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As part of its policy to tackle the growing incidence of non-performing assets (NPAs) in the Indian financial system, the Reserve Bank of India (RBI) issued a discussion paper on 17 December 2013 which aimed at putting in place a framework that includes incentives for the early recognition of “problem cases” and restructuring of viable accounts.

Based on the discussion paper, on 30 January 2014, the RBI issued the Framework for Revitalising Distressed Assets in the Economy. The framework is applicable from 1 April 2014. The measures prescribed by the framework include establishing a database on borrowers called the Central Repository of Information on Large Credits (CRILC), continuous monitoring and classification of accounts at various levels of “stress”, and the formation of a joint lenders’ forum (JLF) for early resolution of a stressed account before it turns into an NPA.

Identification and reporting

Banks will now have to identify accounts that show “incipient stress” as special mention accounts (SMAs), and also classify such accounts as: SMA-0, principal or interest payment not overdue for more than 30 days; SMA-1, principal or interest payment overdue between 31 and 60 days; or SMA-2, principal or interest overdue between 61 and 90 days.

Simultaneously, with the establishment of the CRILC, banks are also now required to provide credit information to the CRILC on all borrowers with facilities exceeding (in aggregate) ?50 million (US839,000) and customers whose current account balances exceed ?10 million (whether or not such customers have obtained any financial assistance). Further, all borrowers classified as SMA-2 will need to be reported to the CRILC on the 61st day of any principal or interest being overdue.

Sawant Singh is a partner and Aditya Bhargava is a senior associate at the Mumbai office of Phoenix Legal..