RBI seeks transparency in NPA compromise settlements

Noting that some financial institutions were allegedly flouting its norms, the Reserve Bank of India (RBI) today directed banks to carry out the settlement of non-performing assets (NPAs) in a transparent manner.

"Of late, certain serious concerns have been expressed in different quarters and by Debt Recovery Tribunals (DRTs) over the manner compromise settlements have been effected by banks," the RBI said in a notification.

The RBI expressed concerns that some banks were agreeing to smaller amounts than what they could recover.

"One of the DRTs also observed that banks adopted different parameters for different borrowers, and agreed to a lesser amount as against the claimed amount, despite the availability of ample securities, and by ignoring RBI guidelines," it said.

The banking regulator highlighted its guidelines in cases of compromise, negotiated and one-time settlement of NPAs.

"...(We) advise that adequate care should be taken to ensure that compromise settlements are done in a fair and transparent manner and are in full compliance with RBI guidelines on the matter," it said.

Further, it told banks that the officer or authority sanctioning the compromise settlements must append a certificate stating that the settlements are in conformity with RBI guidelines.