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Ensure fair debt recovery practices: RBI tells ARCs
Why is it in news?
- RBI has asked Asset Reconstruction Companies (ARCs) to adopt a ‘Fair Practices Code’ (FPC) to ensure the highest standards of transparency and fairness while dealing with their stakeholders.
- It is likely that there will be rise in non-performing assets (NPA) due to the pandemic.
More from RBI to ARCs:
- ARCs are expected to eschew any harassment of the debtor while recovering loans.
- ARCs shall ensure that the staff are adequately trained to deal with customers in an appropriate manner.
- The ARCs must put in place a Board approved Code of Conduct for Recovery Agents and obtain their undertaking to abide by that Code.
- ARCs would be responsible for the actions of their Recovery Agents.
About Asset Reconstruction Companies (ARCs):
- It is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions and attempts to recover the debts by itself.
- The ARCs take over a portion of the debts of the bank that qualify to be recognised as Non-Performing Assets.
- ARCs are registered under the RBI and regulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.
Significance of ARCs:
- ARCs clean up the balance sheets of banks when the latter sells these to the ARCs.
- This helps banks to concentrate in normal banking activities.
- Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.