Stress Asset Policy

POLICY ON RESOLUTION OF STRESSED ASSETS

Policy Overview

Document Revision History

TABLE OF CONTENT

1. Overview

The Reserve Bank of India, vide its Non-Banking Financial Companies – Resolution of Stressed Assets) Directions, 2025, has mandated that NBFCs shall put in place a Board-approved policy for the resolution of stressed assets. The Directions require a well-defined framework for early identification of stress, determination of financial difficulty based on quantitative and qualitative parameters, and implementation of time-bound resolution plans.

In compliance with the aforesaid Directions, and in line with the DJT Microfinance Pvt Ltd’s commitment to prudent credit risk management and responsible lending practices, this Policy on Resolution of Stressed Assets (“Policy”) has been formulated. The Policy aims to establish a structured, transparent, and consistent approach for managing stressed exposures, while balancing the objectives of borrower support and protection of the Company’s financial interests.

2. Objective

The objective of this Policy is to provide a comprehensive framework for the early identification, classification, and resolution of stressed assets. It seeks to ensure timely intervention in borrower accounts exhibiting signs of financial difficulty, facilitate viable resolution strategies, and minimize potential credit losses.

3. Scope and Applicability

This policy applies to all credit exposures of the Company, irrespective of product type, borrower category, or ticket size. It covers all loan accounts that exhibit signs of financial stress at any stage of their lifecycle, including those that are overdue, classified under Special Mention Accounts (SMA), or have the potential to slip into non-performing assets (NPAs).

4. Definition of Financial Difficulty and Stressed Assets

A borrower shall be considered to be under financial difficulty when there is a demonstrable or likely deterioration in their ability to meet repayment obligations as per the original contractual terms.

The Company shall determine financial difficulty through a structured framework that incorporates both quantitative and qualitative parameters. The assessment shall be forward-looking and shall not be restricted to past-due status alone.

Quantitative indicators shall include measurable signals such as overdue status, repeated payment failures, deterioration in credit bureau profile, increase in borrower indebtedness, decline in income or cash flows, and erosion in collateral coverage where applicable.

Qualitative indicators shall include factors such as loss of employment or livelihood, business disruptions, adverse economic or environmental conditions, health-related emergencies, behavioural changes indicating unwillingness or inability to repay, and field-level observations regarding the borrower’s financial condition.

The detailed matrix of such indicators, along with defined thresholds, is provided in Annexure A to this Policy.

5. Early Identification and Monitoring Framework

The Company shall maintain a proactive monitoring mechanism designed to identify early warning signals of stress.

Accounts exhibiting initial signs of stress shall be flagged promptly. The emphasis shall be on early engagement with the borrower to understand the underlying causes of stress and to assess the feasibility of corrective measures.

6. Resolution Philosophy and Approach

The Company shall adopt a resolution approach that is guided by the principles of viability, fairness, and prudence. Resolution efforts shall be undertaken with the objective of restoring the borrower’s repayment capacity wherever feasible, while ensuring that the Company’s financial interests are adequately protected.

Any resolution plan shall be based on a realistic assessment of the borrower’s financial position and future cash flow generation capacity.

At all times, the Company shall ensure that resolution actions are undertaken in a transparent manner.

7. Resolution Strategies

The Company may consider a range of resolution measures depending on the nature and severity of financial difficulty faced by the borrower. These may include restructuring of repayment terms, such as extension of loan tenor, rescheduling of instalments, or modification of repayment frequency, in order to align obligations with the borrower’s cash flows.

Where the exposure is secured, the Company may also explore measures involving the underlying collateral, including enforcement or liquidation, as a last resort and in accordance with applicable legal and regulatory provisions.

The selection of an appropriate resolution strategy shall be guided by the principle of maximizing recovery while ensuring fairness and sustainability.

8. Timelines for Resolution

The Company shall adhere to defined timelines to ensure that stressed assets are addressed in a prompt and structured manner. Upon identification of stress in an account, the process of evaluating and formulating a resolution plan shall be initiated without undue delay.

As a general principle, the Company shall endeavour to finalize a resolution plan within 30 days from the date of identification of stress. Once a resolution plan is approved, its implementation shall be completed within a period not exceeding 90 days from the date of such approval.

In cases where accounts are classified as NPAs, a clear recovery or resolution strategy shall be formulated within 30 days of such classification.

These timelines are intended to ensure discipline and prevent prolonged uncertainty in the resolution process.

9. Approval Authority

All resolution plans under this Policy shall be approved by the Chief Executive Officer (CEO) of the Company. The CEO shall evaluate proposals based on the borrower’s financial position, viability of the resolution plan, and overall impact on the Company’s risk profile, and may seek inputs from relevant internal functions as deemed necessary.

10. Monitoring of Resolved Accounts

Accounts that have undergone resolution shall be subject to enhanced monitoring to ensure adherence to the revised terms and to detect any signs of recurring stress. The performance of such accounts shall be tracked separately.

In the event of failure of a resolution plan, the Company shall take timely corrective action, including initiation of recovery proceedings where necessary.

11. Regulatory Compliance and Reporting

The Company shall ensure that all resolution actions are in compliance with applicable regulatory guidelines, including those relating to asset classification, provisioning, and reporting.

Necessary disclosures and reports shall be made to the Reserve Bank of India and other stakeholders as required under applicable regulations.

12. Review of Policy

This policy shall be reviewed at least annually, or earlier if warranted by changes in regulatory requirements, business environment, or the Company’s risk profile. Any modifications to the policy shall be subject to approval by the Board of Directors.

Annexure A: Early Warning Signals (EWS) Matrix for Determination of Financial Difficulty

The Company shall use the following matrix of quantitative and qualitative indicators to identify financial difficulty in borrower accounts. These indicators are designed to enable early detection of stress and trigger timely resolution actions.

The presence of any of the below indicators, either individually or in combination, shall warrant classification of the account as exhibiting financial difficulty, depending on severity and persistence.

A. Quantitative Indicators

B. Qualitative Indicators

C. Risk Categorization Based on EWS

The Company shall categorize accounts based on the severity and combination of indicators:

• Low Risk / Early Warning:

Presence of isolated indicators (e.g., single missed payment, early DPD, minor behavioural signals)

• Moderate Risk:

Combination of 2–3 indicators or persistence of early warning signals over time

• High Risk / Severe Stress:

Multiple indicators including higher DPD, repeated payment failures, and adverse qualitative signals

D. Trigger Points for Action

• Any account with DPD ≥ 1 day or one qualitative red flag shall be flagged for monitoring
• Any account meeting moderate risk criteria shall be escalated for evaluation of resolution options
• Any account meeting high-risk criteria shall mandatorily be considered for immediate resolution planning

E. Documentation and System Capture

All Early Warning Signals identified shall be:

• Captured in the System
• Supported by appropriate evidence
• Periodically reviewed by the credit/risk function

F. Periodic Review of Thresholds

The thresholds and indicators specified in this matrix shall be reviewed periodically based on:

• Portfolio performance trends
• Changes in borrower segments
• Regulatory expectations