Resolution framework -2.0: Enhancement of limits offered to individuals and small businesses

RBI on June 04, 2021 permitted lending institutions to offer a limited window to individual borrowers and small businesses to implement resolution plans in respect of their credit exposures while classifying the same as Standard upon implementation of the resolution plan subject to certain conditions under the framework.

RBI in its circular DOR.STR.REC.11/21.04.048/2021-22 on “Resolution Framework – 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses” dated May 5, 2021 permitted Individuals and small businesses who have availed of loans and advances for business purposes to whom the lending institutions have aggregate exposure of not more than Rs.25 crore as on March 31, 2021 eligible for resolution framework 2.0.  Howevwer, based on a review, central bank enhanced the eligibility limit to Rs.50 crore inplace of existing Rs.25 Crore vide its circular dated 04.06.2021.

Permitted features of resolution plans and implementation:

“The resolution plans implemented under this window may inter alia include rescheduling of payments, conversion of any interest accrued or to be accrued into another credit facility, revisions in working capital sanctions, granting of moratorium etc. based on an assessment of income streams of the borrower. However, compromise settlements are not permitted as a resolution plan for this purpose” the notification said.

Further, it is clarified in the circular that the moratorium period, if granted, may be for a maximum of two years, and shall come into force immediately upon implementation of the resolution plan. The extension of the residual tenor of the loan facilities may also be granted to borrowers, with or without payment moratorium. The overall cap on extension of residual tenor, inclusive of moratorium period if any permitted, shall be two years, it said.

The resolution plan allows conversion of a portion of the debt into equity or other marketable, non-convertible debt securities issued by the borrower, wherever applicable subject to conditions stipulated in Paragraphs 30-32 of the Annex to the Resolution Framework – 1.0.