To cope with Covid blues, borrowers must ask lenders to invoke Resolution Framework: RBI

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Borrowers are required to merely submit a request to the lending institutions for invocation of resolution under the Resolution Framework for Covid-19-related stress, according to the Reserve Bank of India (RBI).

In its frequently asked questions (FAQs) on the Resolution Framework, the central bank said the Framework does not require any resolution plan in any form to be submitted to the lending institutions at the time of request for invocation.

Rather, for invocation, the borrowers are required to merely submit a request to the lending institutions for being considered under the Resolution Framework.

Thereafter, the lending institutions will take an in-principle decision – as per their Board approved policy – on invoking the Resolution Framework, RBI said.

After such invocation, the specific contours of resolution plan to be implemented may be decided by the lending institutions, in consultation with the borrower.

While for personal loans the resolution plan is to be implemented within 90 days from the date of invocation, for all other loans a period of 180 days from the date of invocation has been prescribed.

‘Framework applicable to investment exposures’

The RBI clarified that Resolution Framework may be invoked for resolution of all exposures of lending institutions to eligible borrowers, including investment exposures.

However, the Resolution Framework is without prejudice to all applicable guidelines issued by the relevant financial sector regulators and other Departments of the RBI in respect of any particular exposure.

Referring to the real estate sector and other sectors, where a company typically may have multiple projects financed through multiple instruments, the FAQ observed that apart from the escrow account required to be set up at the legal entity level as required by the Resolution Framework, there is no prohibition in setting up additional separate escrow accounts at each project level, if the lenders desire so.

As per the FAQs restructuring in respect of projects under implementation involving deferment of DCCO (date of commencement of commercial operations) are excluded from the scope of the Resolution Framework.

The central bank emphasised that the extant regulations and the other relevant instructions as applicable to specific category of lending institutions, already permit revisions of the DCCO and consequential shift in repayment schedule without being treated as restructuring subject to a maximum of four years in the case of infrastructure projects and a maximum of two years in the case of non-infrastructure projects (including commercial real estate exposures).

In addition to the above, DCCO of projects may be extended by a further two years in case of change in ownership subject to the conditions.

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