RBI revamps loan transfer and securitisation rules

It allowed banks to transfer their loan exposures classified as fraud to asset reconstruction companies (ARCs). It has also told lenders to include the financial impact of any transfer into their profit and loss account for the period when the transfer is completed.

The regulator has also offered relief to banks by allowing them to shift the responsibility of reporting, monitoring, filing of complaints with law enforcement agencies and proceedings related to fraudulent loans to the ARCs.

These are part of the sweeping changes the regulator announced in the loan transfer as well as securitisation rules in order to improve governance. The regular has mandated banks to follow a board approved policy for the same. It has directed banks to ensure that arm’s length distance is maintained between personnel involved in transfer/acquisition of loans and the originator of the loan.

The transfer of such loan exposures to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds, RBI said.

“Any loss or profit arising because of transfer of loans, which is realised, should be accounted for accordingly and reflected in the Profit & Loss account of the

transferor for the accounting period during which the transfer is completed.

However, unrealised profits, if any, arising out of such transfers, shall be deducted from CET 1 capital or net owned funds for meeting regulatory capital adequacy requirements till the maturity of such loans,” RBI said.

In case of transfer of a pool of loans, the transferee(s), and the transferor(s) in case of retention of economic interest, should maintain borrower-wise accounts. Thus, the exposures of the transferor(s) and the transferee(s) would be to the individual obligors in a pool of loans.

These directions come into immediate effect. Transfers of loans allow lenders to improve liquidity and rebalance exposures.

The transferor can transfer loans after three months for loans with tenure up to two years and six months for other longer tenure exposure.