RBI Proposes to Deregulate Price Discovery Process For Sale of Loans

New Delhi: The Reserve Bank of India (RBI) on Monday came up with a draft framework for the sale of loan exposures, whereby it has proposed to deregulate the price discovery process for the sale of loan exposures. Also Read – India’s Forex Reserves Surge to All-time High of USD 493.48 Billion

According to the draft framework, sale of standard assets may be by assignment, novation or a loan participation contract, either funded participation or risk participation, whereas the sale of stressed assets may be by assignment or novation. Novation refers to the substitution of an old contract with a new one. Also Read – Survey across 13 Cities Reveals Consumer Confidence Touched Historic Low During COVID-19 Pandemic

It further said that direct assignment transactions shall be subsumed as a special case of these guidelines. Also Read – RBI Slaps Penalties on Bank of India, Karnataka Bank For Non-compliance With Certain Norms

In another major development, the central bank has proposed to do away with the Minimum Retention Requirement (MRR) for sale of loans.

“The price discovery process has been deregulated to be as per the lenders’ policy,” said an RBI statement.

Further, as per the draft rules stressed assets may be sold to any entity that is permitted to take on loan exposures by its statutory or regulatory framework. Also, some of the existing conditions for sale of non-performing assets have been rationalised.

The guidelines are applicable to all Scheduled Commercial Banks, excluding Regional Rural Banks, all Indian financial institutions including NABARD, NHB, EXIM Bank, and SIDBI and, all non-banking financial companies including Housing Finance Companies.