Reserve Bank of India’s Government Debt Relief Schemes

Introduction

On 31st December 2025, the Reserve Bank of India introduced a framework for managing the stressed accounts of borrowers effectively by aligning them with the existing principles of financial  stability. These guidelines have also relied upon the preceding frameworks including Prudential Frameworks for Resolution of Stressed Assets (2019[1])1 and the Framework for Compromise Settlements and Technical Write – Offs (June 2023)[2] to address the difficulties pertaining to debt relief schemes and ensuring an effective credit fiscal discipline.

Key Considerations of the Scheme

The key considerations pertaining to the circular are as follows:

1. The eligibility of the borrowers has been determined in an objective manner along with a detailed timeline for critical or material events in process.
2. Schemes issued by the regulated entities should clearly outline requirements for funding, timelines and mechanisms for addressing and redressal for delay in settlements for various stakeholders.
3. Lending institutions should not be allowed to create receivables against the government for the DRS Funds until these have been received. Instead, the exposure to the borrowers remains thoroughly active until the obligations have been settled completely.

The Model Operating Procedure should also provide for a detailed structural approach for design and implementation of the DRS.

Model Operating Procedure for State Governments

As per the Model Operating Procedure, before the announcement of any Debt Relief Scheme the Governments are required to engage with the State Level Bankers Committee (“SLBC”)/District Level Consultative Committee (“DLCC”) in order to derive a coordinated action plan for the conceptualisation, design and implementation of the DRS.[3]

The schemes are also required to cover the critical aspects of the scheme such as identifying the borrowers, impact assessment, timeline for implementation, resolving the issues pertaining to settlement of the dues by the Government to the lending institutions etc. Additionally, the Debt Relief Schemes should also ensure that any adverse or untoward impact on financial stability aspects of the region should not be caused nor should it impact the moral hazards in the borrower’s segments.

Additionally, it should also have thorough conformance to the pre-existing relevant statutory guidelines on the settlement of loans, reporting to the credit information companies etc., along with targeting only the impacted borrowers and not contain any restrictive covenants against the timely payments.

According to the RBI, it is also essential that the schemes should specify the criteria for determination of eligible borrowers objectively along with a thorough timeline having detailed analysis of critical or material events such as cut-off dates for the filing or submission of documents, acknowledgements, approvals and settlement of claims along with the provisions for compensation clauses for delayed settlement of funds on part of the government.

Conclusion

This present scheme which has been released in the backdrop of states announcing the Debt Relief Schemes in order to provide relief to their borrowers due to numerous causes like natural calamities is an efficient step to streamline the government machinery with the pre-determined norms for taking steps in this regard which include pre-notification consultation with the SLBCs, DLCCs and other notified bodies.

This scheme would not only enhance the efficiency of the DRS carried out by numerous governments and their agencies but also increase the accountability of the government towards the concerned authorities.

[1] The Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019, dated June 7, 2019 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11580&Mode=0

[2]  Framework for Compromise Settlements and Technical Write-offs https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12513&Mode=0

[3] https://allinonebanking.co.in/aio_government_debt_relief_schemes.pdf