The Reserve Bank of India (RBI) on 5 May 2017 tightened the rules of Joint Lenders’ Forum (JLF) under “Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)”.
The new JLF rules are more effective and direct banks not to break any rules and to meet all deadlines. Moreover, it also directs that any breach of rules would attract a monetary penalty.
Highlights of new JLF Rules
• It calls for early identification of stressed assets and timely implementation of a Corrective Action Plan (CAP) to preserve the economic value of stressed assets.
• In order to ensure that the CAP is finalised and formulated in an expeditious manner, the new rules specifies various timelines within which lenders have to decide and implement the CAP.
• It reiterates that lenders must scrupulously adhere to the timelines prescribed in the JLF Framework for finalising and implementing the CAP. This came after RBI witnessed delays in finalising and implementation of the CAP.
• To facilitate timely decision making, the decisions agreed upon by a minimum of 60 per cent of creditors by value and 50 per cent of creditors by number in JLF will be considered as basis for deciding the CAP.
• The stand of the participating banks while voting on the final proposal before the JLF shall be unambiguous and unconditional.
• Any bank which does not support the majority decision on the CAP, may exit subject to substitution within the stipulated time line.
• Any non-adherence to these rules and timelines specified under the Framework will attract monetary penalties on the concerned banks under the provisions of the Banking Regulation Act, 1949.
What is Joint Lenders’ Forum (JLF)?
Joint Lenders’ Forum (JLF) are the meetings that are held to revitalise stressed assets. In JLF, banks attempt to red-flag stress early and check them by putting in place a Corrective Action Plan (CAP).
The entire model of JLF is based on the ground of collective action of banks against a borrower for recovery.
When: 5 May 2017