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RBI issues fresh guidelines on Settlement of Dues of borrowers by ARCs and updates Master Direction, 2024

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From today, the Master Directions by RBI, which prescribe the guidelines on settlement of dues payable by the borrowers of the ARCs, will come into effect.

An overview of the change:

Settlement of the dues payable by the borrower:

  1. All Asset Reconstruction Companies (ARCs) to frame a policy for settlement of dues payable by the borrowers, which shall be approved by the Board.

  2. The Net Present Value (NPV) of the settlement amount should generally not be less than the realizable value of securities, else, reasons thereof to be recorded.

  3. The settlement amount should preferably be paid in lump sum, if not, an acceptable business plan including projected earnings and cash flows of the borrower, to be on record.

  4. Settlement of accounts for an account having aggregate value of more than ₹1 crore in principal, at the time of acquisition by the ARC, shall be done as per Board approved policy, subject to the following:

    1. Settlement of dues with the borrower shall be done only after the proposal is examined by an Independent Advisory Committee (IAC) which shall consist of professionals having technical/finance/legal background.

    2. The Board of Directors shall include at least two independent directors or a Committee of the Board meeting the prescribed criteria, will deliberate on the recommendations of IAC and consider 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 and the detailed rationale, be recorded in the minutes of the meeting.

  5. Any official who was part of the acquisition (as an individual or part of a committee), will not be able to participate in the approving of the proposal for settlement in any capacity.

  6. A suitable reporting format is mandated to ensure adequate coverage of the trend in number of accounts and amounts subjected to compromise, settlement, extent and timelines of recovery in such accounts, etc.

  7. The guidelines shall be applicable for all borrowers classified as frauds or wilful defaulters, irrespective of the amount involved.

  8. The compromise settlements with the borrowers under the above framework shall be without prejudice to the provisions of any other statute in force and if any recovery proceedings are pending before any judicial forum, than, any settlement arrived at with the borrower shall be subject to obtaining a consent decree from the concerned judicial authorities.


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