In the backdrop of likely rise in Non Performing Assets (NPA) due to the pandemic, the Reserve Bank of India (RBI) has announced guidelines for “Fair Practices Code” (FPC) for Asset Reconstruction Companies (ARCs) to ensure highest standards of transparency and fairness while dealing with their stakeholders.
All ARCs registered with banks have been asked to put in place FPC duly approved by their Board.
This directive is in exercise of the powers conferred by Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, the RBI said.
As per the guidelines ARCs need to follow transparent and non-discriminatory practices in acquisition of assets and maintain arm’s length distance in the pursuit of transparency.
To enhance transparency in the process of sale of secured assets, they must publicly solicit invitation for participation in auction and the process should enable participation of as many prospective buyers as possible.
“The terms and conditions of such sale may be decided in wider consultation with investors in the security receipts as per SARFAESI Act 2002 and the spirit of Section 29A of Insolvency and Bankruptcy Code, 2016 may be followed in dealing with prospective buyers,” it said adding
The ARCs have been asked to release all securities on repayment of dues or on realisation of the outstanding amount of loan and any other claim they may have against the borrower.
ARCs have been asked to put in place Board approved policy on the management fee, expenses and incentives, if any, claimed from trusts under their management and they must ensure that outsourcing arrangements neither diminish its ability to fulfil its obligations to customers and the RBI nor impede effective supervision by RBI.
While recovering loans, ARCs are expected not to resort to harassment of the debtor. “ARCs shall ensure that the staff are adequately trained to deal with customers in an appropriate manner,” RBI guidelines said.
The ARCs must in place a Board approved Code of Conduct for Recovery Agents and obtain their undertaking to abide by that Code. ARCs would be are responsible for the actions of their Recovery Agents.
“It is essential that the Recovery Agents observe strict customer confidentiality and ARCs shall ensure that Recovery Agents are properly trained to handle their responsibilities with care and sensitivity, particularly in respect of aspects such as hours of calling and privacy of customer information,” the guidelines said.
They should ensure that Recovery Agents do not induce adoption of uncivilized, unlawful and questionable behaviour or recovery process.
ARCs have been asked to constitute Grievance Redressal machinery within the organisation and to keep the information, they come to acquire in course of their business, strictly confidential.
