Page 10 - Banking Finance June 2020

RBI CORNER

Code" (FPC) for Asset Reconstruction While recovering loans, ARCs are ex- digital lending platforms have been
Companies (ARCs) to ensure highest pected not to resort to harassment of asked to tell their customers upfront
standards of transparency and fairness the debtor. "ARCs shall ensure that the the names of the bank/ NBFC on
while dealing with their stakeholders. staff are adequately trained to deal whose behalf they are disbursing loans.
All ARCs registered with banks have with customers in an appropriate man- "…outsourcing of any activity by
ner," RBI guidelines said.
been asked to put in place FPC duly banks/ NBFCs does not diminish their
approved by their Board. The ARCs must in place a Board ap- obligations, as the onus of compliance
proved Code of Conduct for Recovery with regulatory instructions rests solely
This directive is in exercise of the pow-
ers conferred by Section 9 of the Agents and obtain their undertaking to with them," the RBI said in a commu-
Securitisation and Reconstruction of abide by that Code. ARCs would be are nication to the scheduled commercial
Financial Assets and Enforcement of responsible for the actions of their banks and NBFCs.The RBI further said
Securities Interest Act, 2002, the RBI Recovery Agents. that immediately after sanction of
said. "It is essential that the Recovery loan, a letter must be issued to the
Agents observe strict customer confi- borrower on the letter head of the
As per the guidelines ARCs need to fol- bank/ NBFC concerned.
low transparent and non-discrimina- dentiality and ARCs shall ensure that "A copy of the loan agreement along
tory practices in acquisition of assets Recovery Agents are properly trained with a copy each of all enclosures
and maintain arm's length distance in to handle their responsibilities with quoted in the loan agreement shall be
the pursuit of transparency. care and sensitivity, particularly in re-
spect of aspects such as hours of call- furnished to all borrowers at the time
To enhance transparency in the process ing and privacy of customer informa- of sanction/ disbursement of loans,"
of sale of secured assets, they must tion," the guidelines said. the RBI said, and also asked the banks
publicly solicit invitation for participa- and NBFCs to create awareness about
They should ensure that Recovery
tion in auction and the process should Agents do not induce adoption of un- the grievance redressal mechanism.
enable participation of as many pro- civilized, unlawful and questionable Issuing these guidelines, the RBI said
spective buyers as possible.
behaviour or recovery process. ARCs that often digital lending platforms
"The terms and conditions of such sale have been asked to constitute Griev- tend to portray themselves as lenders
may be decided in wider consultation ance Redressal machinery within the without disclosing the name of the
with investors in the security receipts organisation and to keep the informa- bank/ NBFC at the backend, as a con-
as per SARFAESI Act 2002 and the spirit tion, they come to acquire in course of sequence of which, customers are not
of Section 29A of Insolvency and Bank- their business, strictly confidential. able to access grievance redressal av-
ruptcy Code, 2016 may be followed in enues available under the regulatory
dealing with prospective buyers," it RBI directs banks and framework.
said adding Also it added, several complaints have
NBFCs to disclose informa-
The ARCs have been asked to release come to notice against the lending
all securities on repayment of dues or tion online platforms relating primarily to exorbi-
on realisation of the outstanding RBI directed Banks, NBFCs and digital tant interest rates, non-transparent
amount of loan and any other claim lending platforms to disclose full infor- methods to calculate interest, harsh
they may have against the borrower. mation upfront on their websites to recovery measures, unauthorised use
customers. The direction comes against of personal data and bad behavior.
ARCs have been asked to put in place
the backdrop of several complaints
Board approved policy on the manage- Although digital delivery in credit inter-
relating to exorbitant interest rates
ment fee, expenses and incentives, if mediation is a welcome development,
and harsh recovery measures, among
any, claimed from trusts under their the RBI said, concerns emanate from
others, against lending platforms.
management and they must ensure non-transparency of transactions and
that outsourcing arrangements nei- While the banks and non-banking fi- violation of the guidelines on
ther diminish its ability to fulfil its obli- nance companies (NBFCs) are being outsourcing of financial services and
gations to customers and the RBI nor directed to disclose the names of Fair Practices Code of banks and NBFCs.
impede effective supervision by RBI. agents engaged by on their websites, The banks and NBFCs, RBI said, "irre-

10 | 2020 | JUNE | BANKING FINANCE