Guidelines for Regulated Entities (REs) – Enhancing Transparency and Accountability in Financial Services

What are the regulatory updates and guidelines issued by RBI addressing the operations and responsibilities of Regulated Entities (REs)?

The Reserve Bank of India (RBI) frequently issues regulatory updates and guidelines to address the operations and responsibilities of Regulated Entities (REs) within the financial sector. These updates are critical for maintaining the stability, transparency, and efficiency of the financial system. REs include a wide range of financial institutions such as commercial banks, non-banking financial companies (NBFCs), asset reconstruction companies, small finance banks, and credit information companies, among others.

Key Areas of Regulatory Focus
1. Credit Regulation
2. Operational Guidelines
3. Transparency and Disclosure
4. Customer Protection
5. Financial Stability
6. Innovation and Inclusivity

Table of Contents

1. Display of information – Secured assets possessed under the SARFAESI Act, 2002
2. Regulatory measures towards consumer credit and bank credit to NBFCs
3. Strengthening of customer service rendered by Credit Information Companies and Credit Institutions
4. Data Quality Index for Commercial and Microfinance Segments by Credit Information Companies
5. Responsible Lending Conduct – Release of Movable/Immovable Property Documents on Repayment/Settlement of Personal Loans
6. Operation of Pre-Sanctioned Credit Lines at Banks through Unified Payments Interface (UPI)
7. Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans
8. Fair Lending Practice – Penal Charges in Loan Accounts
9. General Credit Card (GCC) Facility – Review
10. Master Circular – Asset Reconstruction Companies

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1. Display of information – Secured assets possessed under the SARFAESI Act, 2002

1.1 Introduction

The Reserve Bank has directed the Regulated Entities (REs), which are secured creditors as per the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, to display information in respect of the borrowers whose secured assets have been taken into possession by the REs under the Act.

1.2 Summary

REs shall upload this information on their website in the format as prescribed by RBI. The first such list shall be displayed on the website of REs within six months from the date of this circular, and the list shall be updated on monthly basis. These guidelines are applicable to all Commercial Banks including Small Finance Banks and excluding Payment Banks, Local Area Banks, Regional Rural Banks, all Primary (Urban) Co-operative Banks/State Co-operative Banks/Central Co-operative Banks, all India Financial Institutions (Exim Bank, NABARD, NHB, SIDBI and NaBFID), all Non-Banking Financial Companies including Housing Finance Companies and all Asset Reconstruction Companies.

1.3 Comments/Rationale

These guidelines help to improve transparency in the assets taken into possession by the regulated entities under SARFAESI Act, 2002.

1.4 Reference/Link

RBI/2023-24/63 DoR.FIN.REC.41/20.16.003/2023-24, dated September 25, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12539&Mode=0

2. Regulatory measures towards consumer credit and bank credit to NBFCs

2.1 Introduction

In light of high growth in certain components of consumer credit and increasing dependency of NBFCs on bank borrowings, Reserve Bank of India has advised banks and Non-Banking Financial Companies (NBFCs) to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their own interest.

2.2 Summary

A. (a) Consumer credit exposure of commercial banks

As per extant instructions applicable to commercial banks, consumer credit attracts a risk weight of 100%. On a review, it has been decided to increase the risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, by 25 percentage points to 125%.

(b) Consumer credit exposure of NBFCs

In terms of extant norms, NBFCs’ loan exposures generally attract a risk weight of 100%. On a review, it has been decided that the consumer credit exposure of NBFCs (outstanding as well as new) categorised as retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/SHG loans, shall attract a risk weight of 125%.

(c) Credit card receivables

As per extant instructions, credit card receivables of Scheduled Commercial Banks (SCBs) attract a risk weight of 125% while that of NBFCs attract a risk weight of 100%. On a review, it has been decided to increase the risk weights on such exposures by 25 percentage points to 150% and 125% for SCBs and NBFCs respectively.

B. Bank credit to NBFCs

In terms of extant norms, exposures of SCBs to NBFCs, excluding core investment companies, are risk weighted as per the ratings assigned by accredited External Credit Assessment Institutions (ECAI). On a review, it has been decided to increase the risk weights on such exposures of SCBs by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%. For this purpose, loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector in terms of the extant instructions shall be excluded.

