On September 24, 2021, the Reserve Bank of India (RBI) has issued the Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021. These directions come into immediate effect replacing the existing instructions on the matter of sale / transfer of loan exposures.
Applicability
The provisions of these directions shall apply to the following entities (collectively referred to as lenders in these directions), unless specified otherwise:
(a) Scheduled Commercial Banks;
(b) Regional Rural Banks;
(c) Primary (Urban) Co-operative Banks/State Co-operative Banks/District Central Co-operative Banks;
(d) All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI);
(e) Small Finance Banks; and
(f) All Non Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs).
General Requirements:
- Lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures under these guidelines. Further, the policy must also ensure independence of functioning and reporting responsibilities of the units and personnel involved in transfer / acquisition of loans from that of personnel involved in originating the loans. All transactions must meet the requirements as detailed in the policy.
- Loan transfers should result in transfer of economic interest without being accompanied by any change in underlying terms and conditions of the loan contract usually.
Minimum Holding Period
The transferor can transfer loans only after a minimum holding period (MHP), as prescribed below, which is counted from the date of registration of the underlying security interest:
- Three months in case of loans with tenor of up to 2 years;
- Six months in case of loans with tenor of more than 2 years.
Disclosures and Reporting
- The lenders should make appropriate disclosures in their financial statements, under ‘Notes to Accounts’, relating to the total amount of loans not in default / stressed loans transferred and acquired to / from other entities as prescribed in the Directions, on a quarterly basis starting from the quarter ending on December 31, 2021.
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