RBI Tightens Dues Recovery Rules for Asset Reconstruction Companies

The Reserve Bank of India has revised guidelines for Asset Reconstruction Companies, requiring thorough exploration of all recovery options before settling dues with borrowers. The updated policy mandates ARCs to create a board-approved strategy framework, ensuring settlements are only considered viable if they represent the best option available.

The Reserve Bank of India (RBI) has introduced revised guidelines for Asset Reconstruction Companies (ARCs) to ensure more stringent protocols in settling dues with borrowers. According to an RBI circular, the changes demand that ARCs explore every possible avenue for recovering debts before settling.

Updates to the 'Master Direction – Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024' require ARCs to have a board-approved policy covering eligibility criteria for one-time settlements and permissible sacrifices for different exposure categories.

The settlement should occur only after comprehensive recovery attempts, with the preference for a lump sum payment. In instances of instalment-based payment, an acceptable business plan must support the proposal. Additionally, substantial differences in security valuations at acquisition and settlement require proper documentation, especially when recovery proceedings are ongoing in a judicial forum.

(With inputs from agencies.)