C. Strengthening credit standards

(a) The REs shall review their extant sectoral exposure limits for consumer credit and put in place, if not already there, Board approved limits in respect of various sub-segments under consumer credit as may be considered necessary by the Boards as part of prudent risk management. In particular, limits shall be prescribed for all unsecured consumer credit exposures. The limits so fixed shall be strictly adhered to and monitored on an ongoing basis by the Risk Management Committee.

(b) All top-up loans extended by REs against movable assets which are inherently depreciating in nature, such as vehicles, shall be treated as unsecured loans for credit appraisal, prudential limits and exposure purposes.

2.3 Comments/Rationale

These measures are aimed at building suitable internal surveillance system in banks and NBFCs as a suitable risk management measure, at a backdrop of high growth in consumer credit domain.

2.4 Reference/Link

RBI/2023-24/85. DOR.STR.REC.57/21.06.001/2023-24 dated, 16th November, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12567&Mode=0

3. Strengthening of customer service rendered by Credit Information Companies and Credit Institutions

3.1 Introduction

The Statement on Developmental and Regulatory Policies sets out various developmental and regulatory policy measures relating to Financial Markets, Regulation and Supervision and Payment and Settlement Systems. A comprehensive framework has been put in place for strengthening and improving the efficacy of the grievance redressal mechanism and customer service provided by the Credit Institutions (CIs) and Credit Information Companies (CICs). The directions shall come into effect six (6) months from the date of this circular. CICs and CIs are directed to put in place necessary systems and processes to implement these directions within this period.

3.2 Summary

In exercise of the powers conferred by sub-section (1) of section 11 of the Credit Information Companies (Regulation) Act, 2005 (CICRA, 2005), the Reserve Bank of India directs CICs and CIs to implement the directions as detailed below:

Intimation of access to Credit Information Report and to update credit information with Credit Information Companies

• CICs shall send alerts through SMS/email to customers when their Credit Information Report (CIR) is accessed by the Specified Users (SUs) as defined in sub-section (1) of section 2 of CICRA, 2005, wherever mobile number/email ID details of the customers are available. The alerts shall be sent by CICs only when the CIR enquiry reflects in the CIR of the customer.
• CIs shall send alerts through SMS/email to customers while submitting information to CICs regarding default/Days Past Due (DPD) in existing credit facilities, wherever the mobile number/email ID details are available.
• To enable sending of alerts through SMS/email, the Uniform Credit Reporting Format for reporting credit information by CIs to CICs has been modified.
• CIs are advised to organise special awareness campaigns to sensitise their customers about benefits of submission of their mobile numbers/email IDs.

Setting up of Nodal points/officials by CIs

• CIs shall have a dedicated nodal point/official of contact for CICs for redress of customer grievances. Details of the nodal point/official along with email ID and telephone/mobile number shall be furnished by CIs to CICs.
• CIs shall inform CICs of any changes in the nodal points/official within five (5) calendar days of such a change.

Root Cause Analysis of the Complaints by CIs

• CIs shall undertake Root Cause Analysis (RCA) of the customer grievances at least on a half yearly basis. CIs shall also use, among others, information on data rejected by the CICs and Data Quality Index (DQI) provided by CICs as sources of information for carrying out RCA.
• Analysis of the RCA shall be reviewed by the Top Management of CIs, at least, on an annual basis.

Reasons for rejection of requests for data correction by CIs

• CIs shall inform the customers the reasons for the rejection of their request for data correction, if any, to enable such customers to better understand the issues in the CIR.
• A list of reasons for rejection of requests shall be circulated by CICs to all CIs. CIs shall use the same while communicating the rejections of the request for data correction made by customers/CICs during the grievance redress process.

Periodic review of match logic algorithm by CICs

• CICs shall have a board-approved policy for undertaking periodic review (at least on a half-yearly basis) of the ‘Search & Match’ logic algorithm implemented by them to provide Credit Information Report (CIR) of a borrower.
• Root Cause Analysis (RCA) of the complaints being undertaken by CICs shall be used to identify issues in the existing ‘Search & Match’ logic algorithm.
• Results of the RCA and subsequent changes in the search and match logic shall be placed before the Board of Directors of the CIC for review.

Ingestion of credit information data by CICs

• CICs shall ingest credit information data received from the Credit Institutions (CIs) as per its data acceptance rules, into their databases within seven (7) calendar days of its receipt from the CIs.
• In case of data rejection, CICs shall communicate to the concerned CI, regarding rejection of the data with reasons, within seven (7) calendar days of receipt of the data.

