transfer of loan exposures rbi

IFSCA sets up committee for creating a Framework for transfer of stressed loans from domestic lenders to permitted financial institutions in IFSC

The Reserve Bank of India (RBI) has recently (vide the RBI (Transfer of Loan Exposures) Directions, 2021 dated September 24, 2021 replaced the existing instructions on the matter of sale/transfer of loan exposures by lending institutions. The RBI directions, inter- alia, permit transfer of loan exposures to any class of entities that are under the regulatory purview of any financial sector regulator in India [including International Financial Services Centres Authority (IFSCA)], subject to certain conditions. The RBI directions also call for the respective financial regulator to put in place a framework for this purpose in consultation with RBI.

IFSCA has set up a committee of experts to examine and recommend measures to create such a framework for transfer of stressed loans from domestic lenders to permitted financial institutions in IFSC. Shri G. Padmanabhan, Former Executive Director, Reserve Bank of India, shall be chairing the committee which will also include representative from Law firm and other market participants possessing expertise in Banking and Legal issues.

The Committee has been mandated to examine the provisions of the RBI directions pertaining to transfer of stressed loans by lending institutions to entities in IFSCA, identify areas/issues of the directions which require further clarification from RBI, suggest both the contents of the framework to be put in place by IFSCA to enable such transfers and amendments/additions to the RBI directions to make it easier to effect such transfers. The Committee shall submit its report to the Chairperson, IFSCA, by one month from the date of its first meeting. 

The Authority also seeks inputs from interested parties with expertise in this domain. Such inputs, in the form of comments, recommendations etc., may be forwarded by email to [email protected] and [email protected] . Persons who wish to make presentations to the committee may also send their request to the given email id.

India: RBI'S Framework For Transfer Of Loan Assets

As an anticipated measure for the banking and financial sector, the Reserve Bank of India (RBI) has, towards the close of past week, issued the comprehensive framework for the sale or transfer of loan assets. Taking immediate effect from the date of its issuance, the framework titled ' Master Directions - Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 ' issued vide circular DOR.STR.REC.52/21.04.048/2021-22 dated September 24, 2021 (the ' Master Directions ') is being seen as a pivotal move by the Regulator towards introducing an efficient secondary market for loans and ensuring proper credit-risk pricing, besides improving transparency in the identification of embryonic stress in the banking system as well as resolution of stressed loan exposures.

The Master Directions owes its genesis to the ' Draft Framework for Sale of Loan Exposures ' which was released by RBI in course of the first COVID-19 induced lockdown in the Country. The draft had taken into consideration the recommendations of the ' Task Force on Development of Secondary Market for Corporate Loans ' constituted by RBI under the chairmanship of Mr. T.N. Manoharan in May, 2019 and comments from the stakeholders were invited. One of the key components of the Task Force's recommendation was to separate the regulatory guidelines for direct assignment transactions from the securitisation guidelines and treat it as a sale of loan exposure. The RBI had, accordingly, reviewed the recommendations and thought it prudent to comprehensively revisit the guidelines for sale of loan exposures, both standard as well as stressed, which were earlier spread across various circulars. The erstwhile guidelines or circulars on sale of loan exposures were particular to the asset classification of the loan exposure being transferred and / or the nature of the entity to which such loan exposure is transferred as well as the mode of transfer of the loan exposures. The need for a review also stemmed from the necessity to dovetail the guidelines on sale of loan exposures with the Insolvency and Bankruptcy Code, 2016 (' IBC ') and the Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 (" Prudential Framework "), which has witnessed substantial traction and developments towards building a robust resolution paradigm in India in the recent past.

The consolidation by RBI of a self-contained, comprehensive, and independent set of regulatory guidelines on transfer/sale of loan exposures is being seen as a laudable step in the direction of putting together a ' robust secondary market in loans which can be an important mechanism for management of credit exposures by lending institutions and also create additional avenues for raising liquidity '. This write-up attempts to briefly summarize some key components of the Master Directions.

The Master Directions whilst superseding a host of existing circulars/directions (or a portion thereof) in relation of transfer of loan exposures (Chapter VI), has put forth a unified and singular framework for the sale of loan exposures by banks and other financial institutions. The exhaustive breadth of the framework is quite evident from the Chapters under the Master Directions which not only provide for ' General Conditions applicable to all Loan transfers ' (Chapter II), but also cater specifically to transfer of loan exposures of standard assets (Chapter III) as well as stressed loan exposures (Chapter IV), including their respective and intrinsic modalities. The framework concludes with the imperative of ' Disclosures and Reporting ' (Chapter V) and stipulates the mechanism for the stakeholders in that regard.

Applicability

On expected lines, nearly all constituents of the Financial sector regulated by RBI are mandated to ensure compliance to the Master Directions, both as a transferor as well as transferee of the loan exposures – Scheduled Commercial Banks, all NBFCs (including HFCs), Regional Rural Banks, Co-operative Banks, All India Financial Institutions and Small Finance Banks. In addition, the Master Directions also permits asset reconstruction companies (ARCs) 1 and companies 2 (save a financial service provider 3 ) to be 'transferees' of the loan exposures only if the same is pursuant to the resolution plan under the Prudential Framework and if they are permitted to take on loan exposures in terms of a statutory provision or under the regulations issued by a financial sector regulator.

It would be pertinent to take note that though all lenders permitted to acquire loans are required to ensure compliance to the extant Master Directions; yet, the acquisition of loans pursuant to securitisation are required to be independently dealt under the provisions of RBI's ' Master Directions – RBI (Securitisation of Standard Assets) Directions, 2021 ' dated September 24, 2021 (the 'Securitisation Guidelines'). The coverage of the Master Directions includes transfer of loan exposures through novation, assignment, or risk participation. In cases of loan transfers other than loan participation, legal ownership of the loan shall be mandatorily transferred to the Transferee to the extent of economic interest transferred under the loan exposures.

For the Transferees which are financial sector entities (not falling under clause 3 of the Master Directions) and the ARCs, the prudential norms (asset classification, provisioning norms etc) of their respective sectoral regulators (SEBI, IRDA, PFRDA etc) shall be applicable post-acquisition of loan exposure under the Master Directions.

Basic Ingredients

Before venturing into the other nuances, it is an imperative that one accounts for the understanding of some key 'constructs' which cut across the Master Directions:

• Transfer : Quite apparently, the expression denotes the process of transfer of the economic interest in a loan exposure by the transferor and acquisition of the same by the transferee. The subject matter of transfer being the ' economic interest ' of the transferor in the loan exposure, it is important that the risks and rewards associated with loans are clearly demarcated and separated in favour of the transferee; especially when some portion of the economic interest in the loan exposure is retained by the transferor.

