RBI Dy Guv urges ARCs to adopt regulation plus approach
Reserve Bank of India's deputy governor pointed out that asset reconstruction companies (ARCs) have been 'conduits to the evergreening of distressed assets', and some of them have 'used innovative structures to circumvent regulations'. Directing ARCs to adopt a regulation-plus approach, the DG said that ARCs' performance is less than optimal.
J Swaminathan, DG, stated this at a conference in Mumbai on May 17 with senior officials from the ARC industry.
«During our onsite examinations, we have come across instances where ARCs have been used or allowed themselves to be used, if I may say so, as a conduit to evergreen distressed assets,» Swaminathan stated.
ET had reported on May 11 that RBI is concerned about ARCs striking deals with defaulting promoters, effectively giving them a back-door entry.
The RBI DG also pointed out that their supervisory team has found that some ARCs are acquiring assets on their books but the selling bank does the recovery. «We have also come across instances where ARCs have warehoused the stressed assets while the originator has continued to remain responsible for the collection and custody of the security provided by the borrower,» Swaminathan said.
«ARCs may like to introspect whether they would like them to be a warehousing agency for a fee, which is certainly not in consonance with the underlying intent of the framework,» he added.
RBI was also critical of the way ARC's disposal of assets. «Assets are sold to group entities without following the arms-length principle and without
