COMPREHENSIVE POLICY ON SETTLEMENTS & WRITE-OFFS

R.K. Bansal Finance Pvt. Ltd.

(This policy was approved by the Board of Directors in the Board Meeting held on 21st April 2025.)

1. Preamble

R.K. Bansal Finance Private Limited (“the Company”), a Non-Banking Financial Company (Base Layer) registered with the Reserve Bank of India (RBI), provides unsecured payday loans, personal loans, EMI-based loans, Loan Against Property (LAP), and corporate/business loans. The Company’s primary objective is to maintain healthy asset quality while ensuring recovery actions are cost-effective, compliant, transparent and consistent with RBI regulations

2. Purpose of the Policy

This Policy has been formulated to:

1. Provide a standardised, transparent, and fair mechanism for compromise settlements, loan settlements, and technical write-offs.
2. Ensure full compliance with the RBI's Framework for Compromise Settlements & Technical Write-offs (June 08, 2023).
3. Define detailed processes, documentation, approval authorities, due diligence steps, internal controls, and reporting requirements.
4. Establish clear principles for determining settlement amounts, security valuation, hardship verification, and recovery options.
5. Prevent misuse, arbitrary waivers, conflicts of interest, and coercive recovery practices.
6. Ensure settlements maximize recoveries at minimum cost.
7. Ensure prudential accounting & provisioning norms are followed while writing off assets.

3. Definitions

3.1 Compromise Settlement

A negotiated agreement with a borrower to fully settle the Company's claims for a mutually agreed amount which is less than total dues, resulting in a sacrifice or waiver by the Company. (As per RBI definition)

3.2 Loan Settlement / One-Time Settlement (OTS)

A structured or lump-sum settlement for stressed or NPA accounts, usually involving upfront payment and closure within a short time frame.

3.3 Full & Final Settlement (F&F)

A lump-sum repayment made by the borrower in exchange for waiver of remaining dues.

3.4 Technical Write-off

An NPA loan where the borrower still legally owes the amount but the Company removes it from its books only for accounting purposes, without waiving the right to recover.

4. Eligibility Framework for Settlements

4.1 General Eligibility

A loan may be considered for settlement when:

• DPD > 30 days and/or recovery probability < 25% (based on internal metrics).
• NPA classification under IRACP norms.
• Account already written-off but borrower is now reachable.
• Borrower demonstrates genuine hardship.
• Collateral value (for secured loans) insufficient to cover outstanding dues.
• Litigation cost is expected to exceed realizable recovery.

4.2 Payday / Short Duration Loans

• Overdue > 30 days.
• High roll-rate and low likelihood of recovery.
• Verified hardship.

4.3 Personal Loans / EMI Loans

• 90–180 DPD delinquency.
• Borrower unable to meet EMI obligations.
• Written-off accounts with potential for partial recovery.

4.4 LAP (Loan Against Property)

• Fresh valuation showing lower realizable value.
• Litigation cost > incremental recovery.
• Borrower offers realistic settlement proposal.

4.5 Corporate / Business Loans

• Business closure / insolvency / severe cash-flow deterioration.
• Market value of collateral less than outstanding.
• Multiple recovery attempts unsuccessful.

5. Technical Write-Off Policy

• Technical write-off does NOT reduce borrower liability. The write-off shall be effected only in the books of accounts of the Company.
• Technical write-off accounts must continue to be actively pursued for recovery.
• Partial technical write-offs must ensure provisioning = 100% of gross exposure as required by RBI.
• Re-aging of accounts is not allowed.
• Any waiver must follow compromise settlement norms, not technical write-off norms.
• Recovery efforts, including legal action, collection follow-ups, or settlement negotiations, may continue even after the loan is written off in the books.

6. Determination of Settlement Amount

6.1 Components Considered

1. Principal outstanding
2. Accrued interest
3. Penal Charges
4. Overdue charges
5. Legal expenses

6.2 Factors Influencing Settlement Calculation

• Recovery probability score
• Borrower capacity analysis
• Hardship proof
• Collateral distress valuation
• Legal recovery timeframe
• Previous recovery performance in similar cases

7. Delegation of Authority (RBI Mandatory Requirement)

Settlement approvals must be one level higher than loan sanctioning authority.

Authority Matrix

Settlement Approving Authority

All approvals are based on Due Past days (DPD) of the customer

8. Detailed Settlement Workflow

Step 1: Borrower Communication

• Borrower request received in writing, email, app request, or call recorded.
• Borrower should be informed about credit bureau impact.

Step 2: KYC & Hardship Verification

• Obtain supporting documents.
• Bureau history reviewed again.

Step 3: Recovery Assessment

A detailed assessment note must include:

1. Borrower demographics & income data
2. Updated KYC
3. Loan summary (DPD, charges, prior payments)
4. Legal status (notices, court filings)
5. Recovery attempts log
6. Economic rationale for settlement
7. Recommended settlement amount
8. Expected loss estimate vs. settlement recovery

Step 4: Internal Reviews

• Collection team
• Credit team
• Legal team
• Board of Directors (for >₹10 lakh)
• Finance team for accounting correctness

Step 5: Approval

Settlement letter issued with:

• Amount payable
• Amount waived
• Payment deadline
• Consequences of default
• Bureau impact

Step 6: Payment

• Modes of Payments allowed (UPI/NEFT/RTGS).
• Payment must be completed within settlement validity period.

Step 7: Closure & Documentation

• NOC issued
• CIBIL reported as "Settled / Written-off Settled"
• Legal withdrawal/consent decree (if in court)

9. Fresh Loan Eligibility for Settlement and Write-off Accounts

The Company does not provide fresh loans to customers whose accounts were settled under compromise or classified as technical write-off. Exceptions may be granted on specific customer request, subject to proper verification of the case, assessment of creditworthiness, and approval by the competent authority.

A general cooling period of 12–18 months shall be observed.

10. Accounting Treatment

In Case of Settlement

• Waiver must be booked as a loss.
• Recovery posted to loan account accordingly.
• Written-off assets must be reported separately in financial statements.

In Case of Write-off

• Upon write-off, the outstanding principal and accrued interest (if any) shall be removed from the books by debiting the Loan Loss Provision Account.
• Any subsequent recoveries from written-off accounts shall be recognized as Other Income / Recovery from Written-Off Accounts in the period in which they are realized.

11. Monitoring, Audit & Reporting

11.1 Internal Monitoring

• Monthly MIS of settlements and write-offs
• High-risk accounts flagged to senior management
• Sampling audits of settlements

11.2 Audit Requirements

• Internal audit to verify documentation, approvals & compliance
• Statutory auditor review at year-end

11.3 Mandatory Reporting to Board

Quarterly, covering:

• Number & value of settlements
• Segment-wise data (payday/personal/LAP/business)
• Settlement-wise sacrifice reports
• Fraud/wilful defaulter settlement cases
• Technical write-off recoveries

12. Review of Policy

• Annual review by Board.
• Interim review if RBI issues new directions.
• All amendments recorded and notified internally.

13. Effective Date

This Loan Settlement Policy is approved by the Board of Directors of R.K. Bansal Finance Private Limited at its meeting held on April 21, 2025 and shall be effective from the same date.