Key Components of the Compromise Settlement Framework (continued)
Eligibility Criteria
- Borrower category-based eligibility
- NPA classification stage considerations
- Fraud/willful defaulter treatment
- Exclusion criteria definition
- Special case consideration process
Settlement Amount Determination
- Minimum settlement amount guidelines
- Net present value considerations
- Security valuation methodology
- Settlement formula requirements
- Special cases handling approach
Governance and Approval Process
- Multiple layers of approval requirements
- Independent evaluation mechanisms
- Conflict of interest management
- Documentation standards
- Record-keeping requirements
Post-Settlement Monitoring
- Settlement terms compliance verification
- Default handling procedures
- Renegotiation restrictions
- Reporting requirements
- Settlement effectiveness evaluation
Technical Write-off Requirements
Write-off Definition and Scope
- Technical write-off clarification
- Distinction from actual loan waiver
- Accounting treatment guidelines
- Recovery continuation requirements
- Write-off categorization framework
Write-off Authorization
- Authority levels for different amounts
- Board or committee approval requirements
- Documentation standards
- Rationale recording requirements
- Post write-off reporting obligations
Recovery Efforts Post Write-off
- Continued recovery effort requirements
- Recovery tracking mechanisms
- Recovery performance monitoring
- Recovery agency management
- Incentive structures for recovery
Reporting and Disclosure
- Internal reporting requirements
- Regulatory reporting obligations
- Financial statement disclosure standards
- Trends and pattern analysis
- High-value write-off special reporting
Specific Requirements by Borrower Category
Individual Borrowers
- Retail loan settlement guidelines
- Education loan settlement considerations
- Housing loan compromise parameters
- Hardship consideration framework
- Documented financial assessment requirements
Micro, Small and Medium Enterprises
- Viability assessment requirements
- Resolution versus liquidation considerations
- Revival possibility evaluation
- Sector-specific considerations
- Government scheme integration
Corporate Borrowers
- Business viability assessment
- Group exposure considerations
- Promoter contribution requirements
- Going concern versus liquidation value
- Resolution plan integration
Special Categories
- Deceased borrower treatment
- Borrowers facing catastrophic events
- Marginalized section considerations
- Sector-specific distress provisions
- Legacy NPA treatment guidelines
Applicability Across Financial Institutions
Scheduled Commercial Banks
- Comprehensive policy implementation
- Advanced settlement evaluation methods
- Full governance structure implementation
- Detailed reporting requirements
- Enhanced disclosure standards
Small Finance Banks
- Core policy framework implementation
- Modified governance requirements
- Focus on small borrower settlements
- Simplified reporting formats
- Specially designed frameworks for microfinance
NBFCs by Layer
- NBFC-Upper Layer: Near-bank level requirements
- NBFC-Middle Layer: Core framework implementation
- NBFC-Base Layer: Simplified requirements
- Sector-specific adaptations permitted
Implementation Requirements
Transition Timeline
- Existing policy revision deadlines
- New case processing under revised framework
- In-process settlement transition guidelines
- New committee formation timeline
- Reporting implementation schedule
Documentation Standards
- Settlement proposal documentation
- Financial analysis requirements
- Settlement terms documentation
- Approval process documentation
- Post-settlement monitoring records
Disclosure Requirements
- Annual report disclosure standards
- Notes to accounts requirements
- Age-wise and category-wise disclosures
- Large value settlement reporting
- Settlement rationale documentation
Balancing Financial Prudence with Borrower Relief
Economic Value Optimization
- Maximum recovery pursuit guidelines
- Time value of money considerations
- Litigation cost-benefit analysis
- Security realization timeframe evaluation
- Opportunity cost assessment
Borrower Rehabilitation Considerations
- Genuine hardship assessment
- Future relationship potential
- Borrower cooperation evaluation
- Revival potential assessment
- Social impact considerations
Legal and Regulatory Compliance
- Alignment with IBC provisions
- RBI prudential norms compliance
- Tax implication considerations
- Prevention of financial crime regulations
- Corporate governance standards
Impact on Financial Statements
Provisioning and Capital Impact
- Provision utilization guidelines
- Capital adequacy impact assessment
- Income recognition implications
- Reversal of interest accruals
- Tax treatment considerations
Divergence Risk Management
- Regulatory inspection preparation
- Documentation standardization
- Decision rationale recording
- Independent verification mechanisms
- Regulatory compliance verification
Conclusion
The RBI’s Framework for Compromise Settlement and Technical Write-off brings much-needed standardization and governance to the resolution of stressed assets outside the formal insolvency process. Financial institutions that implement robust policies and processes aligned with these guidelines will be better positioned to optimize recoveries while providing fair treatment to borrowers facing genuine difficulties, ultimately contributing to a healthier credit culture in the financial system.
