What changed
Previously, industrial borrowers (including under CDR and SME mechanisms) could retain their existing asset classification upon restructuring, while non-industrial borrowers could not. The new circular harmonises these norms, mandating that standard advances be reclassified as sub-standard immediately upon restructuring, but most borrowers (excluding consumer/personal, capital market, and real estate exposures) are entitled to retain asset classification subject to conditions. This supersedes all earlier guidelines on restructuring, except those for natural calamities handled by RPCD.
What it means for you
Banks must now apply uniform prudential treatment to all restructured accounts, but most borrowers (excluding consumer/personal, capital market, and real estate exposures) may retain asset classification upon restructuring subject to conditions. This affects provisioning and capital adequacy for the excluded categories. Lenders need to reassess their restructuring policies and ensure compliance with the new norms.
What you must do
- Update internal restructuring policies to reflect the new uniform asset classification rules, removing any industry-specific exemptions.
- Train credit and risk teams on the revised guidelines, especially the mandatory reclassification of standard advances to sub-standard upon restructuring.
- Review existing restructured accounts to ensure they comply with the new norms and adjust provisioning accordingly.
- Align IT systems to automatically trigger asset classification downgrades for all restructured accounts from the effective date.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Borrowers with restructured advances, especially those in consumer/personal, capital market, and real estate exposures, Credit risk and compliance departments
Does this circular apply to accounts restructured before August 27, 2008?
No, the guidelines apply only to accounts restructured on or after the date of the circular, i.e., August 27, 2008.
Are there any exceptions to the new restructuring norms?
Yes, advances restructured due to natural calamities continue to be governed by separate guidelines issued by the Rural Planning and Credit Department (RPCD) of RBI. Also, borrowers in consumer/personal, capital market, and real estate exposures are not eligible for the special regulatory treatment for asset classification.
What happens to the CDR and SME restructuring mechanisms under the new guidelines?
The institutional frameworks for CDR and SME mechanisms remain in place, and the prudential norms are harmonized. Most borrowers (excluding consumer/personal, capital market, and real estate exposures) may retain asset classification upon restructuring subject to conditions.