MUMBAI: Banks now have more leeway in dealing with defaulters with the Reserve Bank of India coming out with a diluted version of its February 2018 circular on defaulting companies which was struck down by the Supreme Court.The diluted norms will give stressed borrowers more time to come up with a repayment plan. The new norms, which apply to large borrowers with loans of over Rs 2,000 crore, give relief on the “one-day default” rule and allow banks full flexibility to restructure a loan with the approval of 75% of lenders by value and 60% by the number of lenders once all are in broad agreement.The February 12, 2018 circular had turned out to be a major flashpoint between former RBI governor Urjit Patel and the government. The RBI’s reasoning was that with the bankruptcy law in place, lenders now have an option to deal with troubled loans. Promoters of power projects under implementation were worst hit as many projects were stuck because of policy issues. It was the power producers’ association which led the legal battle against the circular.Then finance minister Piyush Goyal had called for an exemption to power projects. However, RBI had refused, saying borrowers need to be more disciplined.“In term loans, the one-day default continues but in cash credit facilities there is a 30-day grace period. This is a good thing because in a cash-credit facility it is not unusual to have a one-day irregularity,” said Prashant Kumar, deputy MD, State Bank of India. “The other relief is that it is not mandatory for banks to invoke the Insolvency and Bankruptcy Code. There are certain sectors where resolution takes longer time. Now we have that comfort that if we make a little higher provision we can work on a resolution without going to IBC,” he added.RBI has made it easier for banks to upgrade stressed assets but has put safeguards in place. “Even though criterion for upgradation of a stressed account has been relaxed, which now requires at least 10% of debt repayments at the time of restructuring from 20% earlier; the requirement of an investment grade ratings by external agency will ensure that upgradation is done only for viable cases,” said Karthik Srinivasan, group head (financial sector ratings), ICRA.The RBI has now allowed banks to decide on a resolution with only 75% of the lenders by value agreeing — it has said that such a deal can work only if all lenders agree in principle to work on a resolution under an inter-creditor agreement.Power sector companies, which were affected the most by the circular, argued that their outstanding loans of Rs 5.65 lakh crore (as of March 2018) were a result of factors beyond their control such as unavailability of fuel and cancellation of coal blocks by the apex court/government and non-payment by state-run discoms.“The circular increases period to implement a resolution from 180 to 365 days with dis-incentive of additional provisioning. It incentivises bankruptcy references by creditors by permitting reversal of additional provisioning,” said L Viswanathan, partner, Cyril Amarchand Mangaldas. He added that by making inter-creditor agreement mandatory amongst banks, financial institutions, finance companies and asset reconstruction companies, RBI has kept in mind interests of dissenting creditors.