What changed
RBI extended the special regulatory treatment for restructuring to accounts that were standard on September 1, 2008, even if they turned NPA before December 8, 2008. The restructuring implementation period was extended from 90 to 120 days for all accounts covered under the August 27, 2008 and December 8, 2008 circulars. Security norms for Working Capital Term Loans were eased, allowing conversion of irregular portions without full tangible security, but requiring additional provisions on the unsecured portion.
What it means for you
Banks can now restructure more stressed accounts without immediate NPA classification, preserving asset quality. This helps lenders support viable businesses hit by the global downturn, but requires careful monitoring and additional provisioning for unsecured WCTL portions. The relaxed norms are temporary, valid for restructuring packages implemented until June 30, 2009.
What you must do
- Identify accounts that were standard on September 1, 2008, and restructure them under the relaxed norms before June 30, 2009.
- Ensure restructuring packages are implemented swiftly to maintain standard asset classification.
- Document viability assessments for second restructuring cases, especially for commercial real estate exposures.
- Adjust internal processes to handle the increased volume of restructuring proposals within the relaxed timeline.
Who it affects
All commercial banks, Borrowers with commercial real estate exposures, Viable businesses facing temporary cash flow issues, Banks' credit and risk management teams
Which accounts qualify for the relaxed restructuring norms?
Accounts that were standard as on September 1, 2008, and are covered under the December 8, 2008 circular, including those that turned NPA before that date due to the global downturn.
Is the 90-day restructuring timeline still applicable?
No, RBI extended the period to 120 days for implementing restructuring packages for accounts covered under the August 27, 2008 and December 8, 2008 circulars.
Can Working Capital Term Loans be restructured without full security?
Yes, RBI relaxed the condition that WCTL must be fully secured by tangible security, but requires additional provisions on the unsecured portion: 20% for standard and sub-standard assets, with increasing provisions for sub-standard.