RBI sets out rules for distressed assets

The Reserve Bank of India (RBI), on Wednesday, issued guidelines for revitalising distressed assets by forming Joint Lender's Forum (JLF) and adoption of Corrective Action Plan (CAP) for operationalising the framework.

"The general principle of restructuring should be that the shareholders bear the first loss rather than the debt holders," the RBI said.

In case a borrower had undertaken diversification or expansion of activities, resulting in the stress on the core-business of the group, a clause for sale of non-core assets or other assets could be stipulated as a condition for restructuring the account

The Indian Banks Association (IBA) would prepare a master JLF agreement and operational guidelines for JLF which could be adopted by all lenders. The RBI said that the JLF should invite representatives of the Central/State government/project authorities/local authorities if they had a role in the implementation of the project financed.