RBI Revises Guidelines on Settlement of Borrowers' Dues by Asset Reconstruction Companies (ARCs)

RBI Revises Guidelines on Settlement of Borrowers' Dues by Asset Reconstruction Companies (ARCs)

The revised guidelines have been issued under the powers granted by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). This Act addresses issues related to Non-Performing Assets (NPAs) and bad loans by empowering banks and financial institutions to recover defaulted loans through the auction of collateral assets, without needing court intervention.

Key Highlights of the Guidelines:

• Board-Approved Policy Requirement for ARCs: Every ARC must have a policy for settling dues payable by borrowers, including eligibility criteria for one-time settlements and other related aspects.

• Settlement of Accounts with Dues Exceeding Rs. 1 Crore: Such settlements can only proceed after a comprehensive evaluation by an Independent Advisory Committee (IAC), which will consist of financial and legal experts. The ARC's Board of Directors, including at least two independent directors, must review the IAC's recommendations and consider other recovery options.

• Settlement of Accounts with Dues Rs. 1 Crore or Below: To expedite the resolution process, these cases can now be approved by a competent authority established under the board-approved policy.

• Conflict of Interest Prevention: Officials involved in acquiring financial assets cannot participate in the approval of settlements to avoid conflicts of interest.

What are ARCs?

• Definition: ARCs are financial institutions that purchase NPAs or bad assets from banks and financial institutions, enabling them to clean up their balance sheets.

• Registration: ARCs are registered as companies by the RBI under the SARFAESI Act, 2002.

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