Banks must have Board-approved policy on loan takeovers: RBI

Banks should put in place a Board approved policy with regard to take-over of loans from another bank, according to the Reserve Bank of India.

This directive follows the regulator receiving complaints that critical information on the health of the borrowal accounts (loans) being taken over is not being shared by the transferor bank with the transferee bank. This is resulting in inadequate due diligence at the time of taking over of accounts.

The RBI said the policy should include norms relating to the nature of accounts being taken over, authority levels for sanction of takeover, reporting of takeover to higher authorities, and monitoring mechanism of taken over accounts.

Further, banks should ensure credit audit of taken over accounts, examination of staff accountability especially in case of quick mortality of such cases after takeover, periodic review of taken over accounts at Board /Board Committee level/ Top Management level.

The central bank has prescribed a format so that the transferee bank can obtain necessary credit information from the transferor bank before taking over a loan. This will enable the transferee bank to be fully aware of the irregularities, if any, existing in the borrower's account(s) with the transferor bank.