Disclosure of complaints on credit information reporting by CICs

CICs shall disclose on their websites, details of complaints registered against them and Cis.

Easy access to Free Full Credit Report for the individuals by CICs

CICs shall provide easy access to Free Full Credit Report (FFCR) including credit score, once in a year (January- December), to individuals whose credit history is available with the CIC by displaying the link prominently on their website (on the Home page itself) so that individuals are able to access their FFCR conveniently.

CICs and CIs which contravene or default in adherence to the above directions shall be liable for penal action as per the provisions of CICRA, 2005.

3.3 Comments/Rationale

These guidelines are aimed at reduction in customer complaints regarding credit information reporting and the functioning of CICs.

3.4 Reference/Link

RBI/2023-24/73 DoR.FIN.REC.49/20.16.003/2023-24, dated October 26, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12553&Mode=0

4. Data Quality Index for Commercial and Microfinance Segments by Credit Information Companies

4.1 Introduction

A Committee was constituted by the RBI to Recommend Data Format for Furnishing of Credit Information to Credit Information Companies. In line with the same, a common Data Quality Index (DQI) has been implemented to assess the quality of data submissions by Credit Institutions (CIs) to Credit Information Companies (CICs) and to improve the same over a period of time. Currently, the DQI is being used for data submitted under the consumer segment.

4.2 Summary

Data Quality Index would assist banks/FIs in determining the gaps in their data and also move towards improving their performance over a period of time. In addition, they would also be able to rank their own performance against that of their peers and identify their relative position. Annex 6 of the Report contains a draft Data Quality Index as agreed upon by all the CICs giving different parameters for assessing the data submitted by the banks/FIs. CICs and banks/FIs may adopt this Data Quality Index for assessing the quality of data submissions and make efforts towards improving data quality and minimising data rejections, within a time period of six months.

With a view to enable further implementation of DQI, it has been decided that CICs shall prepare DQIs for Commercial and Microfinance segments also. CICs shall provide the DQIs for Commercial and Microfinance segments to all CIs latest by March 31, 2024.

Further, CICs are advised as under:

• CICs shall provide DQIs for Commercial and Microfinance segments in the form of numeric scores on a monthly basis to all member credit institutions.
• DQI scores for Commercial and Microfinance segments shall be provided at CI and file level. The DQI scores for Commercial and Microfinance segments at CI level shall be computed as weighted average of file level DQI scores of commercial and microfinance segment respectively of that CI.
• CICs shall compute industry level DQIs for each of the three reporting segments as weighted average of the CI level DQI in their respective category (e.g. Public Sector Banks, Private Sector Banks, Foreign Banks, Co-operative Banks, RRBs, NBFCs etc.) on monthly basis. Further, a half yearly Industry Benchmark shall be calculated as a rolling average of preceding six months Industry level DQI score of respective category of CIs.
• CICs shall provide reasons for decline in score to each CI, if its (a) CI level score has declined over the previous month or (b) CI level score is lower than the half yearly industry benchmark.
• CICs shall provide monthly data of CI level DQI and industry level DQI of all segments to Department of Supervision, Reserve Bank of India, Central Office at half yearly intervals as on September 30 and March 31 each year, for information and monitoring purposes.

CIs are advised to undertake half yearly review of the DQI for all segments to improve the quality of the data being submitted to CICs. Corrective steps taken on the above issues along with a report on the same shall be placed before its top management by each CI for review within two months from the end of that half-year.

4.3 Comments/Rationale

Tracking the quality of data in financial industry helps maintain the accuracy, completeness, consistency, reliability, relevance of the data involved in making constructive decisions in the banking sector.

4.4 Reference/Link

RBI/2023-24/62 DoR.FIN.REC.39/20.16.056/2023-24, dated September 20, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12537&Mode=0

5. Responsible Lending Conduct – Release of Movable/Immovable Property Documents on Repayment/Settlement of Personal Loans

5.1 Introduction

RBI, in line with guidelines on Fair Practices Code, has directed all Regulated Entities (REs) to release all movable/immovable property documents within a period of 30 days upon receiving full repayment and closure of loan account.

