The Reserve Bank of India tightened the norms for sale of non-performing assets on Thursday, directing financial institutions not to sell the bad debt below realisable value.
"Banks' board are required to lay down policies and guidelines covering among other things, valuation procedure to be followed to ensure that the economic value of financial assets is reasonably estimated based on the assessed cash flows arising out of the repayments and recovery prospects," RBI said in the fresh guidelines on sale of NPAs.
The central bank observed that "in some cases NPAs have been sold for much less than the value of available securities and no justification have been given".
While selling NPAs, banks are also directed to work out the net present value of estimated cash flows in case of realisation of these assets. The sale price should generally not be lower than the net present value, RBI said.
In case of compromise settlement, the regulator said the banks should calculate the net present value of the settlement amount and this amount should not be less than the net present value of the realisable value of securities.
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