Some Indian companies with asset realignments are skirting the rules: RBI delegate Swaminathan
In extreme cases, this may give rise to regulatory or supervisory measures, which we of course only intend to use as a last resort | (Photo: Reuters)
Some Indian asset reconstruction companies (ARCs) have sidestepped regulations and allowed themselves to be used to keep distressed assets green, a deputy governor of the Reserve Bank of India said in a speech recently.
The RBI has increased supervision of regulated entities to prevent systemic risks and ensure regulatory compliance.
Swaminathan J. addressed a conference in Mumbai for directors and CEOs of ARCs earlier this month, as part of the central bank’s supervisory programme, but the RBI uploaded the full speech on its website on Wednesday.
“Some ARCs, while taking full advantage of the special position accorded them… appear to be using innovative ways to structure transactions in a way that circumvents regulations,” Swaminathan said.
“During our on-the-ground investigations, we have come across cases where ARCs have been used or allowed to be used, if I may say so, as a conduit to distressed assets.”
Evergreening is the practice of extending more credit to companies near bankruptcy to help them repay existing loans.
ARC boards must give due importance to assurance functions such as risk management, compliance and internal audit, Swaminathan said, noting that such functions play a critical role in identifying and mitigating risks, ensuring compliance and protecting the reputation of the organization.
The Deputy Governor added that the RBI also noted that a few entities were finding new ways to circumvent regulations when a particular practice was declared a violation or deviation.
“We have directed the entities to take remedial measures, including waiving capital requirements on the profits thereon, but only responsible behavior by the supervised entities themselves can bring the required efficiency in the system,” Swaminathan said.
“In extreme cases, this may give rise to regulatory or supervisory measures, which we obviously only want to use as a last resort.”
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)
First print: May 29, 2024 | 2:51 PM IST