5.2 Summary

The borrower shall be given the option of collecting the original movable/immovable property documents either from the banking outlet/branch where the loan account was serviced or any other office of the RE where the documents are available, as per her/his preference. The timeline and place of return of original movable/immovable property documents will be mentioned in the loan sanction letters issued on or after the effective date. In order to address the contingent event of demise of the sole borrower or joint borrowers, the REs shall have a well laid out procedure for return of original movable/immovable property documents to the legal heirs. Such procedure shall be displayed on the website of the REs along with other similar policies and procedures for customer information.

In case of delay in releasing of original movable/immovable property documents or failing to file charge satisfaction form with relevant registry beyond 30 days after full repayment/settlement of loan, the RE shall communicate to the borrower reasons for such delay. In case where the delay is attributable to the RE, it shall compensate the borrower at the rate of ₹ 5,000/- for each day of delay.

In case of loss/damage to original movable/immovable property documents, either in part or in full, the REs shall assist the borrower in obtaining duplicate/certified copies of the movable/immovable property documents and shall bear the associated costs, in addition to paying compensation as indicated earlier. In such scenarios, an additional time of 30 days will be available to the REs to complete this procedure and the delayed period penalty will be calculated thereafter (i.e., after a total period of 60 days).

5.3 Comments/Rationale

These directions will reduce customer grievances and disputes by addressing the issues faced by the borrowers. It will promote responsible lending conduct among the REs, which in turn lessens the various divergent practices observed by REs in release of such movable/immovable property documents.

5.4 Reference/Link

RBI/2023-24/60 DoR.MCS.REC.38/01.01.001/2023-24, dated September 13, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12535&Mode=0

6. Operation of Pre-Sanctioned Credit Lines at Banks through Unified Payments Interface (UPI)

6.1 Introduction

Unified Payments Interface (UPI) is a robust payments platform supporting an array of features. Presently it handles 75% of the retail digital payments volume in India. The UPI system has been leveraged to develop products and features aligned to India’s payments digitisation goals. Recently, RuPay credit cards were permitted to be linked to UPI. At present, UPI transactions are enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets. It is now proposed to expand the scope of UPI by enabling transfer to/from pre-sanctioned credit lines at banks, in addition to deposit accounts. In other words, UPI network will facilitate payments financed by credit from banks.

6.2 Summary

As for the change, RBI aims to expand the scope of UPI by enabling transfer to/ from pre-sanctioned credit lines at banks. In this feature, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with prior consent of the individual customer, are enabled for transactions using the UPI System.

Currently, savings accounts, overdraft accounts, prepaid wallets and credit cards can be linked to UPI.

Banks may, as per their Board approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc.

6.3 Comments/Rationale

Earlier, only the deposited amount could be transacted through the UPI. With this feature, amount taken on credit too can be transacted via UPI channel. This may reduce the cost of credit offers. Also, may pave path to building unique credit products for Indian markets.

6.4 Reference/Link

RBI/2023-24/58 CO.DPSS.POLC.No.S-567/02-23-001/2023-2024, dated September 04, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12532&Mode=0

7. Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans

7.1 Introduction

As per the notification, any increase in the EMI/tenor or both on account of Floating Interest Rate shall be communicated to the borrower immediately through appropriate channels. At the time of reset of interest rates, the REs (Regulated Entities) shall provide the option to the borrowers to switch over to a fixed rate as per their board approved policy.

7.2 Summary

Following are the required guidelines for implementation and compliance:

• At the time of sanction, REs shall clearly communicate to the borrowers about the possible impact of change in benchmark interest rate on the loan leading to changes in EMI and/or tenor or both. Subsequently, any increase in the EMI/tenor or both on account of the above shall be communicated to the borrower immediately through appropriate channels.
• At the time of reset of interest rates, REs shall provide the option to the borrowers to switch over to a fixed rate as per their Board approved policy. The policy, inter alia, may also specify the number of times a borrower will be allowed to switch during the tenor of the loan.
• The borrowers shall also be given the choice to opt for

1. 1. enhancement in EMI or elongation of tenor or for a combination of both options; and,
   2. to prepay, either in part or in full, at any point during the tenor of the loan. Levy of foreclosure charges/pre-payment penalty shall be subject to extant instructions.

