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Economy
Mahesh

10/06/23 07:25 AM IST

RBI revises OTS guidelines

In News
  • The Reserve Bank of India has issued instructions to regulated entities that include the UCBs, regarding compromise settlements and technical write-offs in respect of stressed accounts.
Major Guidelines
  • The primary objective of the detailed guidelines provided by the RBI is to establish a comprehensive framework for OTS and technical write-offs.
  • These guidelines aim to define the process, set precedents, and outline a graded framework for staff accountability, all within specific timelines.
  • The guidelines also emphasize the need for a settlement policy that includes permissible sacrifices for different exposures and focuses on maximizing recovery while minimizing expenses.
  • Borrowers opting for an OTS are subject to a cooling period of at least 12 months for farm credit exposures.
  • During this period, regulated entities cannot assume fresh exposures with these borrowers. Additionally, when there are ongoing judicial recovery proceedings against a borrower, any settlement reached must be approved by the judicial authorities, as specified by the RBI.
  • An important development is the extension of the OTS framework to include urban co-operative banks (UCBs).
  • Previously, this framework was limited to commercial banks.
  • This expansion acknowledges the growing reliance of commercial banks on OTS as an effective means of recovery, particularly in light of the delays and complexities associated with other recovery routes such as the Insolvency and Bankruptcy Code (IBC).
Source- Economic Times

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