What changed
RBI replaced all existing instructions on loan sales with a single Master Direction effective September 24, 2021, updated in December 2023. The new framework sets uniform rules for transferring both performing and stressed loan exposures across all regulated lenders.
What it means for you
Banks and NBFCs now have a clear, consolidated regulatory path for loan transfers, aiding liquidity and portfolio management. RRBs and co-operative banks can only transfer stressed loans, not acquire any, limiting their secondary market role. Overseas branches of scheduled commercial banks can acquire only 'not in default' loans from host-regulated banks.
What you must do
- Review and align your loan transfer policies with the Master Direction's provisions immediately.
- Ensure RRBs and co-operative banks restrict their loan transfer activities to stressed loan sales only.
- For overseas branches, verify that any loan acquisitions are limited to 'not in default' exposures from host-regulated banks.
- Update internal compliance checklists to reflect the consolidated framework and replace old circular references.
Who it affects
Scheduled Commercial Banks, Regional Rural Banks, Primary (Urban) Co-operative Banks, State Co-operative Banks, Central Co-operative Banks, All India Financial Institutions (NABARD, NHB, EXIM Bank, SIDBI, NaBFID), Small Finance Banks, Non-Banking Financial Companies (including Housing Finance Companies)
Can RRBs and co-operative banks acquire loans under this Master Direction?
No, they are permitted only as transferors of stressed loans under Chapter IV and cannot act as transferees or transferors in any other type of loan transfer.
What are the rules for overseas branches of scheduled commercial banks?
They can acquire only 'not in default' loan exposures from a financial entity that is operating and regulated as a bank in the host jurisdiction. They can transfer both 'in default' and 'not in default' exposures of resident entities.
When did these directions take effect?
The directions came into force with immediate effect from September 24, 2021, and were updated on December 28, 2023.