Banking and Insurance - Laws and Practice · Performing and Non Performing Assets

Resolution of Stressed Assets under the RBI Prudential Framework

Updated 11 October 2026

Resolution of stressed assets means a bank and a borrower in default agree a plan that revives the account. Under the RBI Prudential Framework of June 2019, lenders must sign a resolution plan and implement it within set timelines. Restructured accounts are upgraded to standard only after satisfactory performance during a monitoring period.

Understand Resolution of Stressed Assets

A stressed asset is a loan where the borrower is unable to repay on time. It includes an NPA and an account showing early signs of stress, such as a special mention account. Banks have two broad choices. They can recover the money through enforcement. Or they can resolve the account by changing the terms so the borrower can pay again.

Resolution can be done in several ways: restructuring (change in repayment schedule, rate, tenor or conversion of debt into equity), sale of the loan to another lender or an asset reconstruction company, or a compromise or one time settlement (OTS). The aim is to recover more than a forced sale would give, and to keep a viable business alive.

Earlier schemes such as CDR, SDR and S4A gave banks wide discretion and were later withdrawn. The RBI replaced them with the Prudential Framework for Resolution of Stressed Assets, 2019. Its core idea is early detection and time-bound action. A default triggers a review period, during which the lenders decide the resolution strategy. The plan must then be implemented within a fixed period. If it is not, the bank must hold additional provisions.

Lenders in a consortium or multiple banking arrangement act together. A resolution plan needs the agreement of lenders holding at least 75% by value of the total outstanding credit facilities and at least 60% by number of lenders. An Inter-Creditor Agreement (ICA) records this arrangement and must be signed within the review period. Resolution plans that involve restructuring or change in ownership also need an Independent Credit Evaluation (ICE). One ICE is needed for exposures of ₹100 crore and above, and two ICEs are needed for exposures of ₹500 crore and above.

A restructured account carries a risk label. It is not automatically good. It is treated as standard only if it meets conditions, and upgradation needs satisfactory performance for a specified period. Compromise settlements are separate: the bank accepts less than the dues, and the account is usually not upgraded merely because the settlement amount is paid, but the bank must follow its board-approved policy.

Key rules to remember

Review period: Review period = 30 days, starting from the date of default by the borrower with any lender; Applies under the 2019 framework for lenders to decide the resolution strategy. The clock starts when the borrower is in default with any lender, not only with your bank.
Implementation timeline: Resolution plan implemented within 180 days from the end of the review period; If implementation fails, additional provisions apply on the lenders' residual debt, at the prescribed percentages.
Additional provision on delay: Additional provision = 20% (plan not implemented within 180 days from the end of the review period), and a further 15% (plan not implemented within 365 days from the commencement of the review period) = 35% total; These are additional provisions held on the lenders' residual debt. They are reversed upon implementation of the plan, as the framework states. Learn the two stages and the combined figure as per the RBI framework.
Upgradation of restructured accounts: Upgrade to standard only if the borrower repays at least 10% of the residual debt during the monitoring period and the account is not in default for more than 30 days at any time in that period; Monitoring period: a minimum of 1 year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with the longest period of moratorium. Both tests, the 10% repayment and the 30-day default limit, are measured within the monitoring period. The 10% repayment is measured on the residual debt. For projects under implementation and for specified exposures, additional conditions apply, so check the facts for these.
Conditions for implementation: For a lender-wide resolution, the ICA must be signed by the required lenders within the review period. The plan is implemented when all documentation is executed, the new terms are reflected in the books, and the borrower is not in default under the revised terms; Residual debt must be sustainable under the plan. The ICA is a condition to be met within the review period, not only at implementation. The 30-day overdue test then continues during the monitoring period after implementation.
Downgrade on slippage: If the account is in default for more than 30 days at any time during the monitoring period, it is a re-default and is downgraded in asset classification as per the IRAC norms then in force; Applies in the monitoring period after implementation. This typically means NPA, but the classification follows the IRAC norms.

How to solve Resolution of Stressed Assets questions

Use this method for any question on resolution, restructuring, upgradation or settlement. Write in the order provision, facts, conclusion.

1Identify the account status in the facts: standard, SMA, or NPA, and the date of default.
2Name the instrument: restructuring, sale, OTS or compromise, or an IBC referral. State the RBI framework that governs it.
3Apply the timeline: review period, then implementation period, and say whether the bank is within time.
4Check approval: whether the ICA is signed and the required lenders have agreed to the plan.
5Check implementation conditions and the effect on classification: does the account stay as is, slip, or get upgraded?
6Test upgradation: has the borrower paid the required amount and satisfied the monitoring period without default?
7Compute any additional provision if the timeline was missed, using the lenders' residual debt as the base.
8Conclude clearly: state the classification and the bank's next action.

