RBIs Revised Norms for ARCs

Key Takeaways in Settlement Norms

• Process for Settlement Approval
  • Dues above 1 crore can now be settled by following a boardapproved policy
  • Decisions regarding such settlement can be given by a committee of the board itself instead of involving the whole board which simplifies the procedure.

• Composition of Committee
  • The committee shall be headed by an independent director and shall consist of at least
  • Two independent directors including the chair or,
  • Onethird of the boards total strength or three directors whichever is higher.

• Independent Advisory Committee IAC
  • The proposals for settlement shall be evaluated by an IAC consisting of experts in technical financial or legal matters
  • The IAC will suggest alternatives for recovery and the board committee will discuss these before making a decision to settle.

• Settlement Criteria
  • Settlements will only be conducted after all options for recovery have been considered and settlement is deemed the best alternative available.
  • This supersedes the previous condition to exhaust all steps of recovery before settling.

• Special Provisions for Small Loans For Dues Less than 1 Crore
  • Settlement can be sanctioned by a person who was not concerned in the acquisition of financial assets.
  • Earlier proposals for dues below 1 crore were required to be studied by the IAC.
• Prior Monitoring and Reporting Quarterly Reporting
  • ARCs are mandated to present quarterly reports on resolution of accounts to the board or a panel of the board.

Purposes of the Amendments

• Valuation Transparency
  • The NPV of settlements should not be less than the realisable value of securities.
  • Any significant difference between the valuation at the time of acquisition of assets and the realisable value at the time of settlement must be supported with reasons.

• Objective of the Changes
  • The new rules seek to make settlement easier especially for small loans without being one size fits all.
  • The new rules ensure a balance between ease of resolution and accountability in settlement processes.

RBI Guidelines For Asset Reconstruction Companies