News | Indian Banks Seek RBI Nod for Third‑Party Litigation Funding to Recover Overseas Dues

Indian Banks Seek RBI Nod for Third‑Party Litigation Funding to Recover Overseas Dues

News

26 July 2025

2 min read

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In a bid to enhance recovery of overseas dues, several Indian banks have formally sought approval from the Reserve Bank of India (RBI) to engage in third-party litigation funding (TPLF). The proposed mechanism would allow banks to collaborate with external funders who finance legal action abroad in exchange for a share of any financial recovery.

Currently, Indian banking regulations do not explicitly permit litigation funding arrangements. However, sources familiar with the matter suggest that such funding could be introduced under the existing regulatory framework without legislative amendments, provided the RBI grants approval.

Bank executives argue that TPLF offers a more cost-effective alternative to selling distressed assets to asset reconstruction companies at steep discounts. Particularly in complex cross-border cases, external legal funders can help absorb the financial risk and navigate legal hurdles more efficiently.

The RBI is now examining whether such transactions would be classified as capital account or current account under the Foreign Exchange Management Act (FEMA), and how recovered funds would be repatriated to India. Clarity on these regulatory aspects is expected to shape the central bank’s decision in the coming weeks.

If approved, this move could mark a significant step toward modernising India’s asset recovery strategies and aligning with global practices in legal financing.