The Reserve Bank of India on 24th September 2021 has published the Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 which shall be applicable to banks, all non-banking finance companies (NBFCs), including housing finance companies (HFCs), NABARD, NHB, EXIM Bank, and SIDBI.
The lenders must put in place a comprehensive Board-approved policy for transfer and acquisition of loan exposures under these guidelines. 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.
A loan transfer should result in immediate separation of the transferor from the risks and rewards associated with loans to the extent that the economic interest has been transferred. In case of any retained economic interest in the exposure by the transferor, the loan transfer agreement should clearly specify the distribution of the principal and interest income from the transferred loan between the transferor and the transferee(s).
Any loss or profit arising because of transfer of loans, which is realised, should be accounted for accordingly and reflected in the Profit & Loss account of the transferor for the accounting period during which the transfer is completed.
