Some asset reconstruction companies bypassing norms, lack transparency: RBI

Mumbai, May 29

Reserve Bank Deputy Governor Swaminathan J has expressed concern over the increasing regulatory violations and warned Asset Reconstruction Companies (ARCs) to ensure compliance without needing the regulator to point out the issues to them.

Addressing a conference attended by top management of ARCs in the country on May 17, he said, “I would urge you all to adopt a regulation plus approach where you not only comply with the letter of the regulation but also its spirit.” Very often, he said, “We get representations to our observations stating this is industry practice or clarifications are pending from the RBI. Sometimes there are incorrect or intelligent interpretations of the circulars.”

These are not acceptable excuses for failing to do the right thing, he said, adding that the boards of ARCs should ensure that they do the right thing without needing the regulator to point it out to them.

He emphasised that ARCs’ potential for resolving stressed assets within the system can only be realised with sound governance and adherence to ethical practices by responsible ownership and professional management.

Some ARCs, while enjoying the full benefits of the special position granted to them under the law and the regulations, have been found to be using innovative ways to structure transactions in a manner to circumvent regulations, he said.

In many cases, there is a lack of transparency in issuance and periodical valuation of Security Receipts, he said. It was also observed that a few entities find new ways of achieving their designs once a particular practice has been called out as a violation or deviation, he said.