1. The Reserve Bank of India (RBI)
has issued a comprehensive regulatory framework for compromise settlements and
technical write-offs.
2. The framework covers all
regulated entities (REs) and aims to provide impetus to the resolution of
stressed assets.
3. REs must establish board-approved
policies for compromise settlements and technical write-offs.
4. Compromise settlement refers to
negotiated arrangements with borrowers to settle claims through cash payments,
involving some sacrifice of the amount due.
5. Technical write-off refers to
writing off non-performing assets for accounting purposes without waiving
claims against the borrower.
6. The board-approved policy should
outline the process, conditions, and staff accountability for compromise
settlements and technical write-offs.
7. The policy should consider the
current realizable value of security/collateral and maximize recovery from
distressed borrowers.
8. The compromise settlements and
technical write-offs should not impact mutually agreed contractual provisions
for future recoveries.
9. Delegation of powers for
approval/sanction of compromise settlements and technical write-offs is
essential.
10. The prudential treatment of
compromise settlements and technical write-offs depends on payment time and
extent of write-offs.
11. Reporting mechanisms and
oversight by the board are required to monitor and report on compromise
settlements and technical write-offs.
12. A cooling period should be
observed before assuming fresh exposures to borrowers who have undergone
compromise settlements.
13. Wilful defaulters or fraud
accounts can undergo compromise settlements or technical write-offs without
prejudice to ongoing criminal proceedings.
14. The framework ensures compliance
with legal provisions and repeals previous circulars on settlements of
non-performing assets.
15. The framework aims to streamline
the process, promote transparency, and enhance the resolution of stressed
assets in the banking system.
