Resolution Frame 2.0
Covid-19 Related Stress

POLICY ON RESOLUTION FRAMEWORK – 2.0: COVID-19 RELATED STRESS

AUXILO FINSERVE PRIVATE LIMITED (Auxilo / Company) being a Non-deposit taking Systemically Important Non-Banking Financial Company registered with Reserve Bank of India (RBI) is required to frame a Board approved Policy for providing viable resolution plan to the borrowers having stress on account of Covid-19 in terms of the RBI Notification dated 5th May, 2021 “Resolution Framework – 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses” RBI/2021-22/31 DOR.STR.REC.11/21.04.048/2021-22.

The Policy on “Resolution Framework 2.0 – Resolution of Covid-19 related stress” is being formulated pursuant to the above mentioned Reserve Bank Directives.

PREAMBLE

The Board of Directors approved the Policy on Resolution Framework for Covid Related Stress in terms of the RBI notification dated August 6, 2020 “Resolution Framework for COVID-19-related Stress” (“Resolution Framework – 1.0”) to provide one-time restructuring relief to its Borrowers subject to eligibility as stipulated therein while classifying such exposures as Standard, subject to specified conditions.

Through the above stated notification on 5th May, 2021, the Reserve Bank of India announced measures through “Resolution Framework-2.0” with the objective of alleviating the potential stress to individual borrowers and small businesses that may be caused due to the resurgence of Covid-19 pandemic in India in the recent weeks. The notification takes into consideration the fact that the containment measures to check the spread of the pandemic may impact the recovery process and create new uncertainties.

Lending institutions are therefore permitted to offer a limited window to individual borrowers and small businesses to implement resolution plans in respect of their credit exposures while classifying the same as Standard upon implementation of the resolution plan subject to certain specified conditions.

OBJECTIVE

The Policy aims to provide relief to the eligible borrowers under the resolution plan after due diligence considerations that are to be followed to establish the necessity of implementing a resolution plan and the system for redressing the grievance of borrowers who request for resolution under the window and / or are undergoing resolution under this window.

  1. ELIGIBILITY OF BORROWERS

  1. The following borrowers shall be eligible to be provided the resolution plan under the policy.

  1. Individuals who have availed of Education loans

  2. Individuals who have availed of loans and advances for business purposes and to whom aggregate exposure (from various lending institutions) is not more than Rs.50crore as on March 31, 2021.

  3. 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 aggregate exposure (from various lending institutions) is not more than Rs.50 crore as on March 31, 2021.

Provided further that the credit facilities / investment exposure to the borrower was classified as Standard by the lending institution as on March 31, 2021.

The MSME borrowers whose aggregate exposure to lending institutions collectively, is Rs. 50 crore or less as on March 31, 2021 shall not be eligible to be provided resolution plan under this policy.

  1. Extension - Borrowers who have availed of the resolution plan in terms of the Policy on Resolution Framework for Covid Related Stress (Resolution Framework-1.0) subject to the exception 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, the company shall consider to modify such plans only to the extent of increasing the period of moratorium / extension of residual tenor subject to the caps specified herein, 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 under this policy combined, shall be two years.

  1. RESOLUTION PLAN

The Company shall provide a limited window to implement the plans to the eligible Borrowers in respect of their credit exposures while classifying the same as Standard upon its implementation subject to the conditions specified hereafter.

Permitted features of resolution plans and implementation.

  1. The resolution plans that may be implemented under this policy may inter alia include / shall be rescheduling of payments, conversion of any interest accrued or to be accrued into another credit facility, revisions in working capital sanctions, granting of moratorium etc. based on an assessment of income streams of the borrower. Compromise settlements are not permitted as a resolution plan under this policy. The Company may sanction additional finance even before implementation of the plan in order to meet the interim liquidity requirements of the borrower. This facility of additional finance may be classified as ‘Standard’ till implementation of the plan regardless of the actual performance of the borrower in the interim.

  2. 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.

  3. In respect of eligible borrowers specified under I (1) B and I (1) C where resolution plans had been implemented in terms of the Policy on Resolution Framework for Covid Related Stress (Resolution Framework-1.0), the company upon necessary due diligence, as a one-time measure, review the working capital sanctioned limits and / or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring. The decision with regard to above shall be taken by the company by September 30, 2021, with the margins and working capital limits being restored to the levels as per the resolution plan implemented in terms of Policy on Resolution Framework for Covid Related Stress (Resolution Framework-1.0), by March 31, 2022.

  1. DUE DILIGENCE CONSIDERATIONS TO BE FOLLOWED TO ESTABLISH THE NECESSITY OF IMPLEMENTING A RESOLUTION PLAN

The Company shall establish that the concerned borrower has financial hardships on account of Covid-19 and has necessity of implementing a resolution plan. The company shall carry out necessary due diligence to establish Customer’s Stress is on account of COVID-19 through the

  1. Borrower’s past 1-year performance on Auxilo Loans

  2. Latest CIBIL report for other than Auxilo loans

  3. Personal Discussion with Customer

  4. Assessment of current cash flows

The above measures shall be contingent on the company satisfying itself that the same is necessitated on account of the economic fallout from COVID-19. Further, accounts provided relief under these instructions shall be subject to subsequent supervisory review with regard to their justifiability on account of the economic fallout from COVID-19.

