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5) Discuss the key highlights of ‘prudential framework for resolution of stressed assets’ that were recently released by RBI, also discuss significance of such steps.(250 words)

Topic:  Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

5) Discuss the key highlights of ‘prudential framework for resolution of stressed assets’ that were recently released by RBI, also discuss significance of such steps.(250 words)

Reference

Why this question:

The question is in the context of recently released RBI’s new prudential framework for resolution of stressed assets by banks.

Key demand of the question:

The answer must discuss the key features of the new prudential framework for resolution of stressed assets by banks, also one should provide for previous efforts made in this direction.

Directive:

DiscussThis is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.

Structure of the answer:

Introduction:

In a few introductory lines discuss the issues plaguing the Banks of India in terms of the stressed assets.

Body:

In brief discuss –

  • The new framework for resolution of bad loans, offers a 30-day gap for stress recognition instead of the one-day default earlier.
  • Lenders will have complete discretion with regard to the design and implementation of resolution plans, subject to the specified timeline and independent credit evaluation.
  • enders may recognize incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA).
  • For the purpose of restructuring, the definition of ‘financial difficulty’ to be aligned with the guidelines issued by the Basel Committee on Banking Supervision; and,
  • If multiple lenders are involved, all the lenders must enter into an inter-creditor agreement (ICA) during the review period, to provide for ground rules for the resolution plan.
  • Suggest what should be the way forward.

Conclusion:

Conclude with what more needs to be done.