The Reserve Bank of India (RBI) on October 14, 2022 has re-issued Master Circular – Asset Reconstruction Companies.
The following has been stated namely: -
• Settlement of dues payable by the borrower: -
(i) Settlement of dues with the borrower shall be done only after the proposal is examined by the IAC. The IAC, after assessing the financial position of the borrower, the time frame available for recovery of the dues from the borrower, projected earnings & cash flows of the borrower and other relevant aspects, shall give its recommendations to the ARC regarding the settlement of dues with the borrower.
(ii) The Board of Directors including at least two independent directors shall deliberate on the recommendations of IAC and consider the various options available for recovery of dues before deciding whether the option of settlement of dues with the borrower is the best option available under the existing circumstances and the decision, along with the detailed rationale, shall be specifically recorded in the minutes of the Board meeting.
(iii) Settlement with the borrower should be done only after all possible steps to recover the dues have been taken and there are no further prospects of recovering the debt.
(iv) The Net Present Value (NPV) of the settlement amount should generally be not less than the realizable value of securities. If there is a significant variation between the valuation of securities recorded at the time of acquisition of financial assets and the realisable value assessed at the time of entering into a settlement, reasons thereof shall be duly recorded.
(v) The settlement amount should preferably be paid in lump sum. In cases where the borrower is unable to pay the entire amount in lump sum, IAC shall make specific recommendations about minimum upfront lump-sum payment and maximum repayment period.
• Securitisation – Investment in SRs issued by the trusts floated by ARC - ARCs shall, by transferring funds, invest in the SRs at a minimum of either 15% of the transferors’ investment in the SRs or 2.5% of the total SRs issued, whichever is higher, of each class of SRs issued by them under each scheme on an ongoing basis till the redemption of all the SRs issued under such scheme.
Please refer to the circular for further updates.
[Notification No. RBI/2022-23/03]
