The Reserve Bank of India recently put forward new regulatory guidelines for asset reconstruction companies (ARCs) and reports suggest that this could impact settlement of stressed retail loans. The new guidelines do not differentiate between corporate and retail loans, intended to prevent ARCs from cutting deals with defaulting businesses. This may make it difficult for lenders to offload retail bad loans, TOI said in a report.

ARCs usually buy bad loans at a discount from lenders and try to make a profit by recovering a large amount. reserve Bank of India The guidelines for reconstruction of financial assets by way of settlement of dues payable by borrowers have been revised.

“The outstanding amount with the borrower will be settled only after the proposal is examined by an independent advisory committee (IAC) which will include professionals with technical/finance/legal background,” it said.

The IAC, after assessing the financial position of the borrower, will give its recommendations on the time frame available for recovery of dues, estimated income and cash flow of the borrower and other relevant aspects. arch In respect of settlement of dues with the borrower.

The norms require that settlement with the borrower should be done only when all possible steps have been taken to recover the dues and there is no further possibility of recovery of the loan. In cases where the lender holds a security, the settlement amount should not be less than the value of the security.

The norms set by the RBI seem to be aimed at settling large corporate loans, but exceptions have not been made for retail and small loans, said RK Bansal, MD, Edelweiss Asset Reconstruction CompanyTold TOI. edelweiss ARC has been procuring retail bad loans including home and education loans from lenders for more than three years and recovering through various means including settlement.

In case of unsecured loans, settlement will be the only viable option. “Most retail debt recovery is through settlement, thanks to the credit bureaus, Base And through consultation the availability of mobile number recovery has improved,” he said. Under the new norms, ARCs will not find it practical to settle loans.

Earlier, the central bank had constituted a committee to comprehensively review the working of ARCs and recommend suitable measures to enable them to function in a more transparent and efficient manner.

RBI said that the regulatory framework of ARC has been amended based on the recommendations of the committee and feedback from stakeholders.