Revised framework to deal with NPA: Part 3

This is the last video of series explaining RBI Deputy Governor Speech (Titled : It is not Business as Usual for Lenders and Borrowers)

Click here to access earlier part1

Click here to access Part2

On April 18, 2018 , N. S. Vishwanathan, Deputy Governor, Reserve Bank of India delivered a speech at National Institute of Bank Management, Pune. His title of speech was “It is not Business as Usual for Lenders and Borrowers” . in his speech he has talked about the new circular of February 12, 2018 (Resolution of Stressed Assets – Revised Framework). He answered why this framework is required and answered many of criticism about this framework.

But before that he has talked about the reasons behind substantial increase in NPA after March 2015. How AQR and CRILC helped in recognizing the true asset quality. This part of speech has been discussed in earlier post Rest of speech will be discussed in different post. Click here to access earlier part.

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Then he has discussed why SDR mechanism was failed and how Asset Quality Forbearance has been misused. It has also been touch upon why RBI is having various schemes to resolve NPA problem? And why the new framework is required? That has been discussed in different post. Click here to access that part

In the following video he answered where criticism on new framework. He also explained how new frame work correcting the arbitrage enjoyed by borrower in borrowing through Bank vis-a-vis Capital market.

On basis of above partial speech you should have of  answer following questions.

On basis of this video anyone should able to answer following questions:

  1. Why Steady-State Framework of Feb 2018 was introduced by RBI ?
  2. What do you understand by line “it would not have been equitable, if the powers were used for a limited time for a limited number of cases” mentioned in Paragraph 13.
  3. Why Steady-State Framework is called outcome based framework?
  4. Is new framework changing anything related to NPA classification?
  5. This framework is applicable to what sized company? Is it applicable to MSME ?
  6. After how many days of default, company will be referred for bankruptcy under IBC?
  7. Why RBI has discontinued its earlier measures to handle NPA like JLFs, 3Rs, SDR etc.
  8. Why it is being said more flexibility has been given to bank to handle NPA under new framework.
  9. What arbitrage the borrowers are currently enjoying while raising funds through borrowing from banks vis-à-vis raising funds from the capital markets. And how new framework going to reduce that?
  10. Why there is rating required for Resolution plan under revised framework? Who will pay the rating agency? What is “issuer pay model” and what is “users pay model”? How it will be ensured that rating agency will not give wrong rating?
  11. What do you understand by uncollateralized funds? How the banks are having access to uncollateralized funds?
  12. Default of payment is called lagging activity. Discuss.
  13. Why it is being said that under new framework unanimity of lender is required?
  14. When the default clause will be triggered for long term loan and cash loan?
  15. What do you understand by evergreeening of loan? Who is responsible to handle that?
  16. Was timing of introduction new framework right? Give Reason.
  17. What do you understand by “externality through fiscal channels” mentioned in para 25.
  18. Why the question of equity arises in NPA problem ? ( discuss in term of Short vs Long term borrower and borrower vs share holder)
  19. What is India’s ranking in Resolving Insolvency?
  20. How the data given in speech suggest that quicker action by banks while the borrowing business is still a going concern results in much lower loan loss?

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In case of any doubt or you are not able to answer any of above question confidently you may ask  in comment section.

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