RBI allows lenders to sell fraud loans to ARC

WHY IN THE NEWS?

• The Reserve Bank of India has allowed lenders/banks to transfer of loans that have been classified as fraud by these lenders to Asset Reconstruction Companies (ARCs).
• Stressed loans including fraud loans that are in default for more than 60 days or classified as NPA are permitted to be transferred to ARCs. This comes in the wake of banks reporting frauds aggregating Rs 3.95-lakh crore between FY19 and FY21.
• Under the new guidelines, loans can be transferred only after a minimum holding period (MHP) of three months in case of loans with tenor up to 2 years, and six months for those with the tenor of more than 2 years.

• In case of loans where the security does not exist or cannot be registered, the MHP shall be calculated from the date of the first repayment of the loan