A revised set of rules issued by the Reserve Bank of India on the transfer of loans between banks and non-banks could lead to a broader market for such transactions.
The Reserve Bank of India has allowed lenders/banks to transfer of loans that have been classified as fraud by these lenders to Asset Reconstruction Companies (ARCs).
Stressed loans including fraud loans that are in default for more than 60 days or classified as NPA are permitted to be transferred to ARCs. This comes in the wake of banks reporting frauds aggregating Rs 3.95-lakh crore between FY19 and FY21.
New guidelines:
- Under the new guidelines, loans can be transferred only after a minimum holding period (MHP) of three months in case of loans with tenor up to 2 years, and six months for those with the tenor of more than 2 years.
- In case of loans where the security does not exist or cannot be registered, the MHP shall be calculated from the date of the first repayment of the loan.
RBI Allows Banks To Sell Loans Classified As 'Frauds' To ARCs
- The buyer must be incorporated in India or registered with a financial sector regulator here.
- The buyer shouldn't be classified as a non-performing asset by any lending institution at the time of transfer.
- The buyer must fully replace all lenders involved in the case.
- Such transactions must take place only on cash basis.
- The buyer shouldn't have funded the bad loan purchase through lenders seeking to sell their exposure.
- Lenders seeking to sell their loans aren't allowed to extend any loan facilities, other than working capital loans, to the company whose loan exposure is being sold for a period of three years from the transfer.
- Similarly, for a period of three years, lenders cannot extend any loan facilities to the buyer of the loan, for the specific purpose of deploying funds in the borrower whose loan account was purchased.
loans declared as fraud by banks
- 2020-21 (FY21): worth Rs 1.37 trillion
- 2019-20 (FY20): worth Rs 1.81 trillion
- 2018-19 (FY19): worth Rs 64,539 crore
