Stressed asset sales should take place earlier: RBI report
The committee also recommended that if 66% of lenders by value decide to accept an offer made by an asset reconstruction company (ARC), it should be binding on the remaining lenders and it must be implemented within 60 days of approval.
The RBI in April set up the committee to examine the role of ARCs in stressed debt resolution and to review their business model.
“As a measure to incentivise lenders to sell their financial assets to ARCs at an early stage of stress, the committee recommends a dispensation to lenders, on an ongoing basis, to amortise the loss on sale, if any, over a period of two years,” the report said.
It also said in order to streamline the process of selling stressed assets to ARCs, for all accounts above 1 billion rupees ($13.4 million) which are in default the lender’s resolution plan should explicitly evaluate the sale or auction of such accounts to ARCs as one of the options.
All lenders including banks must make a list of non-performing assets which they intend to sell to eligible entities including ARCs at the start of each year after entering into a confidentiality agreement with them, the report recommends.
“Providing additional funding to the stressed borrowers is a key requirement for reviving their businesses,” the report said.
Since ARCs are being envisaged as the prime vehicle for resolution of stressed assets, the committee also recommended that the minimum net owned funds requirement for ARCs should be doubled to two billion rupees.
“Existing ARCs may be provided a glide path to meet this requirement,” the report said.
The report is open for comments from stakeholders and the central bank will publish final guidelines after considering all comments received.