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RBI’s advice to ARCs: Follow fair practice, don’t harass debtor while recovering loans

The RBI has advised ARCs to not resort to harassment of the debtor in the case of loan recovery and ensure that the staff is adequately trained to deal with customers in an appropriate manner.

RBI's advice to ARCs: Follow fair practice, don't harass debtor while recovering loans

The Reserve Bank of India today advised the asset reconstruction companies (ARCs) to adopt fair practices to ensure transparency and fairness in their operation. “In order to achieve the highest standards of transparency and fairness in dealing with stakeholders, ARCs are advised to put in place Fair Practices Code (FPC) duly approved by their board,” the RBI said in a statement. Earlier, the ARCs did not have a well-defined fair practice code, which the banks and non-financial institutions had. The RBI has advised ARCs to not resort to harassment of the debtor in the case of loan recovery and ensure that the staff is adequately trained to deal with customers in an appropriate manner.

While it has been advised to follow transparent and non-discriminatory practices in the acquisition of assets and maintain arm’s length distance in the pursuit of transparency, it has also been noted that the invitation for participation in the auction shall be publicly solicited and the process should enable the participation of maximum possible prospective buyers. After the complete loan repayment, the ARCs are also guided to release all securities and collaterals attached to it. The RBI said that if due to some reason, an ARC does not wish to release the attached securities even after the full repayment, 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.

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Similarly, there are many other guidelines of fair practices too which have been directed towards the Asset Reconstruction Companies. The RBI said that compliance with the Fair Practice Code shall be subject to periodic review by the board. It also said that the current guidelines provide the minimum regulatory expectation while each ARC’s board is free to enhance its scope and coverage.

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