The Reserve Bank of India (RBI) has asked asset reconstruction companies (ARCs) to put in place a Fair Practices Code (FPC) to ensure transparency in the process of sale of secured assets, and non-harassment of debtors, among others.

The Code requires ARCs to follow transparent and non-discriminatory practices in acquisition of assets. The companies need to maintain arm’s length distance in the pursuit of transparency.

In order to enhance transparency, the Code requires invitation for participation in auction to be publicly solicited by ARCs. This is to enable participation of as many prospective buyers as possible.

As per the Code, the terms and conditions of such sale may be decided in wider consultation with investors in the security receipts as per SARFAESI (The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act), 2002.

The RBI said ARCs may follow the spirit of Section 29A of Insolvency and Bankruptcy Code (IBC), 2016 in dealing with prospective buyers. The section specifically precludes specified classes of persons from participating in the resolution process.

Release all securities

ARCs have to 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 should 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.

Recovery: No harassment

In the matter of recovery of loans, ARCs should not resort to harassment of the debtor. ARCs need to ensure that the staff are adequately trained to deal with customers in an appropriate manner.

They are required to put in place a board-approved Code of Conduct for recovery agents and obtain their undertaking to abide by that Code. ARCs, as principals, are responsible for the actions of their recovery agents.

The FPC underscored that it is essential that the Recovery Agents observe strict customer confidentiality.

ARCs should 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, privacy of customer information, etc. They should ensure that recovery agents do not induce adoption of uncivilised, unlawful and questionable behaviour or recovery process.

Grievance Redressal

ARCs should constitute a grievance redressal machinery within the organisation. The name and contact number of designated grievance redressal officer should be mentioned in the communication to the borrowers.

The designated officer should ensure that genuine grievances are redressed promptly. The machinery will also deal with the issue relating to services provided by the outsourced agency and recovery agents, if any.

Confidential information

The Code requires ARCs to keep the information they acquire in course of their business strictly confidential and should not disclose the same to anyone including other companies in the group except when (i) required by law; (ii) there is duty towards public to reveal information; or (iii) there is borrower’s permission.

Outsourcing

ARCs intending to outsource any of their activities should put in place a comprehensive outsourcing policy, approved by the Board, which incorporates, inter alia, criteria for selection of such activities as well as service providers, delegation of authority depending on risks and materiality and systems to monitor and review the operations of these activities/ service providers.

An ARC should ensure that outsourcing arrangements neither diminish its ability to fulfil its obligations to customers and the RBI nor impede effective supervision by RBI.

The outsourced agency, if owned/controlled by a director of the ARC, the same may be made part of the disclosures.

 

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