Corporate Restructuring Companies: SBP revises guidelines for transfer of NPAs

KARACHI: The State Bank of Pakistan (SBP) made some necessary amendments in the guidelines to facilitate Financial Institutions (FIs) in transfer of Non-Performing Assets (NPAs) to Corporate Restructuring Companies (CRCs) aimed to help in revival of the sick industrial units.

The Corporate Restructuring Companies Act, 2016, provides an overarching legal framework for establishing and regulating Corporate Restructuring Companies (CRCs) in Pakistan. The CRC can, inter alia, acquire, buy, hold, manage, restructure and resolve Non-Performing Assets (NPAs) of Financial Institutions and restructure, reorganize, revive and liquidate commercially or financially distressed companies and their businesses.

To regulate the transfer and assignment of NPAs from banks and Development Financial Institutions to the CRC, it has been decided to provide these guidelines to the financial institutions.

The banks and DFIs, while engaging with the CRC(s), are required to ensure that transfer and assignment of NPAs is conducted in a fair, transparent and prudent manner, and in accordance with provisions of the Act.

As per guidelines, each FIs will develop its internal Policy for the transfer and assignment of NPAs to the CRC(s) or appointment of the CRC(s) as an agent, under an agency agreement, for recovery of NPAs. This policy can be an independent document or part of either the Credit Risk Management Policy or any other relevant policy of the institution.

The transfer and assignment of NPAs from FIs to the CRC(s) should be a true-sale, on non-recourse basis, with all risks & rewards of the NPAs transferred and assigned to the CRC(s) and such NPAs shall stand derecognized from the books of the FIs.

The FIs will record the financial instruments received from the CRC(s) as consideration on account of transfer and assignment of NPAs at the fair value as determined and agreed upon between the two parties in line with FI’s policy for transfer and assignment of NPAs.

The FIs may appoint a CRC as an agent for the recovery of NPAs, including charged-off/written-off NPAs wherein the FIs hold the right to recovery, subject to the terms & conditions of the agency agreement. The agency agreement will, however, not result in the transfer of the NPAs to the CRC(s).

The SBP has advised the banks and DFIs to comply with the revised guidelines in letter and spirit.

Copyright Business Recorder, 2024