In the near future, cooperative banks will be able to conduct compromise settlements and write off NPAs: RBI

Shaktikanta Das, the governor of the Reserve Bank, said on Thursday that cooperative lenders will soon be authorized to carry out technical write-offs and finalize compromise agreements with delinquent borrowers.

All regulated organizations, including cooperative lenders, would now be empowered to implement “compromise settlements and technical write-offs” to address non-performing assets under the RBI’s decision to expand the framework for the resolution of stressed assets, Das said.

According to Das, only scheduled commercial banks and a few non-bank financing businesses have access to this route for the settlement of bogus assets up until this point. He also promised the imminent publishing of complete instructions on the subject.

It should be emphasized that conflicts of interest and poor governance procedures routinely make news in the cooperative lending industry.

The existing prudential requirements on restructuring borrower accounts impacted by natural disasters are intended to be rationalized, Das said.

The Governor also declared that the deadlines for meeting the objectives will be extended by an additional two years, to March 2026, in order to address the implementation difficulties that other UCBs (urban cooperative banks) are experiencing.

Lenders who have achieved their goals as of March 31, 2023, will get the appropriate incentives, he said.

The RBI has decided to implement default loss assurance provisions in digital lending in order to further support the orderly growth of the ecosystem for digital lending and increase credit penetration in the economy.

“It has been decided to issue guidelines on Default Loss Guarantee arrangements in Digital Lending,” Das stated. “With a view to further promoting responsible innovation and prudent risk management.”

In order to increase the effectiveness in providing foreign exchange facilities to various user segments, including regular people, tourists, and businesses, the RBI has decided to rationalize and simplify the licensing framework for authorized persons under the Foreign Exchange Management Act (FEMA), 1999, Das said.

The RBI has suggested streamlining the transaction flow and membership requirements for operational units in order to increase the Bharat Bill Payment System’s efficiency and promote broader participation, Das added.

It has been decided to allow scheduled commercial banks, with the exception of Small Finance Banks, to determine their own borrowing limits in Call and Notice Money Markets within the established prudential norms for inter-bank liabilities in order to provide more flexibility for managing liquidity, Das added.