• All applicable charges for switching of loans from floating to fixed rate and any other service charges/administrative costs incidental to the exercise of the above options shall be transparently disclosed in the sanction letter and also at the time of revision of such charges/costs by the REs from time to time.
• REs shall ensure that the elongation of tenor in case of floating rate loan does not result in negative amortisation.
• REs shall share/make accessible to the borrowers, through appropriate channels, a statement at the end of each quarter which shall at the minimum, enumerate the principal and interest recovered till date, EMI amount, number of EMIs left and annualized rate of interest/Annual Percentage Rate (APR) for the entire tenor of the loan. The REs shall ensure that the statements are simple and easily understood by the borrower.

Apart from the equated monthly instalment loans, these instructions would also apply, with necessary changes, to all equated instalment based loans of different periodicities.

In case of loans linked to an external benchmark under the External Benchmark Lending Rate (EBLR) regime, the banks should follow extant instructions and also put in place adequate information systems to monitor transmission of changes in the benchmark rate to the lending rate.

REs shall ensure that the above instructions are extended to the existing as well as new loans suitably by December 31, 2023.

These instructions are issued under sections 21, 35A and 56 of the Banking Regulation Act, 1949, sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934, and sections 30A and 32 of the National Housing Bank Act, 1987.

7.3 Comments/Rationale

By implementing these guidelines, the consumer grievances due to increase in loan tenor or increase in EMI amount with regard to EMI-based floating rate personal loans, without proper communication or consent of the borrower’s will get reduced considerably.

7.4 Reference/Link

RBI/2023-24/55 DOR.MCS.REC.32/01.01.003/2023-24, dated August 18, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12529&Mode=0

8. Fair Lending Practice – Penal Charges in Loan Accounts

8.1 Introduction

The RBI has amended the guidelines for lenders on charging penal charges in loan  accounts. This is done to ensure that the consumers are not exploited to enhance revenue generation for the respective lending institutions. These guidelines are effective from January 1, 2024.

8.2 Summary

Reserve Bank has issued various guidelines to the Regulated Entities (REs) to ensure reasonableness and transparency in disclosure of penal interest. Under the extant guidelines, lending institutions have the operational autonomy to formulate Board approved policy for levy of penal rates of interest. It has been observed that many REs use penal rates of interest, over and above the applicable interest rates, in case of defaults/non-compliance by the borrower with the terms on which credit facilities were sanctioned.

The intent of levying penal interest/charges is essentially to inculcate a sense of credit discipline and such charges are not meant to be used as a revenue enhancement tool over and above the contracted rate of interest. However, supervisory reviews have indicated divergent practices amongst the REs with regard to levy of penal interest/charges leading to customer grievances and disputes.

On a review of the practices followed by REs for charging penal interest/charges on loans, the following instructions are issued for adoption.

• Penalty, if charged, for non-compliance of material terms and conditions of loan contract by the borrower shall be treated as ‘penal charges’ and shall not be levied in the form of ‘penal interest’ that is added to the rate of interest charged on the advances. There shall be no capitalisation of penal charges i.e., no further interest computed on such charges. However, this will not affect the normal procedures for compounding of interest in the loan account.
• The REs shall not introduce any additional component to the rate of interest and ensure compliance to these guidelines in both letter and spirit.
• The REs shall formulate a Board approved policy on penal charges or similar charges on loans, by whatever name called.
• The quantum of penal charges shall be reasonable and commensurate with the non-compliance of material terms and conditions of loan contract without being discriminatory within a particular loan/product category.
• The penal charges in case of loans sanctioned to ‘individual borrowers, for purposes other than business’, shall not be higher than the penal charges applicable to non-individual borrowers for similar non-compliance of material terms and conditions.
• The quantum and reason for penal charges shall be clearly disclosed by REs to the customers in the loan agreement and most important terms & conditions/Key Fact Statement (KFS) as applicable, in addition to being displayed on REs website under Interest rates and Service Charges.
• Whenever reminders for non-compliance of material terms and conditions of loan are sent to borrowers, the applicable penal charges shall be communicated. Further, any instance of levy of penal charges and the reason there for shall also be communicated.
• These instructions shall come into effect from January 1, 2024. REs may carry out appropriate revisions in their policy framework and ensure implementation of the instructions in respect of all the fresh loans availed/renewed from the effective date. In the case of existing loans, the switchover to new penal charges regime shall be ensured on next review or renewal date or six months from the effective date of this circular, whichever is earlier.

