Banks can now sell fraud loans to asset reconstruction companies

The Reserve Bank of India has allowed transfer of loans classified as fraud by lenders to asset reconstruction companies paving the way for resolution of such accounts. RBI has stated about the legal responsibilities regarding monitoring, filing of complaints with law enforcement agencies and other such related matters with such exposures will move to ARCs after the transfer.

RBI norms require banks to make 100 per cent provision for the entire amount that has been classified as fraud. According to the RBI’s annual report lenders have declared loans worth Rs 1.37 trillion as fraud in FY21. In FY20, this amount stood at Rs 1.81 trillion and in FY19 it was Rs 64,539 crore.

Earlier lenders were not allowed to sell loans classifies as fraud to ARCs. Although the RBI has allowed this now, it may not enthuse ARCs a great deal as the resolution of loan accounts tagged as frauds are very difficult.

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