The reduction of income and its financial impact on the customer due to COVID-19 shall be reviewed basis the documents / information. The decision on the application shall be communicated in writing to the applicant within 30 days of receipt of such applications.

  1. INVOCATION OF RESOLUTION PROCESS

The resolution process under this window shall be treated as invoked when the lending institution and the borrower agree to proceed with the efforts towards finalising a resolution plan to be implemented in respect of such borrower.

The resolution plan should be finalised and implemented within 90 days from the date of invocation of the resolution process.

Multiple lenders - The decision to invoke the resolution process under the policy shall be taken by the company considering the exposure to a borrower, independent of invocation decisions taken by other lending institutions, if any, having exposure to the same borrower.

The last date for invocation of resolution shall be September 30, 2021.

  1. DOCUMENTATION

Resolution plan shall be implemented only if all the conditions appended below are met:

  1. all related documentation, including execution of necessary agreements between lending institutions and borrower and collaterals provided, if any, are completed by the lenders concerned with the resolution plan being implemented.

  2. the changes in the terms of conditions of the loans get duly reflected in the books of the lending institutions.

  3. borrower account should be Standard with the lending institution.

  1. ASSET CLASSIFICATION

The asset classification of borrowers’ accounts classified as Standard may be retained as such upon implementation, whereas the borrowers’ accounts which may have slipped into NPA between invocation and implementation may be upgraded as Standard, as on the date of implementation of the resolution plan.

Subsequent asset classification for such exposures will be governed by the criteria laid out in the  Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated July 1, 2015 or other relevant instructions as applicable to specific category of lending institutions (“extant IRAC norms”).

In respect of borrowers where the resolution process has been invoked, company may sanction additional finance even before implementation of the plan in order to meet the interim liquidity requirements of the borrower. This facility of additional finance may be classified as ‘Standard’ till implementation of the plan regardless of the actual performance of the borrower in the interim. However, if the resolution plan is not implemented within the stipulated timelines, the asset classification of the additional finance sanctioned shall 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.

The Company shall 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 the lending institution post implementation (residual debt). Residual debt, for this purpose, will also include the portion of non-fund based facilities that may have devolved into fund based facilities after the date of implementation.

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.

Provided that in respect of exposures other than personal loans, the above provisions shall not be written back before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium.

The provisions required to be maintained under this policy, 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.

  1. DISCLOSURES AND CREDIT REPORTING

The Company shall while publishing half yearly financial statements make disclosures as per the format prescribed in  Format-X (annexed herewith as Annexure I) in its financial statements for the quarters ending September 30, 2021 and December 31, 2021. The resolution plans implemented for these loans should also be included in the continuous disclosures required as per Format-B (annexed herewith as Annexure I).

The number of borrower accounts where modifications were sanctioned and implemented in terms of Clause II (2) of the policy, and the aggregate exposure of the Company to such borrowers may also be disclosed on a quarterly basis, starting from the quarter ending June 30, 2021.

The credit reporting in respect of borrowers where the resolution plan is implemented under for these 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.

  1. SYSTEM FOR REDRESSING THE GRIEVANCE OF BORROWERS

The Customer/Borrower having any grievance/complaint can register the complaint giving the details of the complaint and the name of the officer/employee of the company concerned in the following ways, which shall be addressed in a maximum of ten working days:

Email at customercare@auxilo.com

Can be submitted in writing at the Branch office/place where the business is transacted addressing it to the Branch Manager followed by the location name captioning it as under GRM

Can be posted to the address Auxilo Finserve Private Limited, LG B-13 &14, Art Guild House, Phoenix Market City, Mumbai - 400070, captioning it as “Under GRM”.


In case of any notification, clarification, circular, etc., (together referred to as notification) issued by the Reserve Bank of India or any other relevant authorities, not being consistent with the provisions laid down under this Policy, then notification shall prevail over the provisions of the policy and the Policy shall stand amended accordingly from the effective date as laid down under such notification.

The definition of the capitalized terms used in the policy shall have the meaning ascribed to such term in the guidelines laid down by the Reserve Bank of India or Indian Banks Association, as amended from time to time.

ANNEXURE I

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 Loans

Business Loans

(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

 

 

 


Format-B

Format for disclosures to be made half yearly starting September 30, 2021

Type of borrower

Exposure to accounts classified as Standard consequent to implementation 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 implementation of resolution plan – Position as at the end of this half-year

Personal Loans

 

 

 

 

 

Corporate persons*

 

 

 

 

 

Of which MSMEs

 

 

 

 

 

Others

 

 

 

 

 

Total

 

 

 

 

 

* As defined in Section 3(7) of the Insolvency and Bankruptcy Code, 2016