RBI's New Guidelines for ARCs: Streamlining Borrower Settlements

 

RBI's New Guidelines for ARCs: Streamlining Borrower Settlements

On January 20, 2025, the Reserve Bank of India (RBI) introduced revised guidelines for Asset Reconstruction Companies (ARCs) aimed at improving the settlement process for borrower dues. Here’s a quick overview of the key changes:

Key Highlights

1. Board-Approved Policy

ARCs must establish a clear, Board-approved policy for settling dues, covering eligibility criteria, permissible sacrifices, and methods for valuing securities.

2. Last Resort Settlement

Settlements should only occur after exhausting all recovery options. The Net Present Value (NPV) of the settlement must not fall below the realizable value of securities.

3. Preferred Lump Sum Payments

Borrowers are encouraged to make lump sum payments, with staggered payments requiring a solid business plan and cash flow projections.

4. Independent Advisory Committee (IAC)

For dues over ₹1 crore, an IAC must review settlement proposals to ensure thorough evaluation by professionals with relevant expertise.

5. Simplified Process for Smaller Accounts

For accounts under ₹1 crore, ARCs can process settlements without IAC review, although involved officials cannot participate in the settlement process.

6. Special Rules for Fraud and Willful Defaults

Stricter guidelines apply to borrowers classified as fraudsters or willful defaulters, requiring IAC review regardless of the amount.

7. Legal Compliance

Settlements must comply with existing laws, especially when judicial proceedings are involved.

Conclusion

These guidelines enhance transparency and accountability in borrower settlements while promoting efficiency in recovering dues. As ARCs adapt to these changes, borrowers can expect a more structured and fair settlement process.

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