RBI Tightens KYC Norms for Asset Reconstruction Firms

New Delhi, Jun 4 (KNN) The Reserve Bank of India (RBI) is increasing oversight on asset reconstruction companies (ARCs) that purchase bad loans fr0m banks and non-bank financial institutions.

The central bank has mandated that ARCs classify borrowers by risk profile and regularly verify KYC (know your customer) details after acquiring non-performing assets.

This move aims to enhance fraud detection and anti-money laundering measures within the ARC industry, subjecting these firms to the same rigorous standards applied to banks.

ARCs will now be required to follow the central bank's 2016 KYC guidelines, which mandate obtaining customer proof of identity and address, and periodically updating this information based on risk categorisation.

According to ARC industry executives, the RBI has instructed these firms to verify KYC data even for bad loans acquired fr0m lenders that have existing KYC details on file.

Auditors have emphasised that merely purchasing KYC-compliant assets is insufficient, necessitating regular verification by ARCs.

Implementing these enhanced KYC norms will increase compliance costs for ARCs, particularly given the shift towards purchasing retail bad loans amid reduced corporate stress.

ARCs will need to compel defaulting retail borrowers to share updated KYC information, which could prove challenging.

The Association of Asset Reconstruction Companies in India is engaging with the RBI and its members to facilitate compliance with the changing regulatory landscape.

The association plans to conduct training sessions to sensitise ARCs to the KYC requirements.

This scrutiny on ARCs aligns with the RBI's broader efforts to strengthen governance and compliance in the financial sector.

Recent regulatory actions against entities like Edelweiss ARC for breaches underscore the central bank's resolve to address any lapses.

(KNN Bureau)