Recently the Reserve Bank of India issued a lsquo Prudential Framework for Resolution of Stressed As...........

Economic Affairs Types of Banks and Banking

Recently, the Reserve Bank of India issued a ‘Prudential Framework for Resolution of Stressed Assets’. With respect to it, which of the following statement(s) is/are correct?

1. It is applicable to Systematically Important Non-Deposit taking NBFCs and Deposit taking NBFCs but not to the Regional Rural Banks.

2. Even a single day’s default in debt servicing would require reporting to the RBI and implementation of a Resolution Plan.

Select the correct answer using the code given below:

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Explanation:
After the Supreme Court struck down the February 12 RBI circular on resolution of NonProductive Assets, declaring it unconstitutional and ultra vires, the RBI has issued a new ‘Prudential Framework for Resolution of Stressed Assets’. These directions are issued in exercise of the powers conferred by the Banking Regulation Act, 1949 and RBI Act, 1934 and are applicable to all Scheduled Commercial Banks (excluding Regional Rural Banks), All India Financial Institutions, Small Finance Banks, Systematically Important Non-Deposit taking NBFCs and Deposit taking NBFCs. Hence, statement 1 is correct.
The new framework gives lenders a breather from the one day default rule, issued by the February 12 circular, and gives lenders 30 days to review the borrower account on default. During this review period, lenders may decide on the resolution strategy, including the nature of Resolution Plan and the approach for its implementation. The lenders may also choose to initiate legal proceedings for insolvency or recovery. Hence, statement 2 is incorrect.