RBI Sets Fair Practices Code for Asset Reconstruction Companies

Source: Regulation Asia Duruthu E Chandrasekera, Regulation Asia 2020-07-20

The new Code sets out transparent and fair procedures for when asset reconstruction companies acquire assets from banks, along with anti-harassment provisions to protect borrowers.

The RBI (Reserve Bank of India) on Thursday (July 16) issued a Fair Practices Code for asset reconstruction companies, outlining the minimum regulatory expectations to ensure transparency and fairness in their operations.

Asset reconstruction companies are agencies that buy bad assets from banks to help them clean up their balance sheets.

The new Code sets out transparent and fair procedures for when they acquire assets from banks, including a provision requiring invitations for participation in auctions to be publicly solicited, to enable participation from “as many prospective buyers as possible”.

The terms and conditions of such sales may also be subject to discussion with investors and prospective buyers, to enhance transparency in the process of selling secured assets.

Asset reconstruction companies are directed to release all securities held as collateral on repayment of dues or on realisation of the outstanding loan amount, subject to any other claim(s) held against the borrower, in which case the borrower must be given notice.

The Code also covers transparency of fees, expenses and incentives, and a requirement for asset reconstruction companies to put in place a comprehensive outsourcing policy.

“In the matter of recovery of loans, ARCs shall not resort to harassment of the debtor. ARCs shall ensure that the staff are adequately trained to deal with customers in an appropriate manner,” it says. These obligations extend to recovery agents used by the asset reconstruction company, which muse be reflected in a separate board-approved Code of Conduct for such agents.

Under the Code, asset reconstruction companies must also adopt a grievance redressal mechanism, and strictly maintain confidentiality of borrower information except when required by law.

RBI

RBI Sets Fair Practices Code for Asset Reconstruction Companies

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