It is significant to take note that the transfer of the said economic interest can be with or without the transfer of underlying contract. Essentially, even loan participation transaction have also been recognised under the Master Directions (for transfer of standard loans) wherein the transferor transfers all or part of its economic interest in a loan exposure to transferee without the actual transfer of the loan contract, and the transferee(s) fund the transferor to the extent of the economic interest transferred which may be equal to the principal, interest, fees and other payments, if any, under the transfer agreement.

• Transferor : Often referred as 'assignor' (in assignment transactions) or 'grantor' (for risk participation), transferor under the Master Directions would include Clause 3 entities which transfer their economic interest in the loan exposures.
• Transferees : These refer to entities in whose favour the economic interest in the loans are transferred and would include Clause 3 entities as well as the ARCs/companies to the extent permitted under the Master Directions. It is clarified that the transferee should neither be a person disqualified under the IBC 4 nor, in cases of loan exposures where frauds have been identified, belong to an existing promoter group 5 of the borrower or its subsidiary / associate / related party 6 (domestic as well as overseas).
• Minimum Holding Period (MHP) : As the expression suggests, the MHP refers to a threshold period for which the transferor should hold the loan exposures, along with its risks and rewards, before the economic interest in respect thereto is transferred. The intent of having a MHP is to ensure that the loan has been seasoned in the books of the originator (or the transferor) for a certain specified time period. The MHP for loans with tenor upto 2 years and more than 2 years, as per the Master Directions, have been capped at 3 months and 6 months, respectively.

The holding period for the Transferor, in case of secured exposures, is to be computed from the date of registration of the underlying security interests; unless, of course, the loan is unsecured in which case the MHP runs from the date of first repayment under such unsecured exposure. However, in case of project loans, the foregoing months of MHP is required to be calculated from the date of commencement of commercial operations of the project being financed. Besides, the loans acquired by the Transferor itself are required to have a MHP of atleast 6 months from the date of acquisition of the loan on the books of the Transferor, irrespective of the tenor of the loan exposures.

It would be of significance to note that the MHP criteria prescribed under the Master Directions do not apply for loans transferred by an arranging bank under a syndication arrangement.

• Permitted Transferees : These include (i) Scheduled Commercial Banks, (ii) NBFCs (including HFCs), (iii) All India Financial Institutions and (iv) Small Finance Banks. The significance of carving out the foregoing financial sector entities from Clause 3 of the Master Directions lies in the fact that the transferor is permitted to transfer its loans (which are not in default) to permitted transferees only through novation, assignment, or loan participation. For the stressed exposures, the transfer is mandated only to such permitted transferees and ARCs and singularly through assignment or novation of such loan exposures.

Underlying Elements

The finer nuances of the Master Directions would certainly surface once the provisions have been widely given effect to by the stakeholders; however, as it stands, the framework undoubtedly promises to streamline the procedures and requirements for the stakeholders considering transfer of their loan exposures – standard as well as stressed. Some fundamental provisions of the Master Directions have been summarized as below:

• Overarching Transfer conditions : Quite categorically, the Master Directions stresses on the necessity of delineation of Transferor's 'risks and rewards' associated with the loan exposures to the extent of the transfer. In fact, it is stated that not only should the transferee have the unrestrained and unconditional entitlement to transfer or dispose of the loans to the extent of economic interest acquired by it, but also in the event of any economic interest in the loan exposure is retained by the transferor, the loan transfer agreement should demarcate the distribution of the principal and interest income from the transferred loan between the transferor and the transferee. The Master Directions also caution against any modification of terms of the underlying financing agreement and require that any change, in course of such transfer, should withstand the test of not being categorised as 'Restructuring' under the Prudential Framework. It would be significant to take note that the transfer of loan exposures under the Master Directions not only should be without recourse to the Transferor, but also the transferor or transferee should not be constrained to obtain consent from the transferee/ transferor, as the case may be, in the event of resolution or recovery in respect of the beneficial economic interest retained by or transferred to the respective entity. In addition to the foregoing, the Master Directions also prescribe for the enumerated conditions applicable to all transfers of loan exposures:
• The Transferor shall have no obligation to re-acquire or fund the re-payment of the loans or any part of it or substitute loans held by the Transferee or provide additional loans at any time;
• If the security interest is held by the Transferor in trust with the Transferee as the beneficiaries, the Transferee shall ensure that a mutually agreed and binding mechanism for timely invocation of such security interest is put in place;
• Any rescheduling, restructuring or re-negotiation of the terms of the underlying agreement attempted by Permitted Transferee, after the transfer of assets to the transferee, shall be as per the Prudential Framework;
• The Clause 3 entities, regardless of whether they are transferors or otherwise, should not offer credit enhancements or liquidity facilities in any form in the case of loan transfers.

In case the transfer of loan exposures which are not compliant with the requirements mentioned in the Master Directions, the onus is on the Transferee to maintain capital charge equal to the actual exposure acquired and the Transferor is required to treat the transferred loan in its entirety, as if it was not transferred at all in the first place, and the consideration received by it shall be recognised as an advance.

• Board-approved Policy : The Transferors are mandated to put in place a comprehensive Board-approved policy for transfer and acquisition of loan exposures under the Master Directions. These guidelines must, inter alia , lay down the minimum quantitative and qualitative standards relating to due diligence, valuation, requisite IT systems for capture, storage and management of data, risk management, periodic Board level oversight, etc. Further, the policy must also ensure the independence of functioning and reporting responsibilities of the units and personnel involved in the transfer/acquisition of loans from that of personnel involved in originating the loans.
• Transfer of Standard Assets : The transfer of loan exposures classified as 'standard' can be undertaken through the mechanisms of assignment or novation or a loan participation. The transfer of such loan exposures should be only on a cash basis to be received at the time of transfer of loans; besides, the requirement of the transfer consideration being arrived at in a transparent manner on an arm's length basis. The Master Directions require the Transferees to monitor, on an ongoing basis and in a timely manner, the performance information on the loans acquired, including through conducting periodic stress tests and sensitivity analyses, and take appropriate action required, if any. Further, the Transferor's retention of economic interest, if any, in the loans transferred should be supported by legally valid documentation supported by a legal opinion.

