Master Direction: Banks can now sell fraudulent loans to ARCs

The Reserve Bank of India (RBI) on Friday allowed banks to sell fraudulent loan exposures to asset reconstruction companies (ARCs). Banks can now transfer credit exposures identified as fraudulent at the time of transfer to ARCs, provided that the bank’s responsibilities for ongoing reporting, monitoring, filing of complaints with law enforcement and procedures related to such complaints are also transferred to the ARC will.

“However, the transfer of such credit exposures to an ARC does not release the transferring party from determining the responsibility of the staff in accordance with the existing fraud regulations,” said the RBI in its guideline on the transfer of credit exposures.

The guidelines stated that lenders must establish a comprehensive, board-approved policy for the transfer and acquisition of all loan exposures. The guidelines of each lender for transferring or acquiring strained loans, approved by the panel, include the norms and procedures for the transfer, the evaluation methodology to be used, the delegation of authority to various officials to decide on the transfer of loans, the objectives set for the acquisition of the stressed Assets and the applicable risk premium.

If negotiations are carried out on a bilateral basis, the negotiations must be followed by an auction according to the Swiss Challenge method if the total commitment of the lender to the respective borrower is 100 crore or more. In all other cases, the bilateral negotiations are subject to the pricing and value maximization approaches pursued by the seller under the guideline approved by the board, said RBI. FE