These clarifications were issued by the central bank in a set of frequently asked questions (FAQs) on the resolution framework for Covid-related stress announced last month. On real estate, the RBI said, “Only in respect of borrowers belonging to real estate sector, and have both residential and commercial real estate business, the prescribed thresholds for the financial parameters may be applied at the project level.”
The RBI also cleared the confusion on whether only that loan which was outstanding as on March 1, 2020 is available for resolution. It said the March 1 deadline is for determining eligibility, whereas the actual loan that may be considered for resolution will be the one that is outstanding as on the date of invocation of the resolution framework.
This is a very significant development as many real estate projects have got stuck at the last stage for want of funds because of a default at the corporate level. As a result of this default, lenders have not been able to extend funds to projects even if it is in their best financial interest to ensure completion.
In its clarification, the RBI said that a basic requirement of its prescriptions for loan restructuring, issued in June 2019, was that there should be an inter-creditor agreement among all lenders. It added that this framework provides banks with enough flexibility to restructure loans on a project basis. That’s because the projects are considered separate legal entities and therefore there is no bar on creating separate escrow accounts.
On micro, small and medium enterprises (MSMEs), the RBI said that although the government had changed their definition on June 26, 2020 for the purpose of eligibility for resolution, the definition of MSME that would be applicable is the one that existed on March 1, 2020. Another clarification by the RBI is that for borrowers who have taken loans against personal property or an individual taken as co-borrower to supplement the income of the company, the loan would not be considered a personal loan.
