Resolution Framework for Covid 19 - Related Stress 2.0

1. Overview

The resurgence of Covid-19 pandemic in India in the recent weeks and the consequent containment measures to check the spread of the pandemic may impact the recovery process and create new uncertainties. With the objective of alleviating the potential stress to individual borrowers and small businesses, Reserve Bank of India (RBI) issued a notification titled “Resolution Framework – 2.0: Resolution of Covid-19 related stress of Individuals Small Businesses and MSMEs” dated March 5, 2021, applicable to Housing Finance Companies (“HFCs”). The notification, inter alia, permitted HFCs to grant a resolution framework as a part of measures for combating the effect of COVID-19 second wave on the economy and with the intent to facilitate revival and to ensure continuity of viable business.

Shubham Housing Development Finance Company Limited (SHDFCL) has framed the Resolution Framework- 2.0 for resolution of COVID-19 – related stress (“Policy”) based on the tenets as enumerated in the said RBI guidelines. This Policy is applicable to accounts where the repayment capability has been temporarily impaired due to COVID-19 related stress.

2. Confidentiality

The material in this document is confidential and proprietary to SHDFCL and no part of this material should be reproduced, published in any form by any means, electronic or mechanical including photocopy or any information storage or retrieval system nor should the material be disclosed to third parties without the express written authorisation of SHDFCL.

I. Resolution framework for Housing Loans and LAP

Parameter

Criteria

Eligible loans

  • Accounts which are standard as on March 31st, 2021 are eligible.
  • The cash flow / income of the borrower must be impaired due to the ongoing COVID19 pandemic

Applicability

  • Individuals who have availed of personal loans (as defined in the Circular DBR.No.BP.BC.99/08.13.100/2017-18 dated January 4, 2018 on “XBRL Returns – Harmonization of Banking Statistics”)
  • Individuals who have availed of loans and advances for business purposes and to whom the lending institutions have aggregate exposure of not more than Rs.25 crore as on March 31, 2021
  • Small businesses, including those engaged in retail and wholesale trade, other than those classified as micro, small and medium enterprises as on March 31, 2021, and to whom the lending institutions have aggregate exposure of not more than Rs.25 crore as on March 31, 2021

Ineligible Loans

- Loans to SHDFCL employees
- Loans to financial service providers
- Compromise settlements are not permitted as a resolution plan for this purpose

It is to be noted that extension of relaxation must benefit the borrowers who have sound businesses and repayment capabilities but are unable to meet their obligations due to widespread disruption caused by the pandemic.

Eligible Products

Home loans
Loan Against Property

Resolution Plans

i. The resolution plans may inter alia include the followings:

- rescheduling of payment
- conversion of any interest accrued, or to be accrued, into another credit facility,
- granting of moratorium

based on an assessment of income streams of the borrower

ii. The moratorium period, if granted, may be for a maximum of two years, and shall come into force immediately upon implementation of the resolution plan. The extension of the residual tenor of the loan facilities may also be granted to borrowers, with or without payment moratorium. The overall cap on extension of residual tenor, inclusive of moratorium period if any permitted, shall be two years. iii. In respect of borrowers where the resolution process has been invoked, SHDFCL is permitted to sanction additional finance even before implementation of the plan to meet the interim liquidity requirements of the borrower. iv. This facility of additional finance may be classified as ‘Standard’ till implementation of the plan. However, if the resolution plan is not implemented within the stipulated timelines, the asset classification of the additional finance sanctioned will be as per the actual performance of the borrower with respect to such additional finance or performance of the rest of the credit facilities, whichever is worse.

Underwriting

  • Analysis of pre-Covid cash flows along with impact of Covid-19 on its operating and financial performance to be checked e.g. through personal discussion, income statements, bank statements, bureau report etc.
  • Underwriting norms to be applied under this framework shall be decided by resolution committee members

Implementation of Resolution framework- Applicable to Eligible Accounts

The following provisions shall apply for the resolution framework

1. The resolution must be invoked not later than September 30, 2021 and must be implemented within 90 days from the date of invocation.

2. The date of invocation shall be the date on which SHDFCL borrower agreed to proceed with the plan.

a) Written consent shall be obtained from borrower for the mutually agreed resolution plan.

b) The resolution plan shall be deemed to be implemented only if all the conditions in Paragraph 10 of the Annex to the Resolution Framework – 1.0 are met

Documents to be collected

- Revised sanction letter / agreement with customer’s acceptance
- Updated KYC
- Credit PD
- Borrower’s application form and undertaking stating that he / she is impacted financially by the COVID-19 pandemic in the form of reduction / loss of income or cash flows.

