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Informist, Wednesday, Jan. 1, 2025

MUMBAI – The Reserve Bank of India on Tuesday issued guidelines for regulated entities for prudential treatment of debt relief schemes announced by the Centre and state governments. The guidelines provide a principle-based resolution framework for regulated entities to address stress in borrower accounts, the central bank said in a notification. 

The RBI said some regulated entities may be involved in the implementation of various debt relief schemes announced by the government that entail a waiver of debt obligations of a targeted segment of borrowers against fiscal support. "If such schemes are announced frequently, incommensurately, or without due consideration to the principles of financial discipline, they would negatively affect the credit discipline and, in the long run, may be counter-productive to the credit flow to such borrowers," the notification said. 

The guidelines said regulated entities should decide on participating in a particular debt relief scheme notified by a government, based on its board-approved policy, subject to the extant regulatory norms. Any provision of the debt relief scheme that may warrant modification in the long-term interest of the borrowers should be brought to the notice of the concerned authorities through state and district-level consultative committees at the time of designing the debt relief scheme, it said.  

Regulated entities must also ensure that the borrowers to be covered under the scheme are selected strictly as per the terms of the scheme to avoid subsequent non-admission by the authorities on technical grounds. "The terms and conditions of the scheme as well as the prudential aspects, including the cooling period for extending fresh credit, impact on credit score among others, shall be clearly communicated to the borrowers at the time of obtaining explicit consent from the borrower for availing benefits under the proposed DRS (debt relief scheme)," the guidelines said.

RBI also shared a model operating procedure with the state governments for their consideration while designing and implementing such schemes through a consultative approach, to avoid any non-alignment of expectations of the stakeholders involved, including the government, lenders and borrowers.

Governments need to engage with state and district-level bankers' committees before announcing any debt relief scheme and the design should ensure that it does not impact the financial stability of the region or state or create moral hazards in borrower segments. 

"Detailed budgetary provisions or funding may be provided upfront towards any proposed DRS to fully cover the required settlement amounts. Where lenders have dues from the government, pertaining to earlier DRS schemes, new schemes should be announced only on a fully pre-funded basis," the guidelines said.

The scheme should be designed in such a way that it is targeted at impacted borrowers, it should cover the entire outstanding dues of the borrowers being covered and the entire implementation of the scheme and settlement of claims should be completed within 45-60 days, the guidelines said.

The notification also said with respect to the relief measures announced before the introduction of these guidelines, any dues pending receipt from the government for more than 90 days will attract a specific provision of 100%. RBI has asked regulated entities to take necessary action and actively follow up with the respective governments for the settlement of such dues at the earliest.  End

Reported by Kshipra Petkar

Edited by Saji George Titus

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