Mumbai: In a move that will help banks take off a big chunk of them non-performing assets (NPA) to the bad bank, reserve Bank of India Sale of loan accounts classified as fraud is allowed asset reconstruction companies (ARC). Earlier, banks were barred from selling NPA It was classified as a fraud, which left them with several large accounts to be resolved.
The banks are aiming to sell the Rs 2 lakh crore NPAs to the defunct bank or National Asset Reconstruction Company (NARCL) for recovery. However, he has hit a snag with respect to accounts that are classified as fraudulent, as he was not allowed to sell them. RBI has now allowed banks to sell fraudulent accounts, provided the transferor is not linked to the borrower.
The RBI has also said that the responsibilities of the transferor in respect of continuous reporting, monitoring, filing complaints with law enforcement agencies and proceedings relating to such complaints will also be transferred to the ARC. “The transfer of such credit exposure to the ARC, however, does not exempt the transferor from fixing the liability of the employees required under the extant instructions on frauds,” the RBI said.
“In the last three years, advances amounting to Rs 3.83 lakh crore were declared as fraudulent accounts, due to forensic audit in all the large NPAs. Now, this major part of the NPAs will be available for sale to ARCs in general and NARCL in particular in case of large advances with consortium lending,” said Hari Har Mishra, Director, UV ARC.
As per RBI with regard to major frauds, the average time between occurrence and classification was 57 months. This means that there is a possibility that some omissions are not yet classified as frauds. This will significantly reduce the pool of loans available for sale. RBI data shows that 3,501 loan accounts worth Rs 1.4 lakh crore in FY21 were classified frauds. In FY20 this number stood at 4,608 accounts for Rs 1.8 lakh crore as against Rs 64,539 crore in its 2603 accounts in FY19.
Some of the larger accounts classified as fraudulent by lenders include: DHFL and IL&FS which are going through the resolution process initiated by RBI and initiated by the government respectively. The other big accounts are Bhushan Power & Steel, which has already been settled by the lenders, and Cox & Kings, which is under investigation. Bank of Baroda and PNB had classified Reliance Home Finance’s account as fraud, but this was stayed by the Delhi High Court.
The banks are aiming to sell the Rs 2 lakh crore NPAs to the defunct bank or National Asset Reconstruction Company (NARCL) for recovery. However, he has hit a snag with respect to accounts that are classified as fraudulent, as he was not allowed to sell them. RBI has now allowed banks to sell fraudulent accounts, provided the transferor is not linked to the borrower.
The RBI has also said that the responsibilities of the transferor in respect of continuous reporting, monitoring, filing complaints with law enforcement agencies and proceedings relating to such complaints will also be transferred to the ARC. “The transfer of such credit exposure to the ARC, however, does not exempt the transferor from fixing the liability of the employees required under the extant instructions on frauds,” the RBI said.
“In the last three years, advances amounting to Rs 3.83 lakh crore were declared as fraudulent accounts, due to forensic audit in all the large NPAs. Now, this major part of the NPAs will be available for sale to ARCs in general and NARCL in particular in case of large advances with consortium lending,” said Hari Har Mishra, Director, UV ARC.
As per RBI with regard to major frauds, the average time between occurrence and classification was 57 months. This means that there is a possibility that some omissions are not yet classified as frauds. This will significantly reduce the pool of loans available for sale. RBI data shows that 3,501 loan accounts worth Rs 1.4 lakh crore in FY21 were classified frauds. In FY20 this number stood at 4,608 accounts for Rs 1.8 lakh crore as against Rs 64,539 crore in its 2603 accounts in FY19.
Some of the larger accounts classified as fraudulent by lenders include: DHFL and IL&FS which are going through the resolution process initiated by RBI and initiated by the government respectively. The other big accounts are Bhushan Power & Steel, which has already been settled by the lenders, and Cox & Kings, which is under investigation. Bank of Baroda and PNB had classified Reliance Home Finance’s account as fraud, but this was stayed by the Delhi High Court.
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