The RBI has also mentioned that if the acquirer has no existing exposure to the borrower whose stressed loan account is acquired, the purchased stressed asset shall be classified a‘standard’ upon acquisition.
Lenders can sell stressed assets only on a cash basis, the Reserve Bank of India (RBI) said in its draft comprehensive framework for sale of loan exposures released on Monday. “The entire sale consideration should be received upfront and the asset can be taken out of the books of the transferor only on receipt of the entire sale consideration,” the banking regulator specified contours for selling bad loans to entities or asset reconstruction companies (ARCs).
The RBI also said lenders shall hold the purchased stressed assets on their books for at least 12 months before selling it to other party. The regulator has mandated assigning 100% risk weight for non-performing asset (NPA) acquisition, if the acquirer is classifying it as ‘standard asset’ in its books. “If the asset is classified as ‘non-performing asset’, risk weights as applicable to NPAs shall be applicable,” the RBI further said. The purchasing lenders shall adjust recoveries in respect of an NPA purchased from other lenders against its acquisition cost only. Thereafter, recoveries in excess of the acquisition cost can be recognised as profit as per draft guidelines by the regulator.
The RBI has also mentioned that if the acquirer has no existing exposure to the borrower whose stressed loan account is acquired, the purchased stressed asset shall be classified a‘standard’ upon acquisition. Thereafter, the asset classification status of the financial asset purchased, shall be determined by the record of recovery in the books of the purchasing lender with reference to cash flows estimated while purchasing the asset.
The central bank has also barred loan transfer to any related party to the stressed company, as specified in Section 29A of the Insolvency and Bankruptcy Code, 2016. The regulator has said that for exposures beyond `50 crore, the seller of bad loans shall obtain two external valuation reports. The guidelines mandate acquirer of bad loan to sign an inter-creditor agreement (ICA) in case the transferred account is undergoing resolution process.
For selling a ‘standard’ loan portfolio, the RBI has specified minimum number of instalments paid on the account. The lender has released a chart for minimum payments made before selling a ‘standard’ loan. For example, a loan with a tenure of up to two years, minimum three ‘monthly’ installments need to be paid before selling it to other party. Similarly, for loans between two to five years, minimum six ‘monthly’ installments should be paid.