The requirements of Chapter III of the Master Directions are, however, not applicable to certain identified loan transfers, as below:

• transfer of loan accounts of borrowers by a lender to other lenders, at the request/instance of borrower;
• inter-bank participations as per the RBI's circulars;
• sale of entire portfolio of loans consequent upon a decision to exit the line of business completely;
• sale of stressed loans; and
• any other arrangement/transactions, specifically exempted by the RBI.
• Minimum Risk Retention : The Master Directions are explicit in their requirement of the requisite due diligence in respect of the loans exposures and mention that the said exercise cannot be outsourced or delegated by the Transferee. In order to ensure a systemic departure from the conventional practice of placing solitary reliance on the due diligence of the originator (or the Transferor), the Master Directions mandate the Transferee to undertake the due diligence of the loan exposures through its own staff, at the level of each loan, and as per the same policies as would have been done had the Transferee been the originator of the loan. In case the due diligence of entire portfolio is undertaken by the Transferee, the requirement of a minimum retention requirement (MRR) of the Transferor can be dispensed with.

However, in case of loans proposed to be acquired as a portfolio, if a transferee is unable to perform due diligence at the individual loan level for the entire portfolio, the Transferor shall retain at least 10% of economic interest in the transferred loans as MRR. In such a case as well, the Transferee is required to undertake due diligence at the individual loan level for not less than one-third (1/3 rd ) of the portfolio by value and number of loans in the portfolio. As per the Master Directions, in case of multiple Transferees, the MRR would still be on the entire amount of transferred loan, even if any one of the transferee is unable to perform the due diligence at an individual level.

• Transfer of Stressed Assets : Chapter IV of the Master Directions deals specifically with the transfer of stressed loan exposures to ARCs and other Permitted Transferees. It is specifically stated that the mechanism for transfer of such stressed accounts can be consummated only through assignment or novation. Besides the requirement of a Board-approved policy for transfer as well as acquisition of stressed loan exposures and the parameters thereof, the Master Directions mandate such transfers to ARCs and other Permitted Transferees only. Importantly, the Transferor is necessarily required to undertake an auction through a ' Swiss Challenge method ' both in cases where (i) the aggregate loan exposure to be transferred is Rs. 100 crore or more after bilateral negotiations; and even under (ii) a transfer pursuant to the Resolution Plan approved in terms of the Prudential Framework (irrespective of the monetary threshold).

The transfer of such stressed loan exposures, as per the Master Directions, should be bereft of any operational, legal or any other type of risks relating to the transferred loans including additional funding or commitments to the borrower / transferee. In fact, it is specifically required for the transferor to ensure that no transfer of a stressed loan is made at a contingent price whereby in the event of shortfall in the realization of the agreed price, the Transferor would have to bear a part of the shortfall.

In addition, the Transferor is required transfer the stressed loans to transferee(s) other than ARCs only on cash basis and the entire transfer consideration should be received not later than at the time of transfer of loans. The stressed exposure can be taken out of the books of the Transferor only on receipt of the entire transfer consideration.

Quite significantly, the Master Directions prescribed that if the Transferee of such stressed loan exposure (except ARCs) have no existing exposure to the borrower whose stressed loan account is acquired, the acquired stressed loan shall be classified as "Standard" by the transferee. However, in case the Transferee has an existing exposure to such borrower, the asset classification of the acquired exposure shall be the same as the existing asset classification of the borrower with the Transferee, irrespective of whether such acquisition is pursuant to the transferee being a successful resolution applicant under the IBC.

Further, the Master Directions require the Transferee to hold the acquired stressed loans in their books for a period of at least 6 months before transferring to other lenders; however, such holding period is not applicable in case the transfer of stressed loan exposure is to an ARC or is pursuant to a resolution plan approved in terms of the Prudential Framework.

As regards the mandate of undertaking the 'Swiss Challenge method' is concerned, the Master Directions require the lenders put in place a Board-approved policy which should, interalia , specify the minimum mark-up over the base-bid required for the challenger bid to be considered by the lender(s), which in any case, shall not be less than 5% and shall not be more than 15%. However, for transfer of stressed exposure under the Prudential Framework, the minimum mark-up over the base-bid required for the challenger bid is to be decided with the approval of signatories to the ICA representing 75% by value of total outstanding credit facilities and 60% of signatories by number.

Additionally, the Master Directions provide for sharing of surplus between the ARC and the Transferor, in case of specific stressed loans; though, the clarity in respect of such specific stressed loans is not mentioned. The repurchase of stressed loan exposures is also stipulated from the ARCs in cases where the resolution plan has been successfully implemented

• Accounting : In the event the transfer of loan exposures results in loss or profit, which is realised, the same should be accounted for and, accordingly, reflected in the P&L account of the Transferor for the accounting period during which the Transfer is consummated. However, the unrealised profits (if any) arising out of such Transfers, shall be deducted from the Common Equity Tier 1 (CET 1) capital or net owned funds of the Transferor for meeting regulatory capital adequacy requirements till the maturity of such transferred exposures. The Master Directions prescribe maintenance of borrower-specific accounts both by the Transferor as well as the Transferee of the retained and transferred loan exposures, respectively. It has been further clarified that the extant requirements of RBI for 'income recognition, asset classification, and provisioning' shall, accordingly, be ensured by the transferor and the transferee with respect to their respective shares of holding in the underlying loan exposures.

Though it would be quite nascent to present an analysis of the Master Directions even before it has been actually implemented, yet there are indeed some crucial aspects which underline the significance of the Master Directions issued by RBI which can be summarized as follows:

