Mumbai: Asset reconstruction companies (ARC) have written to the Reserve Bank of India (RBI) to review settlement guidelines issued in October 2022 to ensure further simplification without compromising on the objective of a mechanism harmonious with the processes that govern such transactions for other regulated entities.
The RBI had introduced a unified framework in June 8, 2023, for compromise settlements and technical write-offs for all entities such as banks, NBFCs, HFCs, AIFIs, etc. The October 2022 circular requires all settlement proposals to be vetted by an Independent Advisory Committee (IAC) with professionals having technical, finance, or legal backgrounds and thereafter all proposals have to be approved at the board level of a bank.
It also requires settlements with borrowers to only happen after all possible steps to recover dues have been taken, and there’s no more chance of recovering the debt.
“Given that ARCs acquire debts from these entities, the ARC association has requested for uniformity in treatment of settlement guidelines,” said a source close to the development.
The June guidelines applicable to other regulated entities require Board only to approve policy, delegate powers to various functionaries and it does not need to be vetted by any Independent Advisory Committee.
ARCs are facing difficulty in implementing the settlement guidelines. According to a source, large ARCs with retail NPAs, have settled 1000s of cases after introduction of revised settlement guidelines. Taking these 1,000s of cases to board and getting it vetted by IAC and approved by board is nearly an impossible task, the source said.
“It is difficult for the IAC to clear around 40-50 cases on average per day and route the proposal through the board to sanction each case,” said another ARC executive.
ARCs have been requesting the regulator to take a practical view and dispense with rigid stipulations like referring each case to IAC and then to the Board, ARC Boards may be authorised, as was the position earlier to October 2022, to delegate powers to various functionaries, more so in case of retail loans where on the spot decisions have to be taken.
