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Guidelines on Settlement of Dues of borrowers by ARCs

Published on January 21, 2025
Current Context: The Reserve Bank of India (RBI) issued revised guidelines on the settlement of dues payable by borrowers to Asset Reconstruction Companies (ARCs) on January 20, 2025.
Guidelines on Settlement of Dues of borrowers by ARCs
  • Key aspects of the guidelines include:
    • Board-approved policy: Every ARC must have a Board-approved policy for settling borrower dues. This policy should cover aspects such as:
      • Eligibility criteria for one-time settlements
      • Permissible sacrifices for different categories of exposures
      • Methodology for determining the realizable value of securities
    • Independent Advisory Committee (IAC): For settlements involving dues exceeding Rs 1 crore, an IAC must examine the proposal. The IAC should consist of professionals with expertise in finance, law, and other relevant fields.
    • Evaluation of borrower's financial position: The IAC should assess the borrower's financial position, including their projected earnings and cash flows, to determine the feasibility of the settlement.
    • Time frame for recovery: The IAC should consider the time frame available for recovering the dues from the borrower.
    • Realizable value of security: The IAC should assess the realizable value of the security offered by the borrower as part of the settlement.
    • Consent decrees: If recovery proceedings are already underway, the ARC must obtain consent decrees from judicial authorities to ensure that the settlement complies with existing laws.
    • Wilful defaulters and fraud: Settlements with borrowers classified as wilful defaulters or fraudsters will be subject to stricter scrutiny and require board approval, regardless of the settlement amount.
    • Transparency and disclosure: ARCs are required to maintain proper records of all settlement proposals and decisions, and to disclose relevant information to investors.

Question:

1 As per Guidelines on Settlement of Dues of borrowers by ARCs, For settlement proposals exceeding which amount must an Independent Advisory Committee (IAC) be involved?

  • A) ₹50 lakh
  • B) ₹2 crore
  • C) ₹1 crore
  • D) ₹10 crore
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