• Identification and Resolution of Stressed Exposures : Though quite a premature assessment, yet it is felt that the framework under Master Directions could facilitate the development of a robust distressed asset ecosystem and speed-up the resolution of various stressed exposures, which could be driven by the ensuing characteristics of the Master Directions:
• Early Identification and Resolution of Stressed Exposures : The framework has expanded the definition of stressed exposures ('stressed loans') to include both non-performing assets (NPAs) and special mention accounts (SMAs). Also, the deregulation of the price discovery process will enable faster and more efficient pricing of exposures – especially when coupled with a wider range of eligible investors.
• Enhanced Viability of Stressed Asset Takeover Structures :More importantly, the Master Directions allow investors in stressed assets to classify the exposure as standard, although subject to any other exposure to the same entity on the investor's books not being sub-standard on the date of the acquisition of the asset. This could significantly lower capital charge and provisioning requirements for the acquirer/investor of the stressed assets. Given that most stressed assets are restructured as well – often including a complete management overhaul, the rationalisation of the capital charge and provisions could make such assets more attractive to prospective acquirers.
• Impetus to Long-Term Funding structures : The Indian credit markets have for long been bereft of avenues for mobilising capital through long-term debt instruments. As a result, liability structures for corporate borrowers in sectors such as power generation and roads front load cash outflows during the project life. This, at least in part, reflects the non-availability of long-dated liabilities for the financial sector. Therefore, an ecosystem which allows lenders to off-load long-dated exposures after a certain time period with reasonable foresightedness could enable borrowers to raise long-term debt instruments from the financial system in a cost-efficient manner.
• Independent Credit Evaluations Could Prove Critical : The Master Directions mentions that transferees may have the loan pools rated before acquisition so as to have a third-party view of their credit quality in addition to their own due diligence; though, the latter is a mandatory requirement and cannot substitute for the due diligence that the transferee(s) are required to perform. Also, in case of transfer of stressed assets, it becomes critical to ensure that the valuation of the exposure and associated risk capital allocation are based on an assessment of the asset to meet its contractual debt obligations. Even restructured accounts have subsequently come under stress in some cases due to fundamental weaknesses in the business profile, heightened management risk/weak governance structures and unsustainable debt levels even after restructuring. Though not prescribed as a mandatory requirement under the Master Directions, yet a third-party evaluation by a credit rating agency could provide an added layer of assessment and valuations for such exposures along with subsequent capital charge and provisioning norms could be linked to the outcome of such evaluation.

1. Registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

2. Sub-section (20) of Section 2 of the Companies Act, 2013

3. Sub-section (17) of Section 3 of the Insolvency and Bankruptcy Code, 2016

4. Section 29A of the Insolvency and Bankruptcy Code, 2016

5. As defined under SEBI (ICDR) Regulations, 2018

6. As defined under the Insolvency and Bankruptcy Code, 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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RBI Reforms the Framework on Loan Sales

March 3, 2022 > India > Finance

Juris Corp | View firm profile

Continuous growth of a robust secondary market and creation of additional avenues for raising liquidity have been the key requirements of the Indian loan market. To achieve this, the Reserve Bank of India (“RBI”) has rolled out the Master Directions – RBI (Transfer of Loan Exposures) Directions, 2021 [1] (“Master Directions”) on 24 th September 2021.

The Master Directions have replaced the existing instructions on the matter of sale / transfer of loan exposures. It also consolidates various instructions on transfer of loans and aligns the relevant provisions on the subject matter with the Insolvency and Bankruptcy Code, 2016 and the RBI (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 ( “Prudential Framework” ).

The Master Directions are applicable to all banks, non-banking financial companies ( “NBFCs” ) and financial institutions as specified thereunder. The Master Directions provide for the transfer of 2 categories of loans – standard loans and stressed loans.

TRANSFER OF STANDARD LOANS:

Transfer of standard loans by way of assignment, novation and participation is expressly dealt under the Master Directions. Following are the key developments in case of transfer of standard loans:

• Recognition of loan participation:

Under the erstwhile framework, the concept of true sale explicitly excluded loan participation. Loan participation can prove to be a preferred mode for assignors who want to retain the relationship and/or for assignees who do not want to directly deal with the borrower. It is important that the loan participation documents are drafted appropriately, and the roles and responsibilities of the transferor and transferee are clearly delineated contractually. The key aspect for the documentation would be protection of rights of participants when the borrower (or even the transferor) is under stress.

It is worth noting that the Master Directions expressly cover only funded risk participation and not the unfunded risk participation. Accordingly, while entering into risk participation structures, parties may refer to the requirements of the Master Directions and its applicability.

• Dispensation of Minimum Retention Requirement (“MRR”):

The Master Directions have waived the MRR except in cases where a buyer undertakes partial due diligence at portfolio level.

In a portfolio buyout transaction, if a buyer is only able to undertake due diligence at the individual loan level for not less than 1/3 rd of the portfolio by value and number of loans and remaining at portfolio level then, 10% MRR has been prescribed.

• Minimum Holding Period (“MHP”):

The MHP requirement for transfer of loans is generally 3 months for loans with a tenor of 2 years and 6 months for the loans with a tenor of more than 2 years. In case of secured loans, the aforementioned timelines start from the date of registration of the underlying security interest. This move should be seen in line with what the Securities and Exchange Board of India ( “SEBI” ) has stipulated for listing of debt issuances: security perfection as condition precedent.

The MHP requirement is not applicable to loans transferred by arranging banks under a syndication arrangement.

• Exception list:

The erstwhile norms created exceptions based on origination or tenor of a loan by prohibiting assignment of revolving credit facility, facility with bullet repayment and assets purchased from other entities. However, the new Master Directions do not provide for any such exception list.

This change will increase the number of loan products which can be transferred under the current norms.

• Representation & Warranties:

The transferor will not be required to hold capital where it makes representations and warranties in accordance with the Master Directions. Further, in case of exercise of representations and warranties for replacement of loan, the same should be undertaken within 30 days of such transfer. In case of claiming damages for breach of representations and warranties by transferor, the onus of proof for breach remains with the alleging party and only direct losses can be claimed as damages.

TRANSFER OF STRESSED LOANS:

Transfer of stressed loans by different modes is permitted except by way of loan participation. Following are the key developments in case of transfer of stressed loans:

• Bilateral Negotiations:

While the Master Directions permit negotiations on a bilateral basis, such bilateral negotiations shall be subject to the price discovery and value maximisation approaches to be adopted by the transferor.

• Swiss Challenge:

The Master Directions mandate compulsory auction through a Swiss Challenge in both of the following cases:

• In case of bilateral negotiations, if the aggregate exposure of the lenders towards a particular borrower whose exposure is being transferred is more than INR 100 crores; and
• Transfer pursuant to a resolution plan approved in accordance with the terms of the Prudential Framework (irrespective of the monetary threshold).
• Corporates permitted to take on loan exposures:

The RBI has specifically permitted corporates to acquire stressed loans undertaken as a resolution plan under the Prudential Framework. There was no bar previously, but most lenders were unwilling to so assign.

This will not only help with better price discovery but also with early assignments.

• MHP for stressed loans:

The holding period for stressed loans has been reduced to 6 months as opposed to 12 months as under the erstwhile norms, except in case of transfer to an asset reconstruction company ( “ARC” ) and pursuant to a resolution plan under the Prudential Framework.

• Stressed assets transferred to ARCs:

Loans which are in default for more than 60 days / classified as non-performing assets (NPAs) can be transferred to ARCs. This now includes loans classified as fraud, provided the transferee is not from the existing promoter group.

