Lenders, backed by government, could approach the Reserve Bank of India (RBI) for relief on provisioning for assets sold to the proposed asset reconstruction committee (ARC). They are expected to seek a relaxation of the September 1, 2016, circular which requires them to provide for an asset, assigned to ARCs, as if it were still on their books. Moreover, they are likely to ask the ARC be exempt from making future provisions for the assets it buys. Experts observed that given banks are already holding a fairly high level of provisions incentives were needed to push banks to sell loans via a 15:85 model. The model implies that the sellers get 15% as upfront cash payments and security receipts (SR) for the remaining 85% of the value.Should these exemptions be granted, it will give the new institution an upper hand over existing players, experts said Finance minister Nirmala Sitharaman said in her Budget speech on Monday an ARC would be set up to help banks deal with bad loans and later clarified the government would not be funding it. However, financial services secretary Debasish Panda has hinted at provisioning relief being offered through a government guarantee. Panda told reporters on Tuesday sales to the new ARC would be a cash-neutral transaction for banks. Since the regulator may insist on provisioning to support this arrangement, banks may request the government for a guarantee that could satisfy the regulator, Panda said. RBI’s September 2016 circular mandated that, with effect from April 2018, banks would need to continue providing for loans sold as if they still were on the books. The rule was applicable if the SRs received in the sale comprised more than 10% of bank’s own bad loans. Consequently, hybrid cash-and-SR deals have dried up and banks have been offering bad loans to ARCs almost exclusively on an all-cash basis. The new ARC will have the advantage of the loan exposures being clubbed across banks, although this, too, is prone to challenges. Industry executives FE spoke to said banks hold varying levels of provisions against the same asset and that would. complicate the process. A senior executive in the stressed assets market believes private banks may not want to transfer the asset at book value. Implementation issues apart, he pointed out that no lender would want to make additional provisions if the asset is to be transferred in a 15:85 structure.