{"id":108889,"date":"2024-05-18T21:34:31","date_gmt":"2024-05-18T16:04:31","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=108889"},"modified":"2024-05-20T17:15:24","modified_gmt":"2024-05-20T11:45:24","slug":"asset-reconstruction-company","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/asset-reconstruction-company","title":{"rendered":"Supervisory Concerns at Asset Reconstruction Company (ARC)"},"content":{"rendered":"<h2><span style=\"font-size: 18pt;\"><strong>Context<\/strong><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Recently, the<\/span><b> RBI had organised a conference <\/b><span style=\"font-weight: 400;\">for the directors and MD\/ CEOs of ARCs in Mumbai that was attended by <\/span><b>more than 80 participants representing all 27 ARCs.<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>Deputy Governor of the <\/b><a href=\"https:\/\/pwonlyias.com\/stage\/reserve-bank-of-india-rbi\/\" target=\"_blank\" rel=\"noopener\"><b>Reserve Bank of India (RBI)<\/b><\/a><b> has identified several supervisory concerns in the functioning of Asset Reconstruction Companies (ARCs).<\/b><\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-109036 alignright\" src=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112853158-664b03e5519fe.webp\" alt=\"Asset Reconstruction Company\" width=\"400\" height=\"371\" srcset=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112853158-664b03e5519fe.webp 780w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112853158-664b03e5519fe-300x278.webp 300w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112853158-664b03e5519fe-768x712.webp 768w\" sizes=\"(max-width: 400px) 100vw, 400px\" \/><\/p>\n<h2><span style=\"font-size: 18pt;\"><strong>About Asset Reconstruction Company (ARC)<\/strong><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>A Type of Financial Institution:<\/b><span style=\"font-weight: 400;\"> An<\/span><a href=\"https:\/\/pwonlyias.com\/stage\/arc-full-form\/#:~:text=An%20Asset%20Reconstruction%20Company%20(ARC)%20is%20a%20type%20of%20financial,banks%20and%20other%20financial%20institutions.\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\"> asset reconstruction company<\/span><\/a><span style=\"font-weight: 400;\"> is a type of financial institution that specializes in <\/span><b>acquiring and managing distressed assets, <\/b><span style=\"font-weight: 400;\">typically loans or non-performing assets (NPAs) from banks and other financial institutions.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">When borrowers are unable to repay their loans, these loans become NPAs, and banks might decide to <\/span><b>offload these troubled assets to ARCs.<\/b><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Importance: <\/b><span style=\"font-weight: 400;\">ARCs play a crucial role in the financial system by <\/span><b>helping banks clean up their<\/b> <b>balance sheets and recover some value from the troubled loans.\u00a0<\/b><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Course<\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><strong>Crucial Insights of the Conference<\/strong><\/span><\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-109121 alignright\" src=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112857093-664b377892634.webp\" alt=\"Asset Reconstruction Company\n\" width=\"350\" height=\"256\" srcset=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112857093-664b377892634.webp 1136w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112857093-664b377892634-300x219.webp 300w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112857093-664b377892634-1024x748.webp 1024w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/05\/untitled-2024-05-20t112857093-664b377892634-768x561.webp 768w\" sizes=\"(max-width: 350px) 100vw, 350px\" \/><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>To Adopt Regulation Plus Approach:<\/b><span style=\"font-weight: 400;\"> RBI asked asset reconstruction company to adopt a \u201cregulation plus\u201d approach, ensuring compliance with both the <\/span><b>letter and the spirit of regulations.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Due Importance to Functions:<\/b><span style=\"font-weight: 400;\"> Boards should accord due importance to <\/span><b>assurance functions, namely, risk management, compliance and internal audit.<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">These functions play a critical role in identifying and mitigating risks, ensuring <\/span><b>compliance with laws and regulations as well as safeguarding the organisation\u2019s reputation.<\/b><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Ethical Conduct &#038; Integrity:<\/b><span style=\"font-weight: 400;\"> Setting the right tone from the top is crucial in fostering a culture of integrity and ethical conduct.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Emphasising the Importance of Sound Governance: <\/b><span style=\"font-weight: 400;\">The sound governance provides a strong foundation for ARCs to<\/span><b> build a robust business model.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Responsibility:<\/b><span style=\"font-weight: 400;\"> The onus to develop sound governance lies largely with the <\/span><b>Boards of the ARCs and the top functionaries<\/b><span style=\"font-weight: 400;\"> who will have to develop a strong and institutional culture based on the above mentioned principles.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Essence: <\/b><span style=\"font-weight: 400;\">Need for <\/span><b>responsible conduct<\/b><span style=\"font-weight: 400;\"> in the recovery process and emphasised that ARCs should follow <\/span><b>transparent and non-discriminatory practices<\/b><span style=\"font-weight: 400;\"> in line with the comprehensive fair practice code (FPC) put in place by the Reserve Bank.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<table style=\"width: 100.2%;\">\n<tbody>\n<tr>\n<th style=\"border-style: solid; border-color: #000000; background-color: rgba(184, 165, 217, 0.53); text-align: left; vertical-align: middle; width: 100%;\">\n<h2><span style=\"font-size: 18pt; color: #000000;\"><strong>About Reserve Bank of India (RBI)<\/strong><\/span><\/h2>\n<ul>\n<li><span style=\"color: #000000;\"><b>Formation: <\/b><span style=\"font-weight: 400;\">The Reserve Bank of India (RBI) was established through the Reserve Bank of India Act of 1934, based on the recommendations of the Hilton Young Commission, with a share capital of Rs. 5 crore.<\/span><\/span>\n<ul>\n<li><span style=\"color: #000000;\"><span style=\"font-weight: 400;\">The Central Office of the Reserve Bank was<\/span><b> set up in Kolkata but was permanently shifted to Mumbai in 1937.<\/b><\/span><\/li>\n<li><span style=\"color: #000000;\"><span style=\"font-weight: 400;\">Initially, the RBI was owned privately but was <\/span><b>nationalized in 1949.<\/b><span style=\"font-weight: 400;\"> It is completely owned by the Government of India.<\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"color: #000000;\"><b>Mandate:<\/b><span style=\"font-weight: 400;\"> RBI is responsible for the <\/span><b>control, issuing, and maintaining supply of the currency<\/b><span style=\"font-weight: 400;\"> in the country. It also <\/span><b>manages the country\u2019s main payment systems.<\/b><\/span><\/li>\n<li aria-level=\"1\"><span style=\"color: #000000;\"><b>Organisation Structure: <\/b><span style=\"font-weight: 400;\">The operation of the Reserve Bank of India lies with a 21-member central board of directors consisting of:<\/span><\/span>\n<ul>\n<li aria-level=\"2\"><span style=\"color: #000000;\"><b>Governor<\/b><\/span><\/li>\n<li aria-level=\"2\"><span style=\"color: #000000;\"><b>4 Deputy Governors<\/b><\/span><\/li>\n<li aria-level=\"2\"><span style=\"color: #000000;\"><b>2 Finance Ministry representatives<\/b><\/span><\/li>\n<li aria-level=\"2\"><span style=\"color: #000000;\"><b>10 government-nominated directors<\/b><\/span><\/li>\n<li aria-level=\"2\"><span style=\"color: #000000;\"><b>4 directors to represent local boards\u2019 headquarters of RBI<\/b><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/th>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>\u00a0<\/p>\n<table style=\"width: 100.233%;\">\n<tbody>\n<tr style=\"height: 36px;\">\n<td style=\"width: 4928.99%; 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