This provision will provide an opportunity to loan accounts having an element of fraud which could not have been assigned earlier. Previously, restrictions around loans classified as fraud proved to be an issue for some big ticket stressed asset acquisitions.

Key Takeaway:

In addition to combining the various requirements for loan sales into one comprehensive framework, the RBI has now in a pivotal move, through the Master Directions, turned its hand to recognising loan participation transactions, sale of stressed assets to corporate entities and transfer of fraudulent accounts to ARCs. The nascent stage of these concepts in the loan sales framework means that clarity from the RBI on certain aspects which are open to more than one interpretation and actual execution of the Master Directions is crucial to determine the success of the Master Directions. All things considered, such well-founded regulatory framework governing the sale of bank loan exposures will encourage market participants, provide comfort to the lenders and consequently, boost secondary market for bank loans.

Saurabh Sharma Partner, Juris Corp Email: [email protected]

Rupul Jhanjee Associate Partner, Juris Corp Email: [email protected]

Divya Dhage Associate,  Juris Corp Email: [email protected]

[1] https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12166

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RBI increases responsibilities of loan transfer parties

T he Reserve Bank of India (RBI) issued the Transfer of Loan Exposures Directions, 2021 (directions) in September 2021, which prescribe a comprehensive and robust framework to facilitate the sale, transfer and acquisition of loan assets, both standard and stressed, in the secondary market by lenders. These directions are applicable to all forms of loan transfers, including novation, assignment and loan participation.

Based on the recommendation of the Task Force on the Development of Secondary Market for Corporate Loans, the Committee on Development of Housing Finance Securitisation Market in India and the public responses received, it was decided to separate the regulatory guidelines for direct assignment transactions from the securitisation guidelines, and to revisit the guidelines for the sale of both standard and stressed exposures, which currently are contained in a number of circulars.

The directions make existing guidelines consistent with the changed resolution paradigm in the form of the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prudential Framework for Resolution of Stressed Assets issued by way of the circular of 7 June 2019 (prudential framework). The directions are specific to the asset classification of the loan exposure being transferred; the nature of the entity, and the mode of transfer.

Other important provisions of the directions include situations where, in loan participation transactions, the legal ownership remains entirely with the transferor even after the beneficial interest has been transferred to the transferee. In such cases, the roles and responsibilities of the transferor and transferee shall be clearly delineated contractually. Loan transfers should result in the transfer of economic interest with no change in the loan contract. If there are any modifications, such as take-out financing, they shall be evaluated against the definition of restructuring contained in the prudential framework.

A loan transfer should result in the immediate removal of the transferor from the risks and rewards associated with loans to the extent that the economic interest has been transferred. In the case of any retained economic interest, the loan transfer agreement should clearly specify the distribution of the principal and interest income. The transferee should have the unfettered right to transfer or otherwise dispose of the loans free of any restraining conditions, including any consent requirement when it comes to resolution or recovery, to the extent of the economic interest transferred to them.

Lenders, regardless of whether they are transferors or otherwise, should not offer credit enhancements or liquidity facilities in any form in the case of loan transfers. A transferor cannot re-acquire a loan exposure, either fully or partially, that has been transferred by the entity previously, except under the prudential framework or the IBC.

In domestic transactions, the transferee should ensure that the transferor has strictly adhered to the minimum holding period requirements (MHP), which are three months for loans up to two years, and six months for loans of longer periods. For project loans, the period is calculated from the date of commencement of commercial operations of the project being financed. MHP is not applicable to the transfer of syndicated loans.

A transferor may transfer a single loan or a portfolio of loans that are not in default to permitted transferees through assignment or novation, or a loan participation contract. The transfer shall be for cash, received no later than at the time of transfer, transparently on an arm’s length basis. Where transfers result in a change of lender of record under a loan agreement, the transferor and transferee should ensure that the existing loan agreement provides for consent by the borrower to such transactions.

The transfer of stressed loans must be through assignment or novation only, not through loan participation. Lenders shall transfer stressed loans, including by way of bilateral sales or e-auction platforms, only to permitted transferees and asset reconstruction companies. The transferor must not assume any operational, legal or any other type of risks relating to the transferred loans, including additional funding or commitments to the borrower or transferee that relate to the loan transferred.

Aditya Vikram Dua is an associate partner and Parvathi Menon is an associate at SNG & Partners .

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Overview of amendments to Master Direction - Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021

10th Jan, 2023

The Reserve Bank of India (“ RBI ”), on December 5, 2022, amended the Master Direction - Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (“ Directions ”). A brief overview of the key amendments are as follows:

• Overseas branches of scheduled commercial banks have been permitted to:
• acquire only ‘not in default’ loan exposures from a financial entity operating and regulated as a bank in the host jurisdiction;
• transfer exposures ‘in default’ as well as ‘not in default’ pertaining to resident entities to a financial entity operating and regulated as a bank in the host jurisdiction;
• transfer exposures ‘in default’ as well as ‘not in default’ pertaining to non-residents, to any entity regulated by a financial sector regulator in the host jurisdiction.

The aforesaid acquisitions and transfers should be in compliance with the requirements prescribed in the Directions, without derogation of any other statutory or regulatory provisions, including those prescribed under Foreign Exchange Management Act, 1999.

• The term ‘economic interest’ has been defined to mean “the risks and rewards that may arise out of loan exposure through the life of the loan exposure”.
• In connection with the minimum holding period for loans, it has been clarified that such period will be calculated from the date of registration of the underlying security interest with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).
• The Directions provided that in case of transfer of stressed loans pursuant to a resolution plan under the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 to an entity which is neither an asset reconstruction company (“ ARC ”) nor a ‘permitted transferee’ as specified in the Directions, the transfer shall be subject, inter alia , to the condition that the lenders should not take any credit/ investment exposure apart from working capital facilities to the borrower whose loan account is transferred, for at least 3 (three) years from the date of such transfer. It has now been clarified that the aforesaid working capital facilities should be sanctioned to the borrower by lenders who are not transferors.
• The Directions earlier provided that stressed loans which are in default for more than 60 (sixty) days or classified as non-performing asset are permitted to be transferred to ARCs. Pursuant to the amendment, all stressed loans which are in default in the books of the transferors are permitted to be transferred to ARCs.
• Clause 77A has been inserted to provide the valuation methodology for investment in security receipts (“ SRs ”). If the investment by the transferor in SRs issued against loans transferred by it is more than 10% (ten percent) of all SRs issued against the transferred asset, the valuation of the SRs on the books of the transferor shall be the lower of the (i) the Net Asset Value (NAV) declared by the ARC based on the recovery ratings received for such SRs; and (ii) the face value of the SRs reduced by the notional provisioning rate applicable if the loans had continued on the books of the transferor. In respect of valuation of investment in SRs outstanding as on September 24, 2021, the difference between the carrying value of such SRs and the valuation arrived in the manner provided above can be provided over a 5 (five) year period i.e., from FY 2021-22 till FY 2025-2

Please find a copy of the updated Directions, here .

