FAQs on Transfer of Loan Exposure
The RBI has consolidated the guidelines with respect to transfer of standard assets as well as stressed assets by regulated financial entities under a common regulation named Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (“Directions”).
The Directions divided into five operative chapters- the first one specifying the scope and definitions, the second one laying down general conditions applicable on all loan transfers, the third one specifying the requirements in case of transfer of loans which are not in default, that is standard assets, the fourth one provides the additional requirement for transfer of stressed assets and the fifth chapter is on disclosure and reporting requirements.
Under the said Directions, the following entities are permitted as transferor and transferee to transfer loans-
We bring you this frequently asked questions on Transfer of Loans to assist you better understand the guidelines.
The file can be downloaded at this link: https://mailchi.mp/887939b2f979/qa32ogwo2t
We have also published FAQs on Securitisation of Standard Asset, the contents of FAQs can be accessed here and the file can be downloaded at this link.
FAQs onTLE Framework_content
I am writing this mail to seek your guidance on an important regulatory matter i.e., compliance with Para 9(m), Explanation 3 of the RBI Master Direction on Transfer of Loan Exposures.
Extract of Para 9(m) along with Explanation III is reproduced below
Para 9(m):
“transferee” means the entity to which the economic interest in a loan exposure is transferred under these directions;
Provided that a transferee shall not be a person disqualified in terms of Section 29A of the Insolvency and Bankruptcy Code, 2016;
Explanation III: The responsibility for verifying and establishing that the transferee(s) comply with the above provisos shall be with the transferor(s)
My queries are as follows:
a. Is the above reference applicable to transfer of loan exposures that are not stressed assets.
b.Whether necessary due diligence along with establishing the fact that the proposed assignee is qualified under 29A is required to be ensured by the transferor.
Whether such due-diligence needs to be done before entering in to Deed of Assignment. Whether simple clause in deed of assignment indicating that the transferee is compliant with all regulations of RBI suffice to mee the said requirement.
d. If yes, considering the complexity of 29A of IBC, what steps an entity is required to follow to ensure compliance
Kindly note that the transferee under the TLE Directions can only be a financial sector regulated entity. Accoridngly, the question of such entity being disqualified under section 29A should not arise.