lack of clarity as to whether the reduced voting percentages under the Circular would also apply in case of majority decision making under the SDR or S4A guidelines – this should be seamlessly aligned to avoid contradictions.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions