RBI’s Guidelines on Government Debt Relief Scheme

Current Context: The Reserve Bank of India (RBI) issued guidelines for Government Debt Relief Schemes (DRS) on December 31, 2024.

• These guidelines are aimed at regulated entities (REs) participating in DRS and address concerns around credit discipline and moral hazard.
• Key points include:
• Assessment and Reporting: REs must assess their involvement in DRS according to their Board-approved policies and report any sacrifices made as compromise settlements.
• Prudent Management: REs should manage their outstanding dues prudently and communicate with borrowers about the terms of the schemes.
• Last Resort: DRS should be treated as a last resort and implemented with proper consultation and a clear framework to avoid financial instability.
• Model Operating Procedure (MOP): The RBI has provided a MOP for governments to follow, which includes engaging with bank committees, designing the scheme carefully, and ensuring that lending institutions are not burdened with unmanageable liabilities.

Question:

1 According to the guidelines, what must regulated entities (REs) do under Assessment and Reporting?

• A) Increase their investment in government bonds
• B) Assess their involvement in DRS according to Board-approved policies
• C) Reduce their interest rates on loans
• D) Expand their loan portfolios

Answer: B) Regulated entities must assess their involvement in DRS according to their Board-approved policies and report any sacrifices made as compromise settlements.