The above instructions are issued under sections 21, 35A and 56 of the Banking Regulation Act, 1949, sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934, and section 30A of the National Housing Bank Act, 1987 and shall be updated in the relevant Master Directions/Master Circulars of the applicable REs. The list of amendments to the Master Directions/Master Circulars has been provided in the Annex.

These instructions shall, however, not apply to Credit Cards, External Commercial Borrowings, Trade Credits and Structured Obligations which are covered under product specific directions.

8.3 Comments/Rationale

The guidelines issued on regularising fair lending practices will ensure reasonable transparency in disclosure of penal interest. Also, this will promote credit discipline among consumers.

8.4 Reference/Link

RBI/2023-24/53 DoR.MCS.REC.28/01.01.001/2023-24, dated August 18, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12527&Mode=0

9. General Credit Card (GCC) Facility – Review

9.1 Introduction

RBI has revised the norms for General Credit Card (GCC) Scheme to include the entrepreneurial credit extended to individuals. To ensure greater credit linkage for all productive activities within the overall Priority sector guidelines and to capture all credit extended by banks to individuals for non-farm entrepreneurial activity the GCC guidelines are being revised.

9.2 Summary

The revised instructions on GCC are as follows:

• The GCC Scheme shall henceforth be called “General Credit Card (GCC) Facility”.
• The instructions shall apply to all banks which are eligible to issue credit cards under the above Master Direction.
• Individuals/entities sanctioned working capital facilities for non-farm entre- preneurial activities which are eligible for classification under the priority sector guidelines, may be issued General Credit Cards.
• GCC shall be issued in the form of a credit card conforming to the stipulations in the above Master Direction as updated from time to time.
• The terms and conditions of the credit facilities extended in the form of GCC shall be as per the Board approved policies of the banks, within the overall framework laid down by Reserve Bank. Guidelines on collateral free lending for micro and small units issued from time to time shall apply.
• Bank shall adhere to the instructions on reporting GCC data as issued by RBI from time to time.

9.3 Comments/Rationale

The revised General Credit Card (GCC) Scheme norms will enable increased flow of credit to individuals for entrepreneurial activity in the non-farm sector provided through the General Credit Card.

9.4 Reference/Link

RBI/2023-24/19 FIDD.MSME & NFS.BC.No.06/06.02.31/2023-24, dated April 25, 2023
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12492&Mode=0

10. Master Circular – Asset Reconstruction Companies

10.1 Introduction

RBI has issued guidelines and directions relating to registration, measures of asset reconstruction, functions of the company, prudential norms, acquisition of financial assets and matters related thereto.

ARCs are required to comply with Indian Accounting Standards (Ind AS) for the preparation of their financial statements. In order to promote a high quality and consistent implementation as well as facilitate comparison and better supervision. The Reserve Bank has issued regulatory guidance on Ind AS which along with subsequent instructions on the subject is applicable on such ARCs for preparation of their financial statements from financial year 2019-20 onwards.

10.2 Summary

Every ARC shall apply for registration in the form of application hosted on the Bank’s website and obtain a certificate of registration from the Bank as provided under section 3 of the Act.

The ARC seeking registration from the Bank shall submit their application duly filled in with all the relevant annexures/supporting documents to the Chief General Manager-in-Charge, Department of Regulation, Central Office, Reserve Bank of India, 2nd Floor, Main Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001.

An ARC, which has obtained a Certificate of Registration issued by the Bank under Section 3 of the Act, can undertake both securitisation and asset reconstruction activities.

An ARC shall commence business within six months from the date of grant of Certificate of Registration by the Bank.

Net Owned Fund (NOF) for ARCs shall be minimum ₹ 300 crore on an ongoing basis with effect from October 11, 2022. Consequently, any ARC obtaining the certificate of registration on or after October 11, 2022 shall not commence the business of securitisation or asset reconstruction without having minimum NOF of ₹ 300 crore.

Every ARC shall frame with the approval of its Board of Directors, a ‘Financial Asset Acquisition Policy’, within 90 days of grant of Certificate of Registration, which shall clearly lay down the policies and guidelines.

Every ARC shall frame policy guidelines regarding change in or takeover of the management of the business of the borrower, with the approval of its Board of Directors and the borrowers shall be made aware of such policy of the ARC.

ARCs shall report to the Bank all cases where they have taken action to cause change in or takeover of the management of the business of the borrower for realization of its dues from the borrower.