Tuesday, September 29, 2015

Review of the Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)

Joint Lenders’ Forum Empowered Group (JLF – EG)
Although RBI has not explicitly prescribed the level of representation, banks are expected to depute sufficiently empowered senior level officials for deliberations and decisions in the meetings of JLF.
 JLF will finalise the CAP and the same will be placed before an Empowered Group (EG) of lenders, which will be tasked to approve the rectification/restructuring packages under CAPs. The JLF-EG shall have the following composition:
i.            A representative each of SBI and ICICI Bank as standing members;
ii.            A representative each of the top three lenders to the borrower. If SBI or ICICI Bank is among the top three lenders to the borrower, then a representative of the fourth largest or a representative each of the fourth and the fifth largest lenders as the case may be;
iii.            A representative each of the two largest banks in terms of advances1 who do not have any exposure to the borrower; and
iv.            The participation in the JLF-EG shall not be less than the rank of an Executive Director in a PSB or equivalent.
The JLF convening bank will convene the JLF-EG and provide the secretarial support to it.
Restructuring of Doubtful accounts under JLF
It has been decided that a JLF may decide on restructuring of an account classified as ‘doubtful’ in the books of one or more lenders, if the account has been assessed as viable under the TEV and the JLF-EG concurs with the assessment and approves the proposal.
Disagreement on restructuring as CAP and Exit Option
Banks, irrespective of whether they are within or outside the minimum 75 per cent and 60 per cent, can exercise the exit option for providing additional finance only by way of arranging their share of additional finance to be provided by a new or existing creditor.
Dissenting lenders who do not want to participate in the rectification or restructuring of the account as CAP, will have an option to exit their exposure completely by selling their exposure to a new or existing lender. The exiting lender will not have the option to continue with their exposure and simultaneously not agreeing for rectification or restructuring as CAP. The new lender may not be required to commit any additional finance, if the agreed CAP involves additional finance. In such cases, the share of additional finance will be met by the existing lenders on a pro-rata basis.
Duration of application of extant penal provisions (5% in case of Standard account and accelerated provision in case of NPAs)
The penal provisions in the following cases will be applicable for the durations mentioned below:
Sl. No.
Reason for Penal Provision
Banks fail to report SMA status to CRILC or conceal the actual status of the accounts or evergreen the account.
From the date of imposition of penal provisions as advised by RBI Inspection/ Statutory Auditor till one year or rectification of the defect, whichever is later.
Lenders who have agreed to the restructuring decision and are signatories to the ICA and DCA, but change their stance later on, or delay/refuse to implement the package.
Lenders fail to convene the JLF or fail to agree upon a common CAP within the stipulated time frame.
Accelerated provision for existing loans/exposures of banks to companies having a director/s (other than nominee directors), whose name/s appear more than once in the list of wilful defaulters.
From the date of notification as willful defaulter till the removal of the name from the list.
Strategic Debt Restructuring (SDR) Scheme
In cases of failure of rectification or restructuring as a CAP as decided by JLF, JLF will have the option to initiate SDR to effect change of management of the borrower company.

Based on RBI Circular dt 24/9/15. Please visit www.rbi.org.in for any further clarification if required…..          Poppy