This update has been contributed by Aastha (Partner) and Amisha Agarwal (Associate)

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RBI (Transfer of Loan Exposures) Master Directions, 2021

RBI has released Master Directions (2021) in the matter of ‘Sale/ Transfer of Loan Exposures’, applicable for all lending Institutions w.e.f. 24/09/2021.

RBI Notification 2021-22/86 dt. 24/09/2021: RBI (Transfer of Loan Exposures) Master Directions, 2021

1. Please refer to the Draft Comprehensive Framework for Sale of Loan Exposures that was released on 08/06/2020 for comments from various stakeholders.

2. Based on the examination of the comments received, the Reserve Bank has issued the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 , which are enclosed. These directions have been issued in exercise of the powers conferred by the Sections 21 and 35A of the Banking Regulation Act, 1949 read with Section 56 of the Banking Regulation Act, 1949; Chapter IIIB of the Reserve Bank of India Act, 1934; and Sections 30A, 32 and 33 of the National Housing Bank Act, 1987.

3. These directions come into immediate effect replacing the existing instructions on the matter of sale/ transfer of loan exposures. All lending institutions are advised to take necessary steps to ensure compliance with these directions.

Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021

Introduction:

Loan transfers are resorted to by lending institutions for multitude of reasons ranging from liquidity management, rebalancing their exposures or strategic sales. A robust secondary market in loans can be an important mechanism for management of credit exposures by lending institutions and also create additional avenues for raising liquidity. It is therefore necessary to lay down a comprehensive, self-contained set of regulatory guidelines governing transfer of loan exposures. Accordingly, in exercise of the powers conferred by the Sections 21 and 35A of the Banking Regulation Act, 1949 read with Section 56 of the Banking Regulation Act, 1949; Chapter IIIB of the Reserve Bank of India Act, 1934; and Sections 30A, 32 and 33 of the National Housing Bank Act, 1987, the Reserve Bank, being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the directions hereinafter specified. (contd… please refer above Notification)

One Response

Does this apply to retail loans as well or portfolio sale of stressed assets or loan book sale?

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RBI issues Master Directions- RBI (Transfer of Loan Exposures) Directions, 2021

On September 24, 2021, the Reserve Bank of India (RBI) has issued the Reserve Bank of India (Transfer of Loan Exposures) Directions,

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On September 24, 2021, the Reserve Bank of India (RBI) has issued the Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021. These directions come into immediate effect replacing the existing instructions on the matter of sale / transfer of loan exposures.

Applicability

The provisions of these directions shall apply to the following entities (collectively referred to as lenders in these directions), unless specified otherwise:

(a) Scheduled Commercial Banks;

(b) Regional Rural Banks;

(c) Primary (Urban) Co-operative Banks/State Co-operative Banks/District Central Co-operative Banks;

(d) All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI);

(e) Small Finance Banks; and

(f) All Non Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs).

General Requirements:

• Lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures under these guidelines. Further, the policy must also ensure independence of functioning and reporting responsibilities of the units and personnel involved in transfer / acquisition of loans from that of personnel involved in originating the loans. All transactions must meet the requirements as detailed in the policy.
• Loan transfers should result in transfer of economic interest without being accompanied by any change in underlying terms and conditions of the loan contract usually.

Minimum Holding Period

The transferor can transfer loans only after a minimum holding period (MHP), as prescribed below, which is counted from the date of registration of the underlying security interest:

• Three months in case of loans with tenor of up to 2 years;
• Six months in case of loans with tenor of more than 2 years.

Disclosures and Reporting

• The lenders should make appropriate disclosures in their financial statements, under ‘Notes to Accounts’, relating to the total amount of loans not in default / stressed loans transferred and acquired to / from other entities as prescribed in the Directions, on a quarterly basis starting from the quarter ending on December 31, 2021.

For more details, refer HERE

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• Publications
• Monetary and Credit Information Review

publications

I. Regulation

Large Exposures Framework – Credit Risk Mitigation

The Reserve Bank of India on September 09, 2021 permitted Indian branches of foreign banks to reckon cash/unencumbered approved securities as Credit Risk Mitigation (CRM) for offsetting the gross exposure of foreign bank branches in India to the Head Office (including overseas branches) for the calculation of Large Exposures Framework (LEF) limit, subject to the following conditions:

i) The amount so held shall be over and above the other regulatory and statutory requirements and shall be certified by the statutory auditors.

ii) It shall not be included in regulatory capital. (i.e., no double counting of the fund placed under Section 11(2) as both capital and CRM). Accordingly, while assessing the capital adequacy of a bank, the amount will form part of regulatory adjustments made to Common Equity Tier 1 Capital.

iii) The bank shall furnish an undertaking as on March 31 every year to the Department of Supervision that the balance reckoned as CRM for the purpose will be maintained continuously.

iv) The CRM shall be compliant with the principles/conditions prescribed in paragraph 7 of the Master Circular – Basel III Capital Regulations dated July 1, 2015 as amended from time to time.

The amount held under section 11(2)(b)(i) of the Banking Regulation Act and earmarked as CRM shall be disclosed by way of a note in Schedule 1: Capital to the Balance Sheet.

Excess amount, over and above the CRM requirements shall be permitted to be withdrawn, subject to certification by the statutory auditor and approval of the Department of Supervision, Reserve Bank of India. The onus of compliance with the LEF limit at all times shall be on the bank.

Further, the Reserve Bank permitted foreign banks to exclude derivative contracts executed prior to April 1, 2019 while computing the derivative exposures on their Head Office (including overseas branches). To read more, please click here .

Transfer of Loan Exposures

The Reserve Bank on September 24, 2021 issued Master Direction on transfer of loan exposures, replacing the extant instructions on the matter of sale/transfer of loan exposures, with immediate effect. The Reserve Bank advised all lending institutions to take necessary steps to ensure compliance with these directions. To read more, please click here .

