RBI's New Master Direction for Asset Reconstruction Companies (2024)

What changed

RBI consolidated all existing circulars on ARCs into a single Master Direction, effective April 24, 2024. The direction updates registration requirements, prudential norms like capital adequacy and provisioning, governance standards including fit-and-proper criteria, and disclosure norms. It also repeals all earlier circulars listed in Annex VII.

What it means for you

ARCs must now comply with a unified regulatory framework, which may tighten capital and governance requirements. Banks and lenders dealing with ARCs for stressed asset resolution will see more standardized processes and enhanced transparency. Non-compliance can attract penal consequences.

What banks were required to do at the time

• Review and align your ARC's policies with the new Master Direction, especially on capital adequacy, asset classification, and provisioning.
• Update governance structures to ensure board and management meet fit-and-proper criteria as per the direction.
• Revise fair practices code and disclosure formats to comply with the new requirements.
• Ensure all returns and audited balance sheets are submitted as per the updated timelines and formats.

Who it affects

All Asset Reconstruction Companies registered with RBI, Banks and financial institutions that transfer stressed assets to ARCs, Investors in security receipts issued by ARCs