Skip to main content

Framework for Compromise Settlements and Technical Write-offs

Reserve Bank of India (RBI) has released the framework for compromise settlements and technical write-offs.

What is compromise settlement?

Compromise settlement refers to any negotiated arrangement with the borrower to fully settle the claims of the Regulated Entity (RE) against the borrower in cash. It may entail some sacrifice of the amount due from the borrower on the part of the REs with corresponding waiver of claims of the RE against the borrower to that extent.

The primary regulatory objective is to enable multiple avenues to lenders to recover the money in default without much delay. Apart from the time value loss, inordinate delays result in asset value deterioration which hampers ultimate recoveries. 

What is technical write-offs?

Technical write-off refers to cases where the non-performing assets remain outstanding at borrowers’ loan account level, but are written-off (fully or partially) by the RE only for accounting purposes, without involving any waiver of claims against the borrower, and without prejudice to the recovery of the same.

What shall be the cooling period for accounts subjected to compromise settlement or technical write-off?

In respect of borrowers subject to compromise settlements, there shall be a cooling period before the REs can assume fresh exposures to such borrowers, subject to the following –

  • The cooling period in respect of exposures other than farm credit exposures shall be minimum 12 months. REs are free to stipulate higher cooling periods in terms of their Board approved policies.
  • The cooling period for farm credit exposures shall be determined by the REs as per their respective Board approved policies.

The cooling period to be adopted in respect of exposures subjected to technical write-offs shall be as per the Board approved policies of the REs.

What additional instructions are applicable to accounts classified as fraud or wilful defaulter?

  • Proposals for compromise settlements in respect of debtors classified as fraud or wilful defaulter shall require approval of the Board in all cases.
  • REs may undertake compromise settlements or technical write-offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceeding underway against such debtors.
  • As per Master Directions on Frauds dated July 01, 2016 (updated as on July 03, 2017), borrowers who have defaulted and have also committed a fraud in the account would be debarred from availing bank finance from Scheduled Commercial Banks, Development Financial Institutions, Government owned Non-Banking Financial Companies (NBFCs), Investment Institutions, etc., for 5 five years from the date of full payment of the defrauded amount.
  • As per Master Circular on Wilful Defaulters dated July 01, 2015, no additional facilities should be granted by any bank / financial institution (FI) to the listed wilful defaulters. In addition, such companies (including their entrepreneurs / promoters) where banks / FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, FIs, NBFCs, for floating new ventures for a period of 5 years from the date of removal of their name from the list of wilful defaulters.

What will be the prudential requirements for accounts subjected to compromise settlement or technical write-off?

  • Compromise settlements where the time for payment of the agreed settlement amount exceeds 3 months shall be treated as restructuring as defined in the Prudential framework on Resolution of Stressed Assets dated June 7, 2019.
  • In case of partial technical write-offs, the prudential requirements in respect of residual exposure, including provisioning and asset classification, shall be with reference to the original exposure.

What will be the legal implications of compromise settlements?

  • The compromise settlements with the borrowers shall be without prejudice to the provisions of any other statute in force.
  • Wherever recovery proceedings are pending before a judicial forum, any settlement arrived at with the borrower shall be subject to obtaining a consent decree from the concerned judicial authorities.

 

References

Reserve Bank of India. (2015, July 01). 'Master Circular on Wilful Defaulters'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9907

Reserve Bank of India. (2016, July 01). 'Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs (Updated as on July 03, 2017)'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10477

Reserve Bank of India. (2023, June 20). 'FAQ - Framework for Compromise Settlements and Technical Write-offs'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=160

Reserve Bank of India. (2023, June 08). 'Framework for Compromise Settlements and Technical Write-offs'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12513&Mode=0


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Credit Cards and Debit Cards

