Asset Reconstruction Companies (ARCs) should follow transparent and non-discriminatory practices in line with the comprehensive fair practice code (FPC) put in place by the Reserve Bank of India, said Deputy Governor M Rajeshwar Rao.

At a conference for the directors and MD/CEOs of ARCs, Rao also stressed on the need for responsible conduct in recovery process.

As per the FPC for ARCs, in order to enhance transparency in the process of sale of secured assets, invitation for participation in auction should be publicly solicited; and all securities should be released on repayment of dues or on realisation of the outstanding amount of loan.

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

ARCs have to put in place a board-approved Code of Conduct for Recovery Agents and obtain their undertaking to abide by that code.

Sound governance

In his keynote address at the conference, the Rao emphasised that sound governance provides a strong foundation for the ARCs to build a robust business model.

The onus in this regard lies largely with the boards of the ARCs and the top functionaries who will have to develop a strong and institutional culture based on these principles, he added.

Deputy Governor Swaminathan J, in his address, emphasised that setting the right tone from the top is crucial in fostering a culture of integrity and ethical conduct even as he highlighted several supervisory concerns in the functioning of ARCs.

He urged the ARCs to adopt a regulation plus approach where there is compliance with both the letter of the regulation and also its spirit.

“Boards should accord due importance to assurance functions, namely, risk management, compliance and internal audit. These functions play a critical role in identifying and mitigating risks, ensuring compliance with laws and regulations as well as safeguarding the organisation’s reputation,” Swaminathan said.