To ensure maximum recovery from stressed assets, the Reserve Bank of India has allowed all banks in the country to undertake settlement of fraudulent and willful default accounts. Following this permission, all regulated entities (REs) in the country will be required to put in place board-approved policies for settlement settlement with borrowers as well as for technology write-offs. Come, let’s know about this news completely.
Negligence in taking loan will be costly
The RBI said the policies will also establish a graded framework for checking accountability of employees in such cases with appropriate thresholds and timelines as may be decided by the board. All Banks (REs) in the country may introduce settlement solutions or technical write-offs for accounts classified as willful defaulters or frauds.
This notification states that after prudential calculation of the present realizable value of the security/collateral for compounding settlement, the provisions relating to permissible sacrifice for different categories of risk shall be included while computing the settlement amount. The methodology for arriving at the realizable value of said security will also form part of the policy.
What is its purpose?
The objective shall be to maximize the possible recovery from the distressed borrower at minimum cost in the best interest of the Regulated Entity (RE). The settlement settlement and technical write-off shall be without prejudice to any mutually agreed contractual provisions between the RE and the borrower relating to future contingent recoveries or recoveries by the RE.
It is clearly stated that such claims will not be recognized in the balance sheet in any way. Wherein, any such claim recognized on the balance sheet of RE will be treated as restructured as per the extant guidelines.
