Sweat over stressed assets: First big test for RBI chief

By Nilesh Chandra and Abhinav Mishra, HSA Advocates
0
1902
LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link

In wake of Indian commercial banks having far exceeded their loss-bearing capacity, microprudential supervision for revival of assets prior to the onset of trouble has donned a veil of urgency. The Reserve Bank of India (RBI) has stressed that in addition to having a spill-over effect on the market, non-performing assets (NPAs) are detrimental to the economy on account of low asset-performance, rapid deterioration and distress caused to lenders and investors.

Nilesh Chandra, Associate Partner, Hsa Advocates
Nilesh Chandra
Associate Partner
Hsa Advocates

In terms of the Framework for Revitalization of Stressed Assets, released by the RBI in February 2014, lenders are required to report early signs of stress on an asset, based on the overdue period of principal or interest payment. If the overdue period is 61-90 days and the aggregate exposure is over ₹1 billion (US$15 million), lenders must form a “joint lenders’ forum” and initiate a “corrective action plan”, which includes: (i) rectification (via borrower/promoter commitment to ensure cash flow/infusion of equity); (ii) restructuring; and (iii) recovery of the account as a last resort.

The RBI’s well-intentioned 2014 framework provided a robust initial structure. However, despite the framework, long-term debt financing of infrastructure and core industry projects was still a cause of concern as it required a flexible and longer repayment mechanism, in sync with their unconventionally longer (up to 25-30 years) economic/concession life. Under the framework, to avoid asset-liability mismatch, a repayment period of only eight to 12 years (factoring in the moratorium period) could be extended by lenders, straining the viability of projects and restricting the ability of promoters to generate further investment.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.

你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章,欢迎成为我们的订阅会员成为我们的订阅会员

已有集团订阅,可点击此处继续浏览。
如对集团订阅感兴趣,请联络我们

Nilesh Chandra is an associate partner and Abhinav Mishra is an associate at HSA Advocates. HSA is a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.

hsa_advocates_-_logo_2015

81/1, Adchini

Sri Aurobindo Marg

New Delhi – 110 017
India

Construction House

5/F Walchand

Hirachand Marg

Ballard Estate

Mumbai – 400 001
India

Contact details:

Tel: +91 11 6638 7000 Fax: +91 11 6638 7099

Tel: +91 22 4340 0400 Fax +91 22 4340 0444
Email: jayamon.vp@hsalegal.com

Website: www.hsalegal.com

LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link