Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021

Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021

The Reserve Bank has issued the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021. These directions come into immediate effect replacing the existing instructions on the matter of sale / transfer of loan exposures.

Loan transfers are resorted to by lending institutions for multitude of reasons ranging from liquidity management, rebalancing their exposures or strategic sales

No lender banks shall undertake any loan transfers or acquisitions other than those permitted under these directions and in the manner prescribed except to the exclusions provided.

As per the directions, inter alia the lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures under these guidelines. These guidelines must, inter alia, lay down the minimum quantitative and qualitative standards relating to due diligence, valuation, requisite IT systems for capture, storage and management of data, risk management, periodic Board level oversight, etc. Further, the policy must also ensure independence of functioning and reporting responsibilities of the units and personnel involved in transfer / acquisition of loans from that of personnel involved in originating the loans. All transactions must meet the requirements as detailed in the policy.

A transferor is required to notify RBI (Department of Supervision) of all instances where it has replaced loans transferred to a transferee or paid damages arising out of any representation or warranty

As per Directions, The transferor can transfer loans only after prescribed minimum holding period (MHP) subject to fulfillment of other prudential norms including capital Adequacy.

The transfer of stressed loans must be done through assignment or novation only; loan participation is not permitted in the case of stressed loans

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