The Reserve Bank of India (“RBI”), by way of its Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 dated September 24, 2021 (“Master Direction”) had issued directions to all Commercial Banks, Primary (Urban) Cooperative Banks/ State Cooperative Banks/ District Central Cooperative Banks, All Indian Financial Institutions, Non-Banking Financial Companies (including Housing Finance Companies), on transfer of loans and exposures. The Master Direction had, inter-alia, repealed the Guidelines on Sale of Stressed Assets by Banks dated September 1, 2016 (“Circular”), which was only addressed to Scheduled Commercial Banks (excluding Regional Rural Banks).
The RBI has issued a notification on June 28, 2022 (“Notification”), for the purpose of providing a glide path to the entities which were kept out of the ambit of the Circular and ensure smooth implementation of clause 77 of the Master Directions, which provides for valuation of investments made by lenders in security receipts (“SR”)/ pass through certificates/ other securities issued by Asset Reconstruction Companies (“ARC”). By way of the Notification, the RBI has advised as under:
a) The difference between the carrying value of such SRs and the valuation arrived at as on the next financial reporting date after the date of issuance of Master Direction, in terms of clause 77 of the Master Direction, may be provided over a five-year period starting with the financial year ending March 31, 2022 - i.e., from FY2021-22 till FY2025-26.
b) Subsequent valuations of investments in such SRs on an ongoing basis shall, however, be strictly in terms of the provisions of the Master Direction.
Please find a copy of the Notification, here, a copy of the Master Direction, here, and a copy of the Circular, here.
This update has been contributed by Aastha (Partner) and Amisha Agarwal (Associate).
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