Securitisation of Standard Assets

The Reserve Bank on September 24, 2021 issued Master Direction on Securitisation of Standard Assets, replacing the extant instructions on securitisation of standard assets with immediate effect. The Reserve Bank advised all lending institutions to take necessary steps to ensure compliance with these directions. To read more, please click here .

Aadhaar e-KYC Authentication License

The Reserve Bank on September 13, 2021 advised Non-Banking Finance Companies (NBFCs), Payment System Providers and Payment System Participants desirous of obtaining Aadhaar Authentication License - KYC User Agency (KUA) License or sub-KUA License (to perform authentication through a KUA) to submit their application to the Department of Regulation (DoR), RBI for onward submission to UIDAI. The applications can also be forwarded over email to [email protected] . To read more, please click here .

Investment by Primary UCBs

The Reserve Bank on September 20, 2021 issued the consolidated and updated Master Circular on investments by Primary (Urban) Co-operative Banks. To read more, please click here .

PCA – UCO Bank and IOB

The Reserve Bank on September 08, 2021 decided to take UCO Bank out of the PCA restrictions subject to certain conditions and continuous monitoring. The performance of the UCO Bank, which was under the PCA Framework of the Reserve Bank, was reviewed by the BFS. It was noted that as per its published results for the year ended March 31, 2021, the bank was not in breach of the PCA parameters. The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis and has apprised the Reserve Bank of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments. To read more, please click here .

The Reserve Bank on September 29, 2021 decided to take Indian Overseas Bank (IOB) out of the Prompt Corrective Action (PCA) restrictions, subject to certain conditions and continuous monitoring. The performance of IOB, which was under the PCA Framework of the Reserve Bank, was reviewed by the Board for Financial Supervision (BFS). It was noted that as per its published results for the year ended March 31, 2021, the bank was not in breach of the PCA parameters. The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis and has apprised the Reserve Bank of the structural and systemic improvements that it has put in place, which would help it in continuing to meet these commitments. To read more, please click here .

II. Payment and Settlement Systems

Tokenisation – Card Transactions

The Reserve Bank on September 07, 2021 announced the following enhancements to Tokenisation – Card Transactions, by permitting Card-on-File Tokenisation (CoFT) Services. Measures taken:

i) Extend the device-based tokenisation framework referred to CoF Tokenisation (CoFT) as well.

ii) Permit card issuers to offer card tokenisation services as Token Service Providers (TSPs).

iii) The facility of tokenisation shall be offered by the TSPs only for the cards issued by/affiliated to them.

iv) The ability to tokenise and de-tokenise card data shall be with the same TSP.

v) Tokenisation of card data shall be done with explicit customer consent requiring Additional Factor of Authentication (AFA) validation by card issuer.

All Payment System Providers and Payment System Participants were advised to note the following:

i) With effect from January 1, 2022, no entity in the card transaction/payment chain, other than the card issuers and/or card networks, shall store the actual card data. Any such data stored previously shall be purged.

ii) For transaction tracking and/or reconciliation purposes, entities can store limited data – last four digits of actual card number and card issuer’s name – in compliance with the applicable standards.

iii) Complete and ongoing compliance with the above by all entities involved, shall be the responsibility of the card networks.

To read more, please click here .

Regulatory Sandbox - Third Cohort

The Reserve Bank on September 13, 2021 announced the opening of application window for the Third Cohort under the Regulatory Sandbox based on the theme MSME Lending to eligible entities from October 01, 2021 to November 14, 2021. To read more, please click here .

Linkage of Fast Payment Systems

The Reserve Bank and the Monetary Authority of Singapore (MAS) on September 14, 2021 announced a project to link their respective fast payment systems, such as, Unified Payments Interface (UPI) and PayNow. The linkage is targeted for operationalisation by July 2022.

The UPI-PayNow linkage will enable users of each of the two fast payment systems to make instant, low-cost fund transfers on a reciprocal basis without a need to get onboarded onto the other payment system.

The UPI-PayNow linkage is a significant milestone in the development of infrastructure for cross-border payments between India and Singapore, and closely aligns with the G20’s financial inclusion priorities of driving faster, cheaper and more transparent cross-border payments. The linkage builds upon the earlier efforts of NPCI International Private Limited (NIPL) and Network for Electronic Transfers (NETS) to foster cross-border interoperability of payments using cards and QR codes, between India and Singapore and will further anchor trade, travel and remittance flows between the two countries. This initiative is also in line with the Reserve Bank’s vision of reviewing corridors and charges for inbound cross-border remittances outlined in the Payment Systems Vision Document 2019-21.

UPI is India’s mobile based, 'fast payment' system that facilitates customers to make round the clock payments instantly using a Virtual Payment Address (VPA) created by the customer. This eliminates the risk of sharing bank account details by the remitter. UPI supports both Person to The Person (P2P) and Person to Merchant (P2M) payments, and enables user to send or receive money.

PayNow is the fast payment system of Singapore which enables peer-to-peer funds transfer service, available to retail customers through participating banks and Non-Bank Financial Institutions (NFIs) in Singapore. It enables users to send and receive instant funds from one bank or e-wallet account to another in Singapore by using just their mobile number, Singapore NRIC/FIN, or VPA. To read more, please click here .

III. Foreign Exchange Department

Alternative Reference Rate

The Reserve Bank on September 28, 2021 permitted Authorised Dealer Category– I banks (AD banks) to use any other widely accepted/Alternative Reference Rate in the currency concerned, in view of the impending cessation of London Interbank Offered Rate (LIBOR) as a benchmark rate for interest payable in respect of export / import transactions. The Reserve Bank advised AD banks to bring the contents of this circular to the notice of their constituents concerned. All other instructions in this regard remain unchanged. To read more, please click here .

Export of Goods and Services

The Reserve Bank on September 08, 2021 amended the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 (hereinafter referred to as 'the Principal Regulations’).

Accordingly, under Principal Regulations, in Regulation 15, in sub-regulation 1, for clause (ii), the following shall be substituted, namely: -

“ii) the rate of interest, if any, payable on the advance payment shall not exceed 100 basis points above the London Inter-Bank Offered Rate (LIBOR) or other applicable benchmark as may be directed by the Reserve Bank, as the case may be;”. To read more, please click here .

IV. Banker to Government

WMA Limit for Government of India

The Reserve Bank of India, in consultation with the Government of India, on September 27, 2021 decided that the limit for Ways and Means Advances (WMA) for the second half of the financial year 2021-22 (October 2021 to March 2022) be fixed at ₹50,000 crore.

