RBI allows domestic banks to sell NPAs abroad as one-time settlement

International News

The Reserve Bank of India (RBI) on Tuesday allowed domestic banks to directly sell their bad loans in manufacturing and infrastructure sectors to investors abroad as part of one-time settlement (OTS) exercises. The move will allow overseas investors to take direct loan exposure to Indian corporates.
The defaulters, or stressed borrowers, can sell their assets in accordance with the OTS scheme, in order to raise external commercial borrowing (ECB) from abroad to repay domestic loans, the RBI said in a statement.
At the same time, Indian corporates can raise long-term loans for working capital, ‘general corporate purposes’ and repaying domestic rupee loans, the statement said.
Apart from easing the non-performing asset (NPA) pressure on domestic banks, the RBI’s move can allow companies to raise cheap, long-term loans easily now. Part or all of that can be used to retire domestic loans.
The RBI notification said corporate borrowers can avail of ECB “for repayment of rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector and classified as SMA-2 or NPA, under any one-time settlement arrangement with lenders”. SMA is special mention account, in which SMA-2 is the loan not serviced between 60 days and 90 days.
If the loan is not serviced on the 91st day, it becomes NPA.

 “Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders, except foreign branches/overseas subsidiaries of Indian banks, provided, the resultant external commercial borrowing complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework,” the notification said...Read More