RBI permits transfer of fraud loans to ARCs

The Reserve Bank of India (RBI) allowed, on September 23, 2021, lenders to sell loans that are tagged as fraud to the Asset Reconstruction Companies (ARCs). This permission by RBI potentially paves the way for focussed recovery efforts on loans worth trillions of rupees.

RBI permits transfer of fraud loans to ARCs

As per RBI’s annual report, banks have reported frauds of about Rs. 95 trillion in between Financial Year 2019 and Financial Year 2021. With RBI’s permission, now banks can sell stressed loans in default for more than 60 days or those classified as bad loan including the fraudulent loans. However, this permission is subject to some conditions.

However, transfer of these exposures to an ARC does not absolve the lender from fixing staff accountability which is required under the extant instructions on frauds. Currently, lenders are not permitted to transfer fraudulent loans to asset turnaround companies. But the recent change in norms will allow ARCs to buy more assets as well as the National Asset Reconstruction Company Ltd (NARCL) to partake in more asset resolutions. It will thus lead to a faster clean-up.

Published date : 27 Sep 2021 04:24PM