The Reserve Bank may trigger fresh floatation of market loans when the Government of India utilises 75 per cent of the WMA limit.

The Reserve Bank retains the flexibility to revise the limit at any time, in consultation with the Government of India, taking into consideration the prevailing circumstances.

The interest rate on WMA/overdraft will be:

i) WMA: Repo Rate

ii) Overdraft: Two percent above the Repo Rate

SGB - Redressal of Customer Complaints

The Reserve Bank on September 09, 2021 streamlined the process for redressal of customer complaints of investors of Sovereign Gold Bond. The process of redressal shall be as follows:

i) The nodal officer/s of the receiving office (RO) shall be the first point of contact for attending to the queries/complaints of their customers.

ii) In case the issue is unresolved, an escalation matrix at the ROs shall be used to resolve customer grievance.

iii) The investor may approach the Reserve Bank at [email protected] , if no reply is received from the RO within a period of one month of lodging the complaint, or the investor is not satisfied with the response of the RO.

Accordingly, the Reserve Bank included the details of the nodal officers of all ROs in paragraph 18 of the circular on Consolidated Procedural Guidelines on SGB dated April 13, 2020. To read more, please click here .

V. RBI Top Management Speaks

Responsible Digital Innovation

Shri T. Rabi Sankar, Deputy Governor delivered a speech on ‘Responsible Digital Innovation’ at the Global Fintech Festival on September 28, 2021. In his speech, the Deputy Governor spoke about the role played by Fintech in transforming the provision and delivery of financial services. He remarked that processing speed has reduced cost and time for transactions, and communication speed has enhanced connectivity of fast payments systems like UPI and IMPS. Further, instantaneous communication and the ability to process large databases has also enabled the use of Aadhar for transaction authentication which in turn has made it possible to effect large scale Government transfers instantaneously. This has also helped in ensuring that Government benefits reach directly into the bank accounts of beneficiaries. Shri Shankar also explained why it was important to appreciate the limitations of technology with the help of an illustration pertaining to savers and borrowers in an economy. He also remarked that entities like insurance companies, pension funds and asset management companies assume varied degrees of importance in financial markets as alternatives to intermediation by banks.

Shri Sankar also elaborated on Fintech regulation. He noted that the sheer diversity in the functions performed by fintech firms necessitates a widening of the regulatory perimeter and the approach to regulation also needs to adapt to the type of entity being regulated. He also explained how activity based regulation might be less effective than entity-based regulation when one is dealing with financial activities by big tech firms. To read the full speech, please click here .

VI. RBI Bulletin

The Reserve Bank on September 16, 2021 released its monthly bulletin. The Bulletin consists of two speeches, five articles and current statistics. The five articles are:

i) State of the Economy

Prospects are brightening for the economy achieving escape velocity from the pandemic as the second wave wanes and preparedness for future remains on war-alert status. Aggregate demand is gaining firmer ground, while on the supply side, Index of Industrial Production (IIP) and core industries mirror improvement in industrial activity and services sector indicators point towards sustained recovery. The trajectory of inflation is shifting down more favourably than anticipated. As pandemic scars heal and supply conditions are restored with productivity gains, a sustained easing of core inflation can be expected, which will reinforce the growth-supportive stance of monetary policy.

ii) Changes in Sectoral Bank Credit Allocation: Developments since 2007-08

The evolving patterns in credit allocation across sectors assume significance, as this can have implications for economic growth and employment generation. This article examines the changes in credit allocation, between industrial and non-industrial sectors (agriculture and allied activities, services, and personal loans segment), along with the lending behaviour of banks since 2007-08. It empirically assesses the impact of COVID-19 pandemic on credit delivery and sectoral credit offtake.

iii) Private Corporate Investment: Growth in 2020-21 and Outlook for 2021-22

In this article, the near-term private investment outlook is assessed based on the project proposals data on capex phasing plans indicated by the private corporate sector. The investment intentions of the Indian private corporates remained sluggish as reflected by lower numbers of new announcements and completions of projects. The article highlights that the pandemic uncertainties adversely impacted appetite for new projects during 2020-21 and posed impediments to timely completion of pipeline projects. In 2021-22, demand for new projects would shape the private investment outlook, along with the progress of the projects already in the pipeline.

iv) Financial Inclusion Plan – Reflecting the Growth Trajectory

Financial Inclusion Plan (FIP) mandates banks to have a planned and structured approach towards improving financial inclusion across the country, particularly in the unserved/underserved regions.

v) Financial Inclusion Index for India

Greater financial inclusion (FI) is crucial for a wider, inclusive and sustainable growth. Therefore, a measure of FI is necessary to effectively monitor the progress of the policy initiatives undertaken to promote FI. A multidimensional composite Financial Inclusion Index (FI-Index) has been constructed based on 97 indicators, which quantifies the extent of financial inclusion and is responsive to availability, ease of access, usage, inequality and deficiency in services, financial literacy, and consumer protection. The article dwells on the creation of the FI-Index in terms of indicators for ‘Access’, ‘Usage’ and ‘Quality’ dimensions, weighting distributions, desired goals for the selected indicators, and methodology to combine these indicators into a composite index. To read the Bulletin, please click here .

VII. Data Releases

Important Data Releases by the Reserve Bank in the month of September 2021 are as follows:

Edited and published by Yogesh Dayal for Reserve Bank of India, Department of Communication, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400 001. MCIR can be also accessed at https://mcir.rbi.org.in .

FAQs on Transfer of Loan Exposure

The RBI has consolidated the guidelines with respect to transfer of standard assets as well as stressed assets by regulated financial entities under a common regulation named Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (“Directions”).

The Directions divided into five operative chapters- the first one specifying the scope and definitions, the second one laying down general conditions applicable on all loan transfers, the third one specifying the requirements in case of transfer of loans which are not in default, that is standard assets, the fourth one provides the additional requirement for transfer of stressed assets and the fifth chapter is on disclosure and reporting requirements.

Under the said Directions, the following entities are permitted as transferor and transferee to transfer loans-

We bring you this frequently asked questions on Transfer of Loans to assist you better understand the guidelines.

The file can be downloaded at this link:  https://mailchi.mp/887939b2f979/qa32ogwo2t We have also published FAQs on Securitisation of Standard Asset, the contents of FAQs can be accessed here and the file can be downloaded at this link.

After 15 years: New Securitisation regulatory framework takes effect

One stop RBI norms on transfer of loan exposures

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