RBI has revised the prudential framework for resolution of stressed assets, which strikes a fine balance between the tight regulatory timelines mandated previously to resolve stressed assets and inordinate delays that occurred in the past when resolving and provisioning for such assets. By doing away with mandatory referral of stressed accounts under the Insolvency and Bankruptcy Code (IBC), the new framework puts the onus on banks to devise a suitable resolution plan (RP). It also provides a 30-day review period after default for them to decide on resolution strategy, including nature and implementation approach.According to Krishnan Sitaraman, Senior Director, CRISIL Ratings, “The new prudential framework is a breather for stressed accounts where RPs were under implementation but had to be referred to the IBC because of not being completed in 180 days. One of the key beneficiaries will be stressed power sector assets that were operational and on the verge of being referred to insolvency proceedings under the IBC. These are estimated at ~`1 lakh crore and banks were staring at significant haircuts on many of these assets.” Vydianathan Ramaswamy, Associate Director, CRISIL Ratings, adds, “The revised framework provides much-needed clarity on the way forward in stressed assets resolution after the Supreme Court had annulled the RBI’s previous circular of February 2018. It should help reduce the stockpile of gross non-performing assets (NPAs) further over the medium term.” NPAs in the banking system have declined in fiscal 2019 to ~9.3 per cent as of March 2019 after tripling to ~11.5 per cent in the four fiscals till March 2018.To discourage banks from delaying bot, the resolution process and reference to IBC, the prudential framework stipulates additional provisioning of 20-35 per cent in a phased manner beyond what has already being made in accounts where resolution has been delayed beyond 210 days from default. But the additional provisioning can be written back either once the RP is implemented or upon filing and admission of the stressed account under IBC. This is an incentive for lenders to go in for quick decisions.