RBI flags supervisory concerns over functioning of debt recast companies

Regulator calls for responsible conduct in recovery process

The Reserve Bank of India (RBI) on Friday raised supervisory concerns on the functioning of asset reconstruction companies (ARCs) during its interactions with debt recast firms.

 “Deputy Governor J Swaminathan, in his address, emphasised that setting the right tone from the top is crucial in fostering a culture of integrity and ethical conduct. He highlighted several supervisory concerns in the functioning of ARCs,” the RBI statement said.

The deputy governor urged ARCs to adopt a regulation-plus approach where there is compliance with both the letter of the regulation and also its spirit.

“Boards should accord due importance to assurance functions, namely, risk management, compliance, and internal audit. These functions play a critical role in identifying and mitigating risks, ensuring compliance with laws and regulations as well as safeguarding the organization's reputation,” the RBI statement said.

 

The theme of the interaction was ‘Governance in ARCs – Towards Effective Resolutions’.

Another Deputy Governor, M Rajeshwar Rao, in his keynote address, highlighted that sound governance provides a strong foundation for the ARCs to build a robust business model.

“The onus lies with the Boards of the ARCs and the top functionaries who will have to develop a strong and institutional culture based on these principles,” RBI said.

Rao stressed the need for responsible conduct in the recovery process and emphasised that ARCs should follow transparent and non-discriminatory practices in line with a comprehensive fair practice code put in place by the RBI.

The conference was held in Mumbai for the Directors and MD/CEOs of ARCs, which was attended by about 80 participants, representing all 27 ARCs.

It included technical sessions on the regulatory aspects and supervisory expectations by the Chief General Managers of RBI.

As part of the supervisory engagement, a similar conference for the Board of Directors and MD/ CEOs of Scheduled Commercial Banks and Urban Cooperative Banks was held earlier this week. 

keeping an eye

Emphasised fostering a culture of integrity and ethical conduct

Told them to adopt a regulation plus approach 

Boards of ARCs should accord due importance to risk management, compliance and internal audit

Show responsible conduct in recovery process and follow non-discriminatory practices, RBI said