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.

PRACTICE QUESTION Q. What are the supervisory concerns regarding the functioning of Asset Reconstruction Companies (ARCs) in India? Discuss the implications of these concerns on the financial sector and suggest measures to address them effectively.