RBI Revises Guidelines for ARCs on Borrower Settlements

The Reserve Bank has updated its guidelines for Asset Reconstruction Companies, requiring them to pursue settlements with borrowers only after all other recovery methods have been tried. ARCs must establish a board-approved policy for dues settlement, considering criteria like one-time settlement eligibility and permissible sacrifices.

The Reserve Bank of India (RBI) has revised its guidelines for Asset Reconstruction Companies (ARCs), mandating that they engage in settlements with borrowers only after exhausting all possible avenues for dues recovery. This move aligns with the updated 'Master Direction – Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024.'

Every ARC is required to develop a board-approved policy to manage the settlement of dues by borrowers. The policy should address critical elements, including a cut-off date for one-time settlement eligibility, permissible sacrifices for different exposure categories, and a method for determining the realisable value of securities.

The RBI emphasized that settlements should occur only after confirming that all recovery options have been explored. Payments should preferably be made in a one-time, lump sum payment. If full payment isn't feasible, proposals must be backed by a solid business plan and projected earnings. Additionally, settlements exceeding Rs 1 crore require thorough procedures, and any judicial proceedings must acquire a consent decree from the relevant authority.

(With inputs from agencies.)