Lifeline for borrowers under Revival Units: CB

• Asserts one of the key objective of BRU is to provide breathing space for businesses to recover
• Says parate-execution can be suspended for a pre-agreed period with both parties agreeing 
• Points out banks are not giving proper instructions to their branches

By Nishel Fernando

While some borrowers have criticised the loan recovery methods of financial entities, the Central Bank (CB) has stated that under the proposed detailed guidelines for the establishment of Business Revival Units, borrowers can negotiate with their banks to stay financially afloat.

Under the proposed guidelines, measures are included to provide breathing space for businesses to recover.

CB Governor Dr. Nandalal Weerasinghe, speaking at a recent webinar, highlighted the need for collaboration, stating, “The revival system will be developed through a collaborative approach between banks and borrowers. Upon reaching a mutual agreement between parties, parate execution can also be suspended for a pre-agreed period with the consent of both parties in order to allow the revival of the business.”

The proposed circular will include detailed guidelines on assessing borrower viability, different revival mechanisms, revival processes, and governance structure requirements.

Initial guidelines for post-COVID-19 revival units were issued in March 2022. However, Dr. Weerasinghe acknowledged shortcomings.

“Some of the banks have revival units in the headquarters. They are not giving proper instructions to all the branches for the same kind of engagement with businesses, and they may not have gone to the same level as we expected,” he said.

Over 2,500 loan facilities totalling Rs. 85 billion were transferred to these specialised units. The proposed “more granular” guidelines aim to strengthen Business Revival Units to provide SMEs and corporates with necessary support based on past experiences.

Dr. Weerasinghe emphasised the importance for banks to support their customers in recovery. However, he noted that banks may resort to credit recovery action if a borrower fails to revive, in order to protect depositors’ funds.

Multi creditor arrangements for corporates 

The Central Bank is set to introduce multi-creditor arrangements as part of the proposed detailed guidelines for the establishment of Business Revival Units, with specific focus on corporates.

According to CB Governor, borrowers with multiple exposures to different banks will need to engage in discussions with their respective banks regarding these arrangements.

The multi-creditor arrangement, to be implemented on a voluntary basis among licensed banks and borrowers, aims to address the financial and business risks faced by corporates that have obtained credit facilities from more than one licensed bank.