RBI code of conduct for asset recast companies
The Reserve Bank of India (RBI) on Thursday asked asset reconstruction companies (ARCs) to adopt a Fair Practices Code.
The Code says ARCs “shall not resort to harassment of the debtor” and that they should put in place a board-approved code of conduct for recovery agents.
Further, ARCs have been told to follow transparent and non-discriminatory practices in the acquisition of assets. It shall maintain an arm’s length distance in the pursuit of transparency.
The norms come at a time banks are expected to sell more bad loans to such entities. Asset reconstruction companies buy bad loans from banks to turn them around.
The RBI said in a notification that the Code is being implemented to bring the highest standards of transparency and fairness in dealing with stakeholders. While it covers only the minimum regulatory expectation, the banking regulator said each ARC board is free to enhance its scope and coverage.
Further, the boards of ARCs must involve themselves in their evolution and proper implementation at all times.
The Code should also be placed in public domain for in the formation of all stakeholders.
“ARCs should release all securities on repayment of dues or on realisation of the outstanding amount of loan, subject to any legitimate right or lien for any other claim they may have against the borrower,” the RBI said.
“If such right of set-off is to be exercised, the borrower shall be given notice about the same with full particulars about the remaining claims and the conditions under which ARCs are entitled to retain the securities till the relevant claim is settled/paid,” the guidelines said.
“ARCs shall ensure that recovery agents are properly trained to handle their responsibilities,” it added.
In the matter of recovery of loans, ARCs should not resort to harassment of the debtor and they should ensure that the staff are adequately trained to deal with customers in an appropriate manner. According to the central bank, it is essential that the recovery agents observe strict customer confidentiality and that ARCs, as principals, are responsible for the actions of their recovery agents.