After multiple representations from asset reconstruction companies (ARCs), the central bank is likely to do away with its directive on conducting background checks of defaulting retail borrowers by independent experts, two sources familiar with the development said.
Banks had put a halt to the sale of retail loans to ARCs after this directive from RBI.
“The RBI has called for extensive data from ARCs on sale of retail loans; we believe a reprieve is on the way,” said the CEO of a large ARC. “Our request to the regulator is that the entire sale of retail bad loans be taken out of this background-check requirement. Another request we have made is that these rules be not applicable to loans up to ’10 crore.”
In October, the RBI had released guidelines for the ARC sector that mandated them to carry out background checks of borrowers by an independent advisory committee (IAC). As per the rules, the IAC would comprise professionals having technical, financial, and legal expertise.
The advisory committee is required to study the financial strength of a borrower before suggesting a settlement. Also, at least two independent directors will have to study the recommendations and give their verdict whether that’s the best possible route for recovery. Experts say this is a costly and time-consuming affair.
“Multiple representations have been made by ARCs and the RBI has heard them favourably,” said another ARC chief executive. “We have submitted that it’s just operationally impossible to take so many retail cases to our board. We have requested the regulator to allow settlements to happen even before we exhaust all other legal means. We can take larger assets through the independent advisory committee and board, but retail loans should be exempt from it.”
ARCs have also requested that in wholesale assets where there is no security, they should be allowed to be settled without IAC scrutiny.
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