Amid rising NPAs, RBI today asked banks to put in place clear policies for sale of stressed assets to securitisation and reconstruction firms and secure two external valuation reports in case the exposure tops Rs 50 crore.
In order to further strengthen banks’ ability to resolve their stressed assets effectively, RBI has come out with an “improved framework” governing sale of such assets by banks to securitisation companies (SCs), reconstruction companies (RCs), other banks or non-banking financial companies or financial institutions.
As per the framework, at least once in a year, preferably at the beginning of the year, banks will identify and list internally the specific financial assets identified for sale to other institutions, including SCs/RCs.
“At a minimum, all assets classified as ‘doubtful asset’ above a threshold should be reviewed by the board or board committee on a periodic basis and a view, with documented rationale, is to be taken on exit or otherwise,” it said.
In order to attract a wide variety of buyers, the guidelines said the invitation for bids should preferably be publicly solicited. An open auction process, apart from attracting a larger set of borrowers, is expected to result in better price discovery.
“Banks should have clear policies with regard to valuation of assets proposed to be sold… However, in the case of exposures beyond Rs 50 crore, banks shall obtain two external valuation reports,” the guidelines added.
Further, the discount rate used by banks in the valuation exercise should be spelt out in the policy.
To make sure sale of stressed assets by banks actually result in ‘true sale’ of assets and create a vibrant stressed assets market, RBI also decided to progressively restrict banks’ investment backed by their own stressed assets.
To enhance SC/RCs’ ability to aggregate debt faster, a bank offering stressed assets for sale should offer the first right of refusal to an SC/RC which has already acquired the highest and significant share of the asset by matching the highest bid.
Further, banks should put in place board approved policy on adoption of Swiss Challenge Method for sale of their stressed assets to SCs/RCs/other banks/NBFCs/FIs. This will help in bringing down the vintage of NPAs sold by banks as well as enabling faster debt aggregation by SC/RCs.
On buyback of financial assets, RBI said that in cases where SCs/RCs have successfully implemented a restructuring plan for the stressed assets, banks may take over such assets after the ‘specified period’ provided the account performed satisfactorily during the ‘specified period’.
“However, a bank cannot at any point of time take over from SCs/RCs the assets they have themselves earlier sold,” the guidelines added.