A comprehensive framework for compromise settlement and technical write offs
Dayita Kanodia | Executive finserv@vinodkothari.com
The first bad bank loan was, no doubt, made around the time as the opening of the first bank.
James Grant[1]
Background
RBI released the Framework for Compromise Settlements and Technical Write-offs[2] (Framework) on June 8 2023. This framework, issued exactly four years after the release of the Prudential Framework for Resolution of Stressed Assets[3] (PFRSA), aims to rationalize and harmonize the instructions earlier issued. Additionally, while PFRSA was applicable only to banks and systemically important NBFCs (among others), the present Framework is applicable across all REs, including base layer NBFCs.
Subsequently, to clear the ambiguities that may have arisen after the issuance of the Framework, the RBI also released a set of Frequently Asked Questions[4] on the topic: of these, these FAQs were largely intended to respond to certain questions of intent that were being thrown at the regulator in releasing the Framework.
This article discusses the Framework along with its applicability, as also it intends to help REs to make a calculated decision on choosing between compromise settlements, writedowns, restructuring, or doing nothing at all. For either of the options, the article also discusses the other requirements which need to be ensured while pursuing the option.
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