Reserve Bank of India (RBI) has issued directions on issuance of credit cards and debit cards. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Non-Banking Financial Companies (NBFCs) for all layers – NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro Finance Institutions (NBFC-MFI)  Housing Finance Company (HFC)  What is a credit card? Credit Card is a physical / virtual payment instrument issued with a pre-approved revolving credit limit that can be used to purchase goods and services or draw cash advances. What is a debit card? Debit Card is a physical / virtual payment instrument linked to a Savings Bank / Current Account which can be used to withdraw cash, make online payments, do Point of Sale (PoS) terminal / Quick Response (QR) code transactions, fund transfer, e...
Post a Comment
Read more

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

Reserve Bank of India (RBI) has issued the directions on maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) by banks. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Payments Banks (PBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) District Central Co-operative Banks (DCCBs) What is CRR? Every bank shall maintain in India by way of cash reserve, a sum equivalent to such percent of its Net Demand and Time Liabilities (NDTL) in India, as the RBI in terms of Section 42(1) of the RBI Act, 1934 (for scheduled banks) and Section 18(1) of the Banking Regulation Act (BR Act), 1949 (for non-scheduled banks) [including provisions of Section 18(1) of the BR Act as applicable to co-operative banks], may specify. What is incremental CRR? In terms of Secti...
Post a Comment
Read more

Special Rupee Vostro Accounts (SRVAs)

Reserve Bank of India (RBI) has consolidated the guidelines governing Special Rupee Vostro Accounts (SRVAs). Who can open and maintain Special Rupee Vostro Accounts (SRVAs)? Authorised Dealer (AD) banks in India may open Special Rupee Vostro Accounts (SRVAs) of its branch outside India or a bank resident outside India. Which transactions can be settled through SRVA? The settlement of cross-border trade transactions through SRVA is an additional arrangement for invoicing, payment and settlement of exports and imports in Indian Rupee (INR).  All permissible capital and current account transactions under Foreign Exchange Management Act (FEMA) may be settled through the SRVA.  AD banks maintaining SRVA are permitted to open additional current account for exporter / importer, exclusively for settlement of export / import transactions. What can be the source and use of funds in SRVA? SRVA may be funded by way of inward remittances or transfer from other repatriable INR accounts in t...
Post a Comment
Read more

Payment of Agency Commission to Agency Banks (ABs) and Disbursement of Government Pension by ABs

Reserve Bank of India (RBI) has issued guidelines on the conduct of Government business by Agency Banks (ABs), payment of agency commission to ABs and disbursement of Government pension by ABs. Who are ABs? ABs mean all Public Sector Banks (PSBs), scheduled Private Sector Banks (PVBs), scheduled Payments Banks (PBs), and scheduled Small Finance Banks (SFBs) appointed by the RBI under Section 45 of the RBI Act, 1934, by mutual agreement, to carry out Government banking business of the Central Government (CG) / State Governments (SGs). What is agency commission? Agency commission means the remuneration paid by the RBI to an AB in consideration of it acting as an agent of the RBI in the conduct of general banking business of the CG and the SGs at the places and in the manner specified in the agreement between the RBI and the bank, with the exception of the functions relating to the management of the public debt. What are the guidelines on appointment of ABs? Any eligible bank which intend...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the fifth and final article in the series.  Chapter 7 – Public Debt Management The ways and means advances (WMA) limit for the Government of India (GoI) for H1:2025-26 (April to September 2025) was fixed at ₹1,50,000 crore and for H2:2025-26 (October 2025 to March 2026) was fixed at ₹50,000 crore. The RBI entered into an agreement with the Government of National Capital Territory of Delhi (GNCTD), under Section 21A(1) of the RBI Act, 1934, to carry on the general banking business of GNCTD and manage its rupee public debt. The WMA limit of GNCTD was set at ₹890 crore, taking the aggregate WMA limit of all the states / UTs to ₹61,008 crore. The RBI introduced Separate Trading of Registered Interest and Principal of Securities (STRIPS) in the state government securities. Retail Direct Gilt (RDG) account – An au...
Post a Comment
Read more