Fraudulent loans cannot be sold to bad bank: RBI. The RBI has said that loans classified as frauds should not be sold to the proposed National Asset Reconstruction Company (NARC) to be set up by public sector banks. This would mean that the bulk of sticky debt would remain on the books of banks.
According to the RBI’s annual report , as of march 2020 approx Rs 1.9 lakh crore has been categorized as fraudulent . The RBI directive won’t have any implication for the plus quality of banks. That’s as a result of once a loan is classed as a fraud, banks ought to totally offer for it.
The quantity of fraud accounts grew in FY21 too because the RBI cracked down on banks for not recognising early warning signals. Last year, the RBI aforementioned that banks ought to prefer whether or not a ‘red flagged’ loan wherever the loaner suspects unlawfulness is dishonorable or not inside six months.
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Fraudulent loans cannot be sold
In FY 2020, fraud numbers increased due to DHFL and classification of some large accounts like Bhushan Power and Steel. In FY21, Cox and the Kings were classified as frauds. Bank of Baroda and PNB had classified the account of Reliance Home Finance as fraud, but it was stopped by the Delhi High Court. Yes Bank has classified more accounts, including Onkar developers, as fraudulent after action by the regulatory authority.
Apart from fraudulent loans, banks are not allowed to sell loans to companies undergoing liquidation procedures for asset reconstruction companies (ARCs). According to the banks, RBI will not allow a special distribution for NARC and subject it to the same criteria as private ARCs. However, due to government support for security receipts issued by NARC, NARC will remain on ARC with better private vision. Security receipts entitle the holder to a share in the recovery proceeds.
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