The Reserve Bank of India logo is displayed on a gate at the central bank’s headquarters in New Delhi, India. (Photographer: Kuni Takahashi/Bloomberg)

RBI’s New Stressed Asset Resolution Circular Credit Positive: Moody’s

Moody's Investors Service has said the Reserve Bank of India's new prudential framework for stressed asset resolution is ‘credit positive’, but flagged the slower-than-expected progress of resolution under the Insolvency and Bankruptcy Code as a key hurdle.

The RBI's revised stressed assets resolution circular is credit positive, because it brings back the focus on the need for the timely resolution of such assets, and the buildup of loan loss provisioning against those assets, said Alka Anbarasu, vice president of Financial Institutions Group at Moody’s Investors Service.

The RBI last week issued a prudential framework for resolution of stressed assets, which give lenders 30 days to review a borrower account before labelling it as a non-performing asset in case of default.

Also read: RBI Eases Stressed Asset Rules In Review Of Feb. 12 Circular

This framework replaces the earlier circular which mandated lenders to start resolution even if there was a one-day default. This circular was quashed by the Supreme Court in April.

Moody's said the extension of the circular to non-bank finance companies will help align the loan loss provisioning norms for the large stressed accounts of NBFCs with commercial banks.

Nevertheless, the slower-than-expected progress under the IBC remains the key hurdle to the timely resolution of stressed assets. The cleanup of the bank's balance sheets could therefore still take another two to three years, Moody's added.

Also read: RBI’s New Stressed Asset Framework: Experts Weigh In