RBI relaxes loan settlement rules for ARCs
The Reserve Bank of India (RBI) has levelled the playing field for asset reconstruction companies (ARCs) by relaxing norms for settling borrower dues, aligning them with banks and non-banking financial companies (NBFCs).
With lenders increasingly favouring the National Company Law Tribunals (NCLTs) to resolve unpaid accounts, ARCs have struggled to remain competitive, prompting many to focus on retail accounts that bypass NCLTs.
Under the revised guidelines, ARCs can now independently settle dues up to ₹1 crore without the need for an independent advisory committee. For amounts exceeding ₹1 crore, decisions can be made by either the board or a board committee, a departure from the earlier requirement where only the board held this authority. These changes aim to enhance ARC operations and flexibility.
For borrower accounts worth over ₹1 crore at the time of acquisition, the ARC board or a committee can consider recommendations from an internal assessment committee. Previously, only the board could review such proposals.
To address small-value cases, the new norms stipulate that officials involved in acquiring financial assets cannot process or approve settlements for the same assets. Additionally, a quarterly report detailing resolutions of small-value accounts must be presented to the board, covering trends in account numbers, amounts resolved, and classifications such as fraud or willful default.
For larger accounts, settlements must be preceded by a comprehensive review by an internal assessment committee, which evaluates the borrower’s financial position, recovery prospects, and alternative options. The rationale for decisions must be clearly documented in meeting minutes.
Even for borrowers categorized as frauds or willful defaulters, ARCs can settle dues without affecting ongoing criminal proceedings.
“These guidelines simplify the resolution of small loans, previously hindered by impractical procedures. The changes will significantly boost ARC effectiveness,” said Hari Hara Mishra, CEO of the Association of ARCs while speaking to media.
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