• CRISIL Ratings
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  • Stressed Assets
  • RBI
  • Reserve Bank of India
June 10, 2019 location Mumbai

New stressed assets resolution framework is well-balanced now

Provides additional flexibility to lenders while focusing on efficient resolution

The Reserve Bank of India’s (RBI) revised prudential framework for resolution of stressed assets announced on Friday strikes a fine balance between tight regulatory timelines mandated previously for resolving stressed assets, and inordinate delays that occurred in the past when resolving and provisioning for such assets.


By doing away with mandatory referral of stressed accounts under the Insolvency and Bankruptcy Code (IBC), the new framework puts the onus on banks to devise a suitable resolution plan (RP). It also provides a 30-day review period after default for them to decide on the resolution strategy, including nature and implementation approach (see Table 1).


Table 1: Key changes in the revised prudential framework and their impact

The revisions

Potential impact

Change in timelines for implementation of RP

The additional 30-day review period provides lenders  time to formulate their strategy for, and approach to, resolution

No mandatory referral of stressed assets for resolution under IBC

It will provide an option to resolve the stressed assets outside the ambit of IBC, which in some cases can lead to improved realisations due to better preservation of intrinsic value of the assets

Inter-creditor agreement (ICA) between lenders

Will lead to faster decisions with approval of only 75% of lenders (by value) and 60% (by number of lenders) needed instead of 100% previously

Accelerated provisioning on delay in implementation of RP.

Will disincentivise lenders from avoiding referring cases to IBC wherever required

Inclusion of non-banking financial companies (NBFCs) and small finance banks (SFBs) under the framework

Step in right direction considering they form around 20% of overall credit in the Indian financial landscape.


Said Krishnan Sitaraman, Senior Director, CRISIL Ratings. “The new prudential framework is a breather for stressed accounts where RPs were under implementation but had to be referred to the IBC because of not being completed in 180 days. One of the key beneficiaries will be stressed power sector assets that were operational and on the verge of being referred to insolvency proceedings under the IBC. These are estimated at ~Rs. 1 lakh crore and banks were staring at significant haircuts on many of these assets.”


To discourage banks from delaying both, the resolution process and the reference to IBC, the prudential framework stipulates additional provisioning of 20-35% in a phased manner (see Table 2) beyond what has already being made in accounts where resolution has been delayed beyond 210 days from default.


But the additional provisioning can be written back either once the RP is implemented or upon filing and admission of the stressed account under IBC. That is an incentive for lenders to go for quick decisions.


Table 2: Timelines for additional provisioning

Timeline for implementation of RP

Additional provisions to be made as a percentage of total outstanding if RP is not implemented within timeline

180 days from the end of review period (210 days after default)


365 days from default

(Total additional provisioning of 35%)


“The revised framework provides much needed clarity on the way forward in stressed assets resolution after the Supreme Court had annulled the RBI’s previous circular of February 2018. It should help reduce the stockpile of gross non-performing assets (NPAs) further over the medium term,” said Vydianathan Ramaswamy, Associate Director, CRISIL Ratings.


NPAs in the banking system have declined in fiscal 2019 to ~9.3% as of March 2019 after tripling to ~11.5% in the four fiscals till March 2018.


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