New ARC norms make its difficult for offload retail NPA
The Reserve Bank of India recently pushed forward new regulatory guidelines for asset reconstruction companies (ARCs) and reports say that this could affect the settlement of stressed retail loans. The new guidelines aimed at preventing ARCs from cutting deals with defaulting businesses does not distinguish between corporate and retail loans. This could make it tough for lenders to offload retail bad loans.
ARCs typically buy bad loans from lenders at a discount and try to make a profit by recovering a larger amount. RBI said the guidelines for the reconstruction of financial assets through the settlement of dues payable by the borrowers have been modified. The new norms state thatSettlement of dues with the borrower shall be done only after the proposal is examined by an Independent Advisory Committee (IAC) which shall consist of professionals having technical/ finance/ legal background.
The IAC, after assessing the borrower’s financial position, the time frame available for recovery of the dues, projected earnings and cash flows of the borrower and other relevant aspects, shall give its recommendations to the ARC regarding the settlement of dues with the borrower.
The RBI has started a pilot program of its digital currency last week, allowing select banks to use it for settling secondary-market transactions in government securities.
Settlement in central bank money would reduce transaction costs by pre- empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk. Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot.
The first pilot in Digital Rupee – Retail segment (e₹-R) is planned for launch within a month in select locations in closed user groups comprising customers and merchants.
State Bank of India, Bank of Baroda,HDFC Bank,ICICI Bank,Kotak Mahindra Bank,YES BANK,IDFC FIRST Bank and HSBC are the nine banks identified for participation in the pilot. The banks traded ₹275 crore of bonds on the first day using the new form of currency.
As per the data released by National payment corporation (NPCI), the unified payments interface platform processed 7.3 billion transactions in October, higher by 8% compared to the previous month.
In value terms, UPI transactions grew close to 9% to Rs 12.1 trillion. The growth rate of transactions in value terms is higher, indicating an increase in the ticket size. Around 76% of Indians prefer UPI when it comes to online shopping, according to a survey conducted by global financial technology services provider FIS. Among the age groups, millennials are most frequent to use UPI when shopping online.
