RBI says onus of forming Joint Lenders' Forum on lead bank; warns of penalty

MUMBAI: The Reserve Bank of India (RBI) eased some rules for identifying defaulters and taking corrective actions since banks found it impossible to comply with the strict norms.

The central bank now says that the identification of the defaulter and correction action plans could be done in 45 days instead of 30 days earlier. The Reserve Bank of India has also allowed the Independent Evaluation Committee, a time limit of 45 days instead of 30 days for evaluation of the restructuring package and giving their recommendations for restructuring of accounts with an asset exposure of Rs 5,000 million and above, a notification by the central bank said.

The implementation of corrective action plan under Joint Lenders’ Forum route is expected to check the rising bad loans through identifying defaults at early stage while chalking out a corrective action plan.

Also, it puts the onus on the lead banker to respond to missing payments to other lenders. Only the lead banker and not the other members of the consortium of the joint liability forum will be punished by way of needing to make higher provisioning if the lead bank does not act in a timely manner.

The RBI justifies the penalty on the grounds that the success of the Joint Lenders’ Forum does not only depend on early reporting but also on taking corrective action in time by the JLF. Thus, any delay in formation of JLF will defeat the objectives of the Framework.