Salaried (on best effort basis)

  • Up-to-date salary slips from January 2020 / Borrower declaration in case of cash salaried
  • Up-to-date bank account statement from January 2020 for the account in which salary is credited
  • Proof of loss of job from previous employer (in case of loss of job)
  • Borrower’s declaration of current unemployment and previous income levels

Self Employed (on best effort basis)

  • Bank account statements for previous 12 months
  • GST returns for H1 FY2020 and H1 FY2021 and Profit and loss statement / Balance sheet for the last 2 years (if applicable)
  • Udyam certificate (if available)
  • Borrower’s declaration of current income levels and previous income levels

Asset Classification

1. Upon implementation of the agreed plan, the asset classification of such accounts shall remain as Standard.

2. Accounts which slipped into NPA between invocation and implementation shall also be upgraded to Standard as on the date of implementation of the plan.

3. Additional finance to borrowers in respect of whom the resolution plan has been invoked, if sanctioned even before implementation of the plan in order to meet the interim liquidity requirements of the borrower, may be classified as ‘standard asset’ till implementation of the plan regardless of the actual performance of the borrower with respect to such facilities in the interim

4. Asset classification post implementation shall be as per the extant RBI norms on asset classification

Convergence of the norms for loans resolved previously

In cases of loans of borrowers, where resolution plans had been implemented in terms of the Resolution Framework – 1.0, and where the resolution plans had permitted no moratoria or moratoria of less than two years and / or extension of residual tenor by a period of less than two years, SHDFCL is permitted to use this window to modify such plans only to the extent of increasing the period of moratorium / extension of residual tenor subject to the caps mentioned above under Resolution Plan (ii), and the consequent changes necessary in the terms of the loan for implementing such extension. The overall caps on moratorium and / or extension of residual tenor granted under Resolution Framework – 1.0 and this framework combined, shall be two years.

Resolution Committee

All restructuring accounts will have to be approved by a resolution committee comprising of Chief Operating Officer, Chief Business Officer, Head – Credit and Service, Head – Credit Policy and Risk Control

Disclosure and reporting

Lending institutions publishing quarterly statements shall make disclosures as per the format prescribed (Format X of resolution framework) in their financial statements for the quarters ending September 30, 2021 and December 31, 2021, as applicable.

The resolution plans implemented in terms of Part A of this framework should also be included in the continuous disclosures required as per Format-B prescribed in the Resolution Framework – 1.0

Reporting to Bureau

The credit reporting by SHDFCL in respect of borrowers where the resolution plan is implemented under Part A of this window shall reflect the “restructured due to COVID-19” status of the account. The credit history of the borrowers shall consequently be governed by the respective policies of the credit information companies as applicable to accounts that are restructured.

Provisioning

SHDFCL will keep provisions from the date of implementation, which are higher of the provisions held as per the extant IRAC norms immediately before implementation, or 10 percent of the renegotiated debt exposure of SHDFCL post implementation (residual debt). Half of the above provisions may be written back upon the borrower paying at least 20 per cent of the residual debt without slipping into NPA post implementation of the plan, and the remaining half may be written back upon the borrower paying another 10 per cent of the residual debt without slipping into NPA subsequently.

The provisions required to be maintained under this window, to the extent not already reversed, shall be available for the provisioning requirements when any of the accounts, where a resolution plan had been implemented, is subsequently classified as NPA

After implementation of the resolution plan in terms of this facility, the subsequent asset classification will be governed by the criteria laid out in the Master Circular - Prudential norms dated July 1, 2015 or other relevant instructions as applicable to SHDFCL.

In all the cases, further upgradation shall be subject to implementation of a fresh restructuring under the Prudential Framework, or the relevant instructions as applicable. Upon completion of the monitoring period without being classified as NPA, the asset classification norms will revert to the criteria laid out in the Master Circular – Prudential norms or other relevant instructions as applicablee

The provisions required to be maintained under this window, to the extent not already reversed, shall be available for: (i) the provisioning requirements when any of the accounts, where a resolution plan had been implemented, is subsequently classified as NPA; as well as, (ii) the additional provisioning requirements as mentioned in the Prudential Framework.

