The Reserve Bank of India (RBI) on Thursday issued a framework for governing compromise settlements and technical write-offs. Regulated entities shall put in place board-approved policies for undertaking compromise settlements with the borrowers as well as for technical write-offs.
Compromise settlement refers to any negotiated arrangement with the borrower to fully settle the claims of the regulated entity against the borrower in cash. It may entail some sacrifice of the amount due from the borrower on the part of the regulated entity with corresponding waiver of claims of the regulated entity against the borrower to that extent.
Regulated Entities shall put in place board-approved policies for undertaking compromise settlements with the borrowers as well as for technical write-offs. Technical write-off refers to cases where the non-performing assets remain outstanding at borrowers’ loan account level, but are written-off either partially or fully by the regulated entity only for accounting purposes, without involving any waiver of claims against the borrower, and without prejudice to the recovery of the same.
The board-approved policy shall comprehensively lay down the process to be followed for all compromise settlements and technical write-offs, with specific guidance on the necessary conditions precedent such as minimum ageing, deterioration in collateral value. The policies shall also put in place a graded framework for examination of staff accountability in such cases with reasonable thresholds and timelines as may be decided by the board.
The regulated entities must undertake settlements or technical write-offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceeding underway against such debtors.
