RBI to ARCs: Settlements Only After Exhausting Recovery Options

Mumbai, Jan 20 (PTI) The Reserve Bank on Monday asked Asset Reconstruction Companies (ARCs) to go for settlement with borrowers only after exhausting all possible ways to recover dues.

The central bank has revised the 'Master Direction – Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024 dated April 24, 2024'.

Every ARC should frame a board-approved policy for the settlement of dues payable by the borrowers.

The policy should, inter alia, cover aspects like a cut-off date for one-time settlement eligibility, permissible sacrifice for various categories of exposures while arriving at the settlement amount and the methodology for arriving at the realisable value of the security, said the revised guidelines on settlement of dues of borrowers by ARCs.

"Settlement with the borrower shall be done only after all possible ways to recover the dues have been examined and settlement is considered as the best option available," it said.

Further, the settlement amount should preferably be paid in a lump sum.

Where the settlement does not envisage payment of the entire amount agreed upon in one instalment, the proposals should be in line with and supported by an acceptable business plan (where applicable), projected earnings and cash flows of the borrower.

The guidelines provide procedures to be followed in cases where the settlement of accounts pertaining to a borrower with an aggregate value of more than Rs 1 crore or less.

The RBI also said the compromise settlements with the borrowers under the revised framework should be without prejudice to the provisions of any other statute in force.

Further, wherever ARCs commenced recovery proceedings under a judicial forum and the same is pending before such judicial forum, any settlement arrived at with the borrower shall be subject to obtaining a consent decree from the concerned judicial authorities.