Other norms

RBI notification titled “Resolution Framework – 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses” dated May 5, 2021 and related FAQs to be referred for all other policy parameters

II. Resolution framework for MSME accounts (LAP for business purpose)

Parameter

Criteria (For MSME loans)

Eligible loans and applicable guidelines

  • Applicable to LAP - MSME accounts only
  • The account was a ‘standard asset’ as on March 31, 2021
  • The aggregate exposure, of banks and NBFCs to the borrower does not exceed ₹25 crore as on March 31, 2021.
  • The borrower’s account was not restructured earlier
  • The restructuring of the borrower account should be invoked by September 30, 2021 and must be implemented within 90 days from the date of invocation
  • The restructuring shall be treated as invoked when SHDFCL and the borrower agree to proceed with the efforts towards finalising a restructuring plan to be implemented in respect of such borrower.
  • The borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration. This shall be determined on the basis of exemption limit obtaining as on March 31, 2021.
  • If the borrower is not registered in the Udyam Registration portal, such registration shall be required to be completed before the date of implementation of the restructuring plan for the plan to be treated as implemented.
  • The decisions on applications received by SHDFCL from their borrowers for invoking restructuring shall be communicated in writing to the borrower by the SHDFCL within 30 days of receipt of such applications.
  • The decision to invoke the restructuring under this facility shall
  • In respect of restructuring plans, asset classification of borrowers classified as standard may be retained as such, whereas the accounts which may have slipped into NPA category between April 1, 2021 and date of implementation may be upgraded as ‘standard asset’, as on the date of implementation of the restructuring plan.
  • Upon implementation of the restructuring plan, SHDFCL shall keep provision of 10 percent of the residual debt of the borrower
  • All restructuring accounts will have to be approved by a resolution committee comprising of Chief Operating Officer, Chief Business Officer, Head – Credit and Service, Head – Credit Policy and Risk Control
  • All other instructions specified in the circular DOR.No.BP.BC/4/21.04.048/2020-21 dated August 6, 2020 shall remain applicable.
  • RBI notification titled “Resolution 2.0 of Covid-19 related stress of Micro, Small and Medium Enterprises (MSME) sector – Restructuring of Advances” dated May 5, 2021 to be referred for all other policy parameters

Formats

Format A - for disclosures to be made in the quarters ending March 31, 2021, June 30, 2021 and September 30, 2021
Type of borrower (A) (B) (C) (D) (E)
Number of accounts where resolution plan has been implemented under this window exposure to accounts mentioned at (A) before implementatio n of the plan Of (B), aggregate amount of debt that was converted into other securities Additional funding sanctioned, if any, including between invocation of the plan and implementation Increase in provisions on account of the implementatio n of the resolution plan
Personal Loans
Corporate persons*
Of which, MSMEs
Others
Total
*As defined in Section 3(7) of the Insolvency and Bankruptcy Code, 2016
Format B - Format for disclosures to be made half yearly starting September 30, 2021
Type of borrower (A) (B) (C) (D) (E)
Exposure to accounts classified as Standard consequent to implementatio n of resolution plan – Position as at the end of the previous half-year (A) Of (A), aggregate debt that slipped into NPA during the half-year Of (A) amount written off during the half-year Of (A) amount paid by the borrowers during the half- year Exposure to accounts classified as Standard consequent to implementatio n of resolution plan – Position as at the end of this half- year
Personal Loans
Corporate persons
Of which, MSMEs
Others
Total

Formats

Format – X
Format for disclosures to be made in the quarters ending September 30, 2021 and December 31, 2021
Sl. No Description Individual Borrowers Small businesses
Personal Business
A Number of requests received for invoking resolution process under Part A
B Number of accounts where resolution plan has been implemented under this window
C Exposure to accounts mentioned at (B) before implementation of the plan
D Of (C), aggregate amount of debt that was converted into other securities
E Additional funding sanctioned, if any, including between invocation of the plan and implementation
F Increase in provisions on account of the implementation of the resolution plan

Credit Assessment for restructuring the loan as per RBI resolution plan
(Indicative Template)

1. Loan No :

2. Customer Name :

3. Product :

4.Gross Principal O/s :

5. Current EMI/Balance Tenure :

6. Employment Type :

7. Profession / Industry :

8. Loan A/c Classification :

9. Reason of stress in employment:

10. Willingness to Pay :

11.EMI amount customer is currently comfortable to pay :

12. Recovery Period :

13. Disbursal Date

14. Is registered under MSME

15. Customer is comfortable to pay INR.............. after recovery period

16. Following resolution plans were discussed with the customer and Co borrowers

i. rescheduling of payments,
ii. conversion of any interest accrued, or to be accrued, into another credit facility,
iii. granting of moratorium

17. Resolution plan opted by the customer based on an assessment of income streams of the borrower

iii. granting of moratorium

18. I have assessed opportunities related to resolution plan basis

i. Business reopened and has short term (6 months) distress
ii. Business reopened and has medium term (6 – 24 months) distress
iii.Business still not reopened, credit team to discuss probable reopening date

19. Brief on current income level (impact of Covid-19 on its operating and financial performance, details of profile, income etc.)

20. Revised FOIR and IAR (current income and post recovery period)