RBI/2007-2008/152
DBOD.No.BP.BC.34
/21.04.048 /2007-08 October
4, 2007 All
Commercial Banks (excluding RRBs)
All
India Term Lending and Refinancing Institutions
All
Non Banking Financial Companies (including RNBCs) Dear
Sir, Guidelines
on purchase/sale of Non Performing Assets Please
refer to our Circular
No.DBOD.BP.BC.16/21.04.048/2005-06 dated 13 July 2005 on the captioned subject. 2.
In terms of the above banks' Boards 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 repayments and recovery prospects. However, it has come
to notice that in some cases NPAs have been sold for much less than the value
of available securities and no justification has been given. 3.
Banks should, while selling NPAs, work out the net present value of the estimated
cash flows associated with the realisable value of the available securities net
of the cost of realisation. The sale price should generally not be lower than
the net present value arrived at in the manner described above. 4.
Same principle should be used in compromise settlements. As the payment of the
compromise amount may be in instalments, the net present value of the settlement
amount should be calculated and this amount should generally not be less than
the net present value of the realisable value of securities. Yours
faithfully, (Prashant
Saran)
Chief General
Manager-in-Charge |
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