RBI revises guidelines on settlement ofdues of borrowers by (ARC)

The Reserve Bank of India (RBI) has issued guidelines on Settlement of Dues of borrowers by Asset Reconstruction Companies (ARCs). The revised guidelines mandate that ARCs adopt a more structured approach to settle dues while ensuring transparency and accountability in their operations.
As per the new guidelines, every ARC must establish a Board-approved policy that governs the settlement of borrower dues. The policy is required to address critical aspects such as eligibility criteria for one-time settlements, permissible sacrifices based on exposure categories, and methodologies to determine the realisable value of securities.

RBI noted that borrowers with outstanding dues exceeding Rs 1 crore, settlements can only proceed after a thorough evaluation by an Independent Advisory Committee (IAC). This committee has to comprise experts with technical, financial, or legal expertise, who will assess the borrower’s financial position, projected earnings, and recovery prospects before making recommendations to the ARC. The Board of Directors, including at least two independent directors, must deliberate on the IAC’s recommendations and evaluate alternative recovery options. The Board’s decision, along with the rationale, must be meticulously documented in meeting minutes. For dues of Rs 1 crore or below, ARCs can process settlements based on criteria defined in the Board-approved policy.