RBI allows banks to sell stressed assets to NBFCs, other lenders

In a move to increase competition that could lead to better price discovery of stressed assets, the Reserve Bank of India (RBI) has allowed commercial banks to sell such loans to their competitors as well as to non-banking financial companies. Till now, banks are allowed to sell stressed loans to asset reconstruction companies.

Details:

§  From now on, prospective buyers (of stressed assets) need not be restricted to securitisation or reconstruction companies.

§  Banks may also offer the assets to other banks/NBFCs/financial institutions, etc. who have the necessary capital and expertise in resolving stressed assets.

§  RBI has advised banks to identify assets that could be sold, at least annually, preferably at the start the year. The regulator also directed that all doubtful assets above a threshold amount be reviewed by the board periodically.

Why such move?

According to RBI, allowing a wider range of buyers for stressed assets apart from asset reconstruction companies (ARCs) or securitization companies (SCs) will help in better price discovery.

What experts say?

Experts say permitting banks to buy stressed assets is a mistake.

According to them, “Banks should not be in the business of buying and resolving stressed loans. They should ideally be incentivised to sell these loans to someone who is a specialist in the space.”