RBI Unveils Revised Framework For ARC Borrower Settlements

Guwahati: The Reserve Bank of India (RBI) has issued new guidelines for settling dues payable by borrowers to Asset Reconstruction Companies (ARCs) on Monday (January 20), effective immediately.
 
Issued under Sections 9 and 12 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the revision is intended to improve transparency, accountability and efficiency in settlement processes carried out by ARCs, as per RBI.

Moreover, ARCs are currently required to frame Broad-approved policies governing dues settlement. These policies must cover key aspects - the eligibility cut-off dates for one-time settlements, permissible sacrifices for various exposure categories and methodologies to determine the realizable value of securities, according to ANI.

The new guidelines will ensure settlements are executed with clear and transparent protocols. Settlements can only be pursued after all recovery options have been exhausted, and the Net Present Value (NPV) of the settlement amount must typically meet or exceed the realizable value of the securities.

Reasons must be documented in case of significant differences between the valuation of securities at the time of acquisition and their value during settlement. Settlements should preferably be paid in lump sums to ensure accountability. Acceptable business plans and cash flow projections of the borrower must support the proposals in cases involving instalment payments.

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The guidelines classify settlement procedures based on borrowers' outstanding dues. For accounts that exceed Rs 1 crore, proposals must be examined first by an Independent Advisory Committee (IAC) comprising professionals with expertise in finance, law, or technical fields. Recommendations of the IACs are then reviewed by the ARC's Board, including at least two independent directors, as per reports.

Check out more info by clicking on this link: Guidelines on Settlement of Dues of borrowers by ARCs