The Reserve Bank of India (RBI) has now allowed banks to sell their stressed assets to other lenders, non-banking financial companies (NBFCs) and financial institutions, in a bid to facilitate the resolution of bad loans of banks.
“Prospective buyers need not be restricted to SCs/RCs. Banks may also offer the assets to other banks/NBFCs/FIs, etc. who have the necessary capital and expertise in resolving stressed assets,” RBI said.
Participation of more buyers will lead to improved price discovery for bad loans, the central bank noted.
The new rules mandate banks to auction stressed assets publicly and offer buyers at least two weeks to assess the assets. In case of exposures beyond INR500m, banks need to get two external valuation reports.
“An open auction process, apart from attracting a larger set of borrowers, is expected to result in better price discovery. Banks should lay down a Board approved policy in this regard,” RBI said.
RBI said the identification of these stressed assets be made by the top management of the respective bank, and they should meet at least once in a year to list the specific financial assets identified for sale.
“At a minimum, all assets classified as ‘doubtful asset’ above a threshold amount should be reviewed by the board/board committee on periodic basis and a view, with documented rationale, is to be taken on exit or otherwise,” RBI stated.
RBI further said that banks offering stressed assets for sale should offer the first right of refusal to asset reconstruction or securitization companies that have already acquired the highest and at least 25% share of the asset to enable them to aggregate debt faster.
Moreover, the regulator said that banks should put in place a board approved policy on implementation of the Swiss Challenge Method for sale of their stressed assets, which will help reduce the vintage of NPAs sold by banks and help faster debt aggregation by SC/RCs.