What changed
RBI introduced Resolution Framework 2.0 on May 5, 2021, extending a limited window for resolution of Covid-19 related stress to individuals (personal loans and business loans) and small businesses. Borrowers must have been standard as on March 31, 2021, and not have availed resolution under Framework 1.0. The framework mirrors the earlier one with modifications, including a ₹25 crore aggregate exposure cap for business loans.
What it means for you
Banks can now offer restructuring to a wider set of retail and small business borrowers without triggering NPA classification, helping manage asset quality during the second wave. Lenders must ensure strict adherence to eligibility criteria and board-approved policies to avoid falling back to the Prudential Framework. This provides temporary relief but requires careful monitoring of resolution plans and disclosures.
What you must do
- Frame board-approved policies for invoking resolution under this window.
- Verify borrower eligibility: standard as on March 31, 2021, exposure ≤ ₹25 crore, and not previously restructured under Framework 1.0.
- Implement resolution plans only for eligible categories (personal loans, business loans, small businesses) as defined.
- Ensure compliance with disclosure requirements under Part C of the circular.
- Classify accounts as Standard only after resolution plan implementation and meeting all conditions.
Who it affects
All Commercial Banks (including SFBs, LABs, RRBs), Primary (Urban) Co-operative Banks, State Co-operative Banks / District Central Co-operative Banks, All-India Financial Institutions, Non-Banking Financial Companies (including HFCs)
Which borrowers are eligible under Resolution Framework 2.0?
Individuals with personal loans (excluding staff loans), individuals with business loans where aggregate exposure ≤ ₹25 crore as on March 31, 2021, and small businesses (not MSMEs) with exposure ≤ ₹25 crore as on that date. Accounts must have been standard as on March 31, 2021, and not restructured under Framework 1.0.
What happens if a resolution plan violates the circular's conditions?
Any plan implemented in breach will be governed by the Prudential Framework for Resolution of Stressed Assets (June 7, 2019) or applicable instructions, potentially leading to NPA classification and higher provisioning.
Can borrowers who availed resolution under Framework 1.0 use this window?
Generally no, unless a special exemption mentioned in Clause 22 applies. The circular states that accounts should not have availed resolution under Framework 1.0.