India: Stressed Assets - Rbi Granted Sweeping Powers

  • Ordinance amends the Banking Regulation Act, 1949 empowers RBI to direct banks to resolve specific stressed assets and initiate Insolvency Resolution Process, as per the Insolvency and Bankruptcy Code, 2016.
  • RBI amends Joint Lender Forum (as defined below) norms to accelerate the Corrective Action Plan for stressed loans.

As of December 2016, gross Non-Performing Assets ("NPA") for public and private sector banks stood at a staggering figure of USD 10 billion (approximately). India has had a long-suffering history with bad loans which have handicapped the lending power banks and financial institutions and has adversely affected Ease of Doing Business in India.1

In keeping with its aim to streamline the process of resolving stressed assets and with a larger endeavour to ensure ease of doing business in India, legislators and regulators have introduced changes to the Joint Lender Forum ("JLF") norms and the Banking Regulation Act, 1949 ("Banking Regulation Act"). Nishith Desai Associates, continuing with its practice of highlighting important regulatory changes, is bringing you this alert which provides a brief overview of certain key regulatory announcements with our comments.


(A) RBI can direct banks to initiate insolvency resolution process against specific stressed assets

The Banking Regulation (Amendment) Ordinance, 2017 ("Ordinance") has been promulgated by the President of India with a view to give extensive powers to Reserve Bank of India ("RBI") to issue directions to banks for resolution of stressed assets. The Ordinance introduced two new sections to the Banking Regulation Act, Section 35AA and Section 35AB which enable RBI to direct banks to commence the Insolvency Resolution Process against the defaulting company under the Insolvency and Bankruptcy Code, 2016 (" Bankruptcy Code"). The RBI has also been granted the discretion to set up one or more advisory/supervisory committees to advise banks on resolution of stressed assets.

(B) Thresholds for creditors' consent needed for deciding the Corrective Action Plan ("CAP") reduced

The "Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders' Forum and Corrective Action Plan" ("JLF Framework") was introduced in April, 2014 to revitalize distressed assets by focusing on early recognition of distress, introducing prompt steps for resolution and facilitating fair recovery for lenders.

Under the JLF Framework, before a borrower account is declared as an NPA, a JLF is formed to explore options under a CAP for the borrower to regularize the account to bring it out of its stressed state, or restructure the bad loan by seeking personal guarantees from promoters or in the event that neither of these options are viable, initiate recovery process. The objective of the JLF Framework is to revive stressed assets before they are classified as NPAs. The JLF could explore the following options for implementing CAP:

  1. Rectification: this includes bringing in additional funding by promoters or existing lenders or any third party for regularizing the account;
  2. Restructuring: this includes obtaining commitment from promoters by obtaining their personal guarantee. The lenders may also sign inter creditor agreement and require the borrower to sign a 'debtor creditor agreement' for effecting restructuring process;
  3. Recovery: If (a) and (b) are not viable, the lenders may decide to proceed with the most suitable recovery process.

Following the Ordinance, the RBI introduced changes2 to JLF Framework in an attempt to remove the practical challenges faced by lenders while forming a JLF and adopting the CAP by lowering the percentage of affirmative votes needed to finalize and implement the CAP. Under the previous JLF Framework, for implementing CAP, 75% of the creditors in value and 60% of creditors by number had to agree to the decision proposed by the JLF. As per RBI's amendment, CAP can now be decided by an affirmative vote of a minimum of 60 % of creditors by value and 50 % of creditors by number, in the JLF.3

Additionally, in the same vein of facilitating speedier resolution of stressed financial assets, RBI has reiterated that dissenting lenders shall be allowed to leave the JLF. It has also stipulated that lenders must implement the decision of the JLF without any additional conditions. Banks have further been directed to empower their executives to implement the JLF decision without requiring any further approval from their respective board to ensure speedy implementation. Any non-adherence to timelines or instructions under the JLF Framework will attract monetary penalties on the concerned banks.


These recent developments are a welcome part of a larger exercise to carry out a comprehensive reform of the fragmented regime of insolvency and stressed financial assets framework. Prior to these developments and the enactment of the Bankruptcy Code, there were several laws and different forums for litigation which resulted in conflicts of jurisdiction, clogged forums and beleaguered debtors and creditors

Considering that RBI already has extensive powers granted to it under the Banking Regulation Act, the impact of the Ordinance will have to be tested in light of subsequent amendments which are expected to be brought by the Government in its attempt to curb rising number of NPAs. The Ordinance, as it is currently worded, seems to suggest that the applicability of Section 35AA and 35AB is limited to 'banking companies' as defined under the Banking Regulation Act and would thus not extend to non-banking financial companies. Further, the new amendments have not put to rest the issue of parallel claims in different forums. For example, a dissenting creditor to the JLF may exit the JLF or an operational creditor4 (who may not, in all cases be governed by the JLF Framework) may in parallel approach the NCLT to initiate an Insolvency Resolution Process upon occurrence of a single instance of default.

Such parallel attempts at resolution of distressed assets may only decelerate the resolution process. In such a scenario, a company may not be able harmonize divergent plans on resolution adopted by different creditors under separate regulatory frameworks.

Additionally, the conditions on which RBI may direct banks to commence insolvency proceedings have not been envisaged under the Ordinance. It is also unclear whether RBI would only approve the roadmap or plan of action presented by the bank before it or will actively participate in formulating such roadmap. Following the amendment, RBI has also made changes in the constitution of the Oversight Committee (constituted under the Scheme for Sustainable Structuring of Stressed Assets) to include more members to deal with the volume of cases referred to the Oversight Committee.

With a vastly new insolvency and NPA resolution landscape in place, it remains to be seen whether these measures would help unclog the system.


1 Global Financial Stability Report, World Economic Forum, October 2016 – Ch. 1, Page 31 – "However, banking systems are vulnerable to further declines in growth or profits, particularly in countries at later stages of the credit cycle (such as India), where slowing credit growth and risks from elevated levels of nonperforming loans are most acute (see the October 2015 GFSR)."

2 RBI Circular DBR.BP.BC.No.67/21.04.048/2016-17, dated May 5, 2017

3 However, under the IBC, financial creditors constituting 75% of the voting share of the Committee of Creditors have to approve the Insolvency Resolution Plan

4 Operational creditor as defined under Section 5(20) read with Section 5(21) of IBC

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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 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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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