Quickest way: Timeline-and-status check

When to use it: Use when the question gives dates, an outstanding amount and asks for classification or provisioning.

Mark the default date and add the review period, then the implementation period.
Compare the actual signing date of the plan with these dates.
If late, apply the additional provision percentage to the lenders' residual debt.
If on time, check the monitoring period and repayment record before saying upgrade.
Write a one-line conclusion with the classification.

Common mistakes in Resolution of Stressed Assets

Saying a restructured account is automatically standard.
Students think the new terms cure the default.
Fix: State that the account is upgraded only after the conditions and the monitoring period are met.
Mixing up the old CDR, SDR and S4A schemes with the 2019 framework.
Older notes still describe them.
Fix: Name the 2019 Prudential Framework as the current regime and treat the older schemes as withdrawn.
Applying additional provision to only the overdue amount.
Confusion between arrears and the debt under the plan.
Fix: Calculate it on the lenders' residual debt, not just the arrears, as the framework requires.
Treating OTS as a way to upgrade an NPA.
Settlement looks like a repayment.
Fix: Explain that OTS is a compromise under the bank's board-approved policy and does not by itself restore standard status.
Ignoring the Inter-Creditor Agreement in consortium cases.
Students focus on the borrower only.
Fix: Mention the ICA and the lender approval needed before the plan is implemented.
Quoting percentages and days without saying they come from the RBI framework.
Memorising numbers without the source.
Fix: Attribute each figure to the RBI prudential framework and state the condition it applies under.

Worked examples

Example 1

A borrower defaults with its lenders on 1 April, so the 30-day review period starts on that date. The lenders' residual debt under the plan is ₹100 crore. The resolution plan is implemented on day 230 from the start of the review period, that is, 200 days after the review period ended. Using the 2019 framework, compute the additional provision.

Show the solution

The review period runs for 30 days from the start, so it ends on day 30.
The plan is implemented on day 230, which is 230 - 30 = 200 days after the review period ended.
The framework allows 180 days from the end of the review period. The deadline is therefore day 30 + 180 = day 210 from the start.
Implementation took 200 days, which exceeds the 180-day limit, so the first stage additional provision of 20% applies.
20% × ₹100 crore = ₹20 crore.
The further 15% applies only if the plan is not implemented within 365 days from the commencement of the review period. Day 230 is within day 365, so the further 15% does not apply.
The additional provision is held on the residual debt and is reversed once the plan is implemented, as the framework provides.

Answer: Additional provision is ₹20 crore, being 20% of the ₹100 crore residual debt, because implementation took 200 days after the review period, which exceeds the 180-day limit. The further 15% does not arise because implementation took place on day 230, within 365 days from the start of the review period.

Example 2

A restructured account has been implemented. The borrower has repaid more than 10% of the residual debt and has made all repayments regularly, with nothing overdue beyond 30 days, for the full monitoring period. Can the bank upgrade it to standard? What if the borrower defaults for more than 30 days during the monitoring period?

Show the solution

State the rule: an implemented account is upgraded only after the prescribed repayment and satisfactory performance during the monitoring period.
Check the facts: repayment above 10% of the residual debt and regular payment with no overdue beyond 30 days for the full period meet the conditions.
Conclude that the bank may upgrade the account to standard.
For the second case, state that a default of more than 30 days at any time during the monitoring period is a re-default.
The account is then downgraded in asset classification as per the IRAC norms, which typically means NPA, and provisioning follows that classification.

Answer: In the first case the bank can upgrade the account to standard. In the second case it must downgrade the account as per the IRAC norms, which typically means NPA.

Exam tips

Write the framework name (RBI Prudential Framework for Resolution of Stressed Assets, 2019) in the first line.
Use a short timeline line: default, review period, implementation, monitoring.
Show the arithmetic of additional provision on the lenders' residual debt.
In case studies, always state the classification before and after the event.
Keep OTS and restructuring answers separate: one is a compromise, the other a revised repayment plan.

Practice questions from Performing and Non Performing Assets

Resolution of Stressed Assets: frequently asked questions

What is the RBI prudential framework for resolution of stressed assets?

It is the RBI's June 2019 framework that replaced earlier schemes such as CDR, SDR and S4A. It requires lenders to review defaulted accounts and implement a resolution plan within set timelines. Delay attracts additional provisions.

When can an NPA account be upgraded to standard?

Generally when the borrower clears the arrears of interest and principal and the account performs satisfactorily. For a restructured account, the conditions in the framework and the monitoring period must also be met.

What is one time settlement in banking?

It is a compromise in which the bank accepts a lump sum that is less than the total dues in full settlement. Banks follow a board-approved policy for such settlements.

Does restructuring mean the loan is written off?

No. Restructuring changes the terms of repayment so the borrower can pay. The loan remains an asset in the books and the bank continues to recover it.