HomeFinanceRBI permits banks to sell fraud loans to asset reconstruction companies

RBI permits banks to sell fraud loans to asset reconstruction companies

The Reserve Bank of India (RBI) on Friday permitted banks to sell fraud loan exposures to asset reconstruction organizations (ARCs). Banks will now be in a position to transfer to ARCs loan exposures classified as fraud as on the date of transfer, supplied that the responsibilities of the bank with respect to continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings associated to such complaints shall also be transferred to the ARC.

“The transfer of such loan exposures to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds,” the RBI stated in its master path on transfer of loan exposures.

The recommendations stated that lenders will have to place in location a complete board-authorized policy for transfer and acquisition of all loan exposures. These recommendations will have to lay down the minimum quantitative and qualitative requirements relating to due diligence, valuation, requisite IT systems for capture, storage and management of information, threat management and periodic board-level oversight.

The board-authorized policies of every single lender on transfer or acquisition of stressed loans shall cover the norms and process for transfer, the valuation methodology to be followed, delegation of powers to many functionaries for taking choices on the transfer of loans, stated objectives for acquiring stressed assets and the threat premium to be applied.

When negotiated on a bilateral basis, the negotiations will have to necessarily be followed by an auction by means of the Swiss challenge technique if the aggregate exposure of lenders to the relevant borrower is `100 crore or more. In all other circumstances, the bilateral negotiations shall be topic to the value discovery and worth maximisation approaches adopted by the transferor as portion of the board-authorized policy, the RBI stated.

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