RBI resolution framework for COVID-19 related stress

COVID-19 has led to significant economic stress across sectors and there is likely impact on long-term viability of companies due to disproportionate debt burdens.

To support businesses during this unprecedented time and address the borrower defaults under COVID-19 related stress, the Reserve Bank of India (RBI) has provided a resolution framework on 6 August, 2020 to enable the lenders to implement a resolution plan, in respect of eligible corporate borrowers without change in ownership while continuing the account status as standard, subject to specified conditions. 

Widespread impact of the pandemic could pose significant risks to financial stability – hence the focus of this resolution window is preservation and soundness of the Indian banking sector.

Our view on the resolution framework

Grant Thornton has developed the enclosed guide to help companies better comprehend this RBI resolution framework. The guide also analyses aspects, such as asset classification, provisioning, reversal of provisioning and post-implementation performance.

• The guidelines are comprehensive and applicable to diverse lending institutions – encompassing debt realignment and additional funding support
• Resolution within 180 days is a challenging task, going by past precedence of JLF frameworks
• Flexibility required for structuring the plan within overall parameters – which are yet to be notified
• Thrust on arriving at a consensus among lenders – through ICA execution and related penal provisioning