Consider the following statements regarding “stressed asset”:

1. The Central Bank has made it voluntary for the lenders to take the defaulters to the bankruptcy court.

2. The ‘Prudential framework for resolution of stressed assets’ of the Reserve Bank of India (RBI) gives only 1-day leeway to the defaulters.

Which of the statements given above is/are correct?

The Reserve Bank of India (RBI) has issued a new prudential framework for resolution of stressed assets, effectively replacing its controversial 12 February, 2018 circular with a mixed bag of norms applying to a wider class of lenders.

Three major changes mark the new circular: The Central Bank has made it voluntary for the lenders to take the defaulters to the bankruptcy court; the framework now applies to a larger universe of lenders, which includes small banks and non-banking finance companies (NBFCs); and penal provisions have been introduced for the lenders.

The new norms leave it to the discretion of the lenders and give them 30 days to start working on a resolution plan from the day of default.

Note: Stressed assets = NPAs + Restructured loans + Written off assets

• NPA (Non-Performing Assets) – A loan whose interest and/or instalment of principal may have remained ‘overdue ‘(not paid) for a period of 90 days is considered as NPA.

• Restructured assets or loans are those assets, which got an extended repayment period, reduced interest rate, converting a part of the loan into equity, providing additional financing, or some combination of these measures.

• Written off assets are those the bank or lender does not count the money borrower owes to it.