RBI offers a complete framework for the sale of loans
The Reserve Bank on Monday proposed a comprehensive framework for selling loan exposures, which could be standard, lower or non-performing (NPA) assets, as part of the overall exercise to deepen the loan market.
Lenders may resort to loan sales for any reason ranging from strategic sales to rebalance their exposures or as a way to resolve stressed assets by shutting down exposures.
Currently, the guidelines for selling credit exposures, both standard and stressed, are spread across various RBI circulars.
“A vibrant secondary market for bank loans will also ensure a good discovery of the credit risk pricing associated with each exposure and will be useful as a leading indicator of impending stress, if any, provided the volumes are large enough,” said the RBI said on the show. the draft global framework for the sale of the loan exposure.
Stakeholders can send their comments on the draft framework to the RBI by June 30. exhibitions.
The draft guideline proposed by the RBI for the sale of loan exposures addresses various issues such as the classification of loan assets to be transferred, the nature of the entity purchasing the loan and the mode of transfer of the loans.
According to the draft framework, standard assets would be allowed to be sold by lenders through an assignment, novation or loan participation contract (funded participation or risk participation).
Stressed assets, however, could only be sold by assignment or novation, the project adds, as stressed assets can be sold to any entity authorized to take loan exposures by its statutory or regulatory framework.
The project sets standards for the sale of NPAs to Asset Reconstruction Companies (ARCs) and also repurchases NPAs in case the ARCs manage to turn them into standard assets.
The project also proposes to remove the minimum retention requirement (MRR) for the sale of loans by lenders.
A vibrant secondary market for bank loans will also ensure a good discovery of the credit risk pricing associated with each exposure and will be useful as a leading indicator of impending strains, if any, provided the volumes are large enough, according to the project. .