What changed
RBI observed that banks were applying different parameters to different borrowers during compromise settlements, sometimes agreeing to lesser amounts despite ample securities and ignoring RBI guidelines. To address this, RBI now requires the officer sanctioning a compromise/one-time settlement to append a certificate stating the settlement conforms to RBI guidelines.
What it means for you
Banks must ensure their compromise settlement processes are uniform and transparent, with full adherence to existing RBI circulars. The new certification requirement adds a layer of accountability, making sanctioning officers personally responsible for compliance. This could slow down settlement approvals but aims to prevent regulatory and legal challenges.
What you must do
- Review your bank's current compromise/one-time settlement policies and practices to ensure they align with RBI guidelines.
- Implement a mandatory certification process where the sanctioning officer certifies that each settlement complies with RBI norms.
- Train sanctioning authorities on the new certification requirement and the importance of fair, transparent treatment of all borrowers.
- Audit recent settlements to identify any deviations from RBI guidelines and take corrective action.
Who it affects
All Scheduled Commercial Banks (excluding RRBs & LABs), Sanctioning officers/authorities handling compromise/one-time settlements, Borrowers with NPAs seeking compromise settlements
What triggered this RBI directive?
Concerns were raised by Debt Recovery Tribunals and other quarters about banks using different parameters for different borrowers during compromise settlements, sometimes ignoring available securities and RBI guidelines.
What is the new certification requirement?
The officer or authority sanctioning a compromise or one-time settlement must now append a certificate stating that the settlement is in full conformity with RBI guidelines.
Does this apply to all banks?
Yes, it applies to all Scheduled Commercial Banks, but Regional Rural Banks (RRBs) and Local Area Banks (LABs) are excluded from this circular.