Banking stocks were among the top losers in today's trade after RBI deputy governor NS Vishwanathan defended a revised framework for expeditious resolution of bad loans notified by the central bank on February 12, 2018.
The BSE bankex dragged the Sensex and Nifty in the red after it fell 241 points (0.85%) to 28,158.
Bank Nifty too fell 0.92% or 232 points to 25,102 level.
Bank of Baroda (4.02%), Axis Bank (2.60%) and IndusInd Bank (1.23%) were the top losers on BSE Bankex.
Except YES Bank (0.42%), all nine bankex components closed in the red.
Delivering a speech at National Institute of Bank Management, Pune on Fourteenth Convocation, Vishwanathan said, "You would notice that unlike the earlier frameworks, this is more outcome-oriented and leaves considerable flexibility to banks to determine the process as well as the contours of the restructuring plan. The revised framework removes various process and input constraints which were embedded in the earlier regulatory schemes for restructuring. Instead it provides as much flexibility as possible to lenders and the stressed borrowers so long as a credible resolution plan is implemented within a specified timeframe. If lenders and the stressed borrowers are unable to put in place a credible resolution plan within the timelines, then the structured insolvency resolution process under the IBC should take over."
On February 12, the RBI came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC).
The RBI had decided to do away with the Joint Lenders' Forum (JLF) as an institutional mechanism for resolution of stressed accounts. The notification further said all accounts, including those where any of the schemes have been invoked but not yet implemented, will be governed by the revised framework.
As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default.
All lenders will be required to put in place Board- approved policies for resolution of stressed assets under this framework, including the timelines for resolution, it said, adding, "As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default."