Supervisory Concerns Identified by RBI

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Context

• Deputy Governor Swaminathan J highlighted several supervisory concerns in the functioning of Asset Reconstruction Companies (ARCs) during a conference in Mumbai.

ALL ABOUT ARCs: https://www.iasgyan.in/daily-current-affairs/rbis-master-direction-for-arcs#:~:text=The%20concept%20of%20Asset%20Reconstruction,However%2C%20it%20remained%20unimplemented.

Governance in ARCs

• Theme of the Conference: The conference focused on "Governance in ARCs – Towards Effective Resolutions".
• Regulatory Engagement: It is part of a series of supervisory engagements organized by the Reserve Bank of India (RBI) with its regulated entities over the past year.

Importance of Sound Governance

• "Regulation Plus" Approach: ARCs were urged to adopt a "regulation plus" approach, ensuring compliance with both the letter and the spirit of regulations.
• Critical Functions: Assurance functions such as risk management, compliance, and internal audit were emphasized for identifying and mitigating risks, ensuring legal compliance, and safeguarding the organization’s reputation.
• Setting the Right Tone: Deputy Governor stressed the importance of setting the right tone from the top to foster a culture of integrity and ethical conduct.

Keynote Address by Deputy Governor M Rajeshwar Rao

• Foundation for Business Model: Deputy Governor Rao highlighted that sound governance provides a strong foundation for ARCs to build a robust business model.
• Responsibility of Boards: The onus lies largely with the Boards of ARCs and top functionaries to develop a strong and institutional culture based on these principles.
• Recovery Process: Emphasis was placed on responsible conduct in the recovery process, with ARCs expected to follow transparent and non-discriminatory practices in line with the comprehensive fair practice code (FPC) set by the RBI.

ALL ABOUT ARCs: https://www.iasgyan.in/daily-current-affairs/rbis-master-direction-for-arcs#:~:text=The%20concept%20of%20Asset%20Reconstruction,However%2C%20it%20remained%20unimplemented.