What changed
Previously, Multi-State UCBs were not explicitly permitted to sell financial assets to SC/RCs or invest in security receipts. This circular now allows such sales and investments, subject to conditions like no court orders barring the transaction and adherence to new guidelines on valuation, provisioning, capital adequacy, and exposure norms.
What it means for you
Multi-State UCBs can now offload NPAs and select standard assets to SC/RCs, improving their asset quality and freeing up capital. However, they must ensure sales are on a 'without recourse' basis to avoid future liabilities, and invest in security receipts only after board-approved policies. This aligns UCBs with commercial bank practices under SARFAESI.
What you must do
- Place the new guidelines before your board and get approval for a sale policy covering asset selection, valuation, and pricing.
- Verify no court order restricts your bank from selling assets to SC/RCs before initiating any transaction.
- Ensure all asset sales are on a 'without recourse' basis, transferring full credit risk to the SC/RC.
- Update your prudential norms for provisioning, capital adequacy, and exposure limits to reflect investments in security receipts.
- Disclose all sales and investments in security receipts as per the new disclosure requirements.
Who it affects
All Multi-State Urban Cooperative Banks, Securitisation/Reconstruction Companies (SC/RCs), Borrowers whose assets are sold to SC/RCs
Can we sell standard assets to SC/RCs?
Yes, but only if the asset is part of a consortium/multiple banking arrangement where at least 75% by value is classified as NPA in other banks' books, and 75% of consortium banks agree to the sale.
What is the key condition for selling assets?
The sale must be on a 'without recourse' basis, meaning the asset is fully removed from your books with no future liability devolving on your bank.
Do we need board approval for each sale?
Your board must approve a comprehensive policy covering asset selection, valuation, and sale procedures. Individual sales can then follow that policy.