The Reserve Bank of India (RBI) on Friday has effected major changes to the norms governing the transfer of bad loans and standard assets by lenders. The Central Bank (RBI) accordingly issued Master Direction on loan transfer, requiring banks and other lending institutions to have a comprehensive board-approved policy for such transactions.

Loan transfers are resorted to by lending institutions for various reasons, ranging from liquidity management, rebalancing their exposures or strategic sales. Also, a robust secondary loan market will create additional avenues for raising liquidity, the RBI said.

It has made it mandatory for lenders to put in place a comprehensive board-approved policy for transfer and acquisition of loan exposures under these guidelines. . "These guidelines lay down the minimum quantitative and qualitative standards relating to due diligence, valuation, requisite IT systems for capture, storage and management of data, risk management,” it said.

The Master Direction has also prescribed a minimum holding period for different categories of loans after which they shall become eligible for transfer. " Further, the policy must also ensure the independence of functioning and reporting responsibilities of the units and personnel involved in transfer/acquisition of loans from that of personnel involved in originating the loans,” it added.

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