The RBI has decided to provide a window under the June 7 Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures — without a change in ownership — as well as personal loans, while classifying such exposures as standard assets.

The central bank is constituting an Expert Committee under KV Kamath which shall make recommendations to the RBI on the required financial parameters, along with the sector-specific benchmark ranges for such parameters, to be factored into resolution plans. The Expert Committee shall also undertake a process validation of resolution plans for borrowal accounts above a specified threshold.

The “Prudential Framework on Resolution of Stressed Assets”, dated June 7, 2019, provides a principle-based resolution framework for addressing borrower defaults. Any resolution plan implemented under the Prudential Framework, which involves granting of any concessions on account of financial difficulty of the borrower, entails an asset classification downgrade except when accompanied by a change in ownership, subject to prescribed conditions.

"The disruptions caused by Covid-19 have led to heightened financial stress for borrowers across the board. A large number of firms that otherwise maintain a good track record under existing promoters face the challenge of their debt burden becoming disproportionate, relative to their cash flow generation abilities. This can potentially impact their long-term viability and pose significant financial stability risks if it becomes widespread," RBI Governor Shaktikanta Das said on Thursday.

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