RBI has sent a clear message to ARC heads that they have to follow the rules in letter and spirit.
“During our onsite examinations, we have found instances where ARCs have been used or have allowed themselves to be used as a means to evergreen distressed properties. In many cases, there is a lack of transparency in the issuance and periodic valuation of security receipts (SRs), practices related to charging management fees are not desirable,” RB Deputy Governor Swaminathan J said in a meeting with ARC recently. ,
He pointed out that some ARCs have been found using innovative ways to structure transactions to circumvent the rules, taking full advantage of the special status given to them under the SARFAESI Act and RBI regulations.
Swaminathan also warned that in extreme cases, the RBI may be forced to take regulatory or supervisory action.
He pointed out that with regulation moving towards a more principles-based approach, supervision needs to focus more on the substance of transactions rather than their legal form.
The RBI deputy governor urged ARC heads to adopt a regulation-plus approach where you not only comply with the letter of the regulation but also its spirit.
After perusing the scorecard of ARCs, RBI has concluded that there are significant missed opportunities and less than optimal performance by ARCs executing key orders under the SARFAESI Act.
ARCs enjoy a special place in the financial ecosystem as they are special purpose vehicles set up to help relieve the banking system from high value NPAs and are also specialized agencies to maximize recovery and reconstruction efforts.
“During our onsite examinations, we have found instances where ARCs have been used or have allowed themselves to be used as a means to evergreen distressed properties. In many cases, there is a lack of transparency in the issuance and periodic valuation of security receipts (SRs), practices related to charging management fees are not desirable,” RB Deputy Governor Swaminathan J said in a meeting with ARC recently. ,
He pointed out that some ARCs have been found using innovative ways to structure transactions to circumvent the rules, taking full advantage of the special status given to them under the SARFAESI Act and RBI regulations.
Swaminathan also warned that in extreme cases, the RBI may be forced to take regulatory or supervisory action.
He pointed out that with regulation moving towards a more principles-based approach, supervision needs to focus more on the substance of transactions rather than their legal form.
The RBI deputy governor urged ARC heads to adopt a regulation-plus approach where you not only comply with the letter of the regulation but also its spirit.
After perusing the scorecard of ARCs, RBI has concluded that there are significant missed opportunities and less than optimal performance by ARCs executing key orders under the SARFAESI Act.
ARCs enjoy a special place in the financial ecosystem as they are special purpose vehicles set up to help relieve the banking system from high value NPAs and are also specialized agencies to maximize recovery and reconstruction efforts.