RBI asks ARCs to abide by the Fair Practices Code

The Reserve Bank of India has advised registered Asset Reconstruction Companies to adopt the Fair Practices Code (FPC) approved by its board to ensure the highest standards of transparency and fairness in their operation. The RBI has also issued guideline for the minimum regulatory expectation, while giving liberty to the ARC’s Board to enhance its scope and coverage. 

The RBI has done this in exercise of the powers conferred in it by Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002. 

Manoranjan Mishra, chief general manager of RBI, in his letter to all asset reconstruction companies, has stated that the FPC should be placed in public domain for information of all stakeholders, must be followed in right earnest and the Board must involve itself in its evolution and proper implementation at all times.

In its guidelines, ARCs have been asked follow transparent and non-discriminatory practices in acquisition of assets and maintain arm’s length distance in the pursuit of transparency. Such transparency in the process of sale of secured assets can be enhanced by:

• Publicly soliciting invitation for participation in auction and enable participation of as many prospective buyers as possible. 

• Deciding the terms and conditions of such sale in wider consultation with investors in the security receipts as per SARFAESI Act 2002. 

• Following the spirit of Section 29A of Insolvency and Bankruptcy Code, 2016 in dealing with prospective buyers.

According to the guidelines, the 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. 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 ARCs have been advised to put in place a Board-approved policy on the management fee, expenses and incentives, if any, claimed from trusts under their management. The Board-approved policy should be transparent and ensure that management fee is reasonable and proportionate to financial transactions.

The ARCs that intend to outsource any of their activity will put in place a comprehensive outsourcing policy, approved by the Board, including the criteria for selection of such activities as well as service providers, delegation of authority depending on risks and systems to monitor and review the operations of these activities. It should be ensured that the outsourcing arrangements neither diminish its ability to fulfill its obligations to customers and the RBI nor impede effective supervision by RBI.

For the recovery of loans, the ARCs have been asked to not resort to harassment of the debtor and ensure that the staff are adequately trained to deal with customers in an appropriate manner.

A Board approved Code of Conduct for Recovery Agents should be put in place and an undertaking to abide by that Code should be taken by them. ARCs, as principals, are responsible for the actions of their Recovery Agents and should ensure that they are properly trained to handle their responsibilities with care and sensitivity, particularly in respect of aspects such as hours of calling, privacy of customer information, etc. 

It should be ensured that the Recovery Agents do not induce adoption of uncivilized, unlawful and questionable behaviour or recovery process and also observe strict customer confidentiality.

The Asset Reconstruction Companies have also been advised to constitute Grievance Redressal machinery within the organisation. The name and contact number of designated grievance redressal officer of the ARC should be mentioned in the communication with the borrowers. The designated officer and redressal machinery should ensure that genuine grievances are redressed promptly and also deal with issues related to services provided by the outsourced agency and recovery agents.

– India Legal Bureau