Asset Reconstruction Company (India) Limited faces RBI gaps

Asset Reconstruction Company (India) Limited disclosed Reserve Bank of India (RBI) observations in three supervisory reviews spanning February 2024 to April 2026. The latest communication identified an Rs 8.34 crore difference between the Company’s reported risk-weighted assets and RBI’s assessment, while the Company said it had taken corrective actions and no penalty had been levied.

Why did the Company receive repeated RBI findings?

The Company received observations through an RBI inspection and risk assessment report dated February 15, 2024, a second report dated August 6, 2025, and a supervisory communication dated April 15, 2026. RBI periodically inspects an asset reconstruction company’s accounts, stressed-asset records, governance, regulatory compliance, systems and controls to verify information provided to the central bank and obtain information that has not been furnished.

The February 2024 inspection and risk assessment report identified non-compliance with the Regulatory Framework for Asset Reconstruction Companies dated October 11, 2022. The report also cited deficiencies in succession planning, policies covering acquisition, resolution, expected credit loss, dividend distribution, know-your-customer (KYC), outsourcing and business continuity, along with Fair Practice Code review parameters, internal-audit scope and complaint tracking.

The first report also covered borrower-facing and acquisition controls. RBI cited delays in issuing no-dues certificates and releasing securities, deficiencies in due diligence under the Company’s internal policies, and reliance on KYC information provided by selling institutions without independent customer due diligence before onboarding. The Company responded on March 30, 2024 and submitted an updated response on April 15, 2024, including revised Audit Committee terms, a succession plan, policy actions, an internal-audit review and a complaint-management system.

What changed across the 2024, 2025 and 2026 RBI reviews?

The reviews progressed from broad policy and governance matters in 2024 to repeat-compliance and control questions in 2025, followed by reporting and policy-specific observations in April 2026. The Company stated that it had complied with most of RBI’s June 12, 2025 follow-on queries, but remained in the process of complying with a few queries as of the red herring prospectus date.

RBI’s June 12, 2025 follow-on queries on the 2024 report required root-cause analysis of settlements approved below the realisable sale value of securities. RBI also sought the status of delayed seller documents, amortisation of corporate business, and eight of 30 Fiscal 2023 acquisitions for which approval had been obtained from the executive committee rather than the Board.

The August 2025 report included matters linked to prior observations, since RBI required the Company to resubmit compliance on certain earlier findings. It also cited deficiencies in Board and committee minutes, Board-suggested policy changes not being effected, missing comments on defined areas in internal-audit reports, and expected credit loss provision details not being placed before the Audit Committee.

What did RBI identify in acquisition, KYC and reporting controls?

RBI’s August 2025 report identified specific weaknesses in acquisition and KYC controls, while the April 2026 communication added a reporting variance and further policy gaps. The August report said the acquisition policy did not define site-visit criteria and the resolution policy did not define the valuation type to be used in considering valuation at the time of acquisition.

The August 2025 report also cited deficiencies in acquisition due diligence, pending KYC-document updates for certain borrowers, and delays in submitting certain statutory returns. The Company said it initiated process improvements for site visits, valuation type, acquisition approvals and resolution policy, and periodically wrote to borrowers and selling banks to obtain KYC details.

The April 15, 2026 communication identified risk-weighted assets of Rs 2,830.18 crore reported by the Company, compared with RBI’s assessment of Rs 2,838.52 crore. The Company said it incorporated the required changes in its financial statements for the year ended March 31, 2026, producing the Rs 8.34 crore variance disclosed in the supervisory communication.

RBI also cited the absence of a system to monitor pending KYC and officially valid document requirements from selling institutions. The Company said the operational risk management committee regularly reviews progress on pending KYC and document requirements, and that it amended its KYC policy and carried out risk categorisation using prescribed parameters and applicable guidelines.

How did the April 2026 observations affect security receipts and settlements?

The April 2026 observations required policy changes covering security receipts, qualified buyers and settlement amounts. RBI said the Asset Acquisition Policy and the policy on compliance with Section 29A of the Insolvency and Bankruptcy Code, 2016 did not specifically prescribe Section 29A checks for qualified buyers subscribing to security receipts.

RBI further said the policy on issuing security receipts did not stipulate that yield would be recognised only after full redemption of the principal amount. The Company said it amended relevant policies to include Section 29A compliance requirements and to provide that yield on security receipts would be recognised only after full redemption of principal.

The same April communication said the settlement policy did not define permissible sacrifice levels for categories of exposure when determining settlement amounts. The Company said it amended the Asset Resolution Policy to include permissible sacrifice levels, and amended its grievance-redressal standard operating procedure to classify complaints as high, medium or low priority.

The April review also addressed 32,476 equity shares held by an ex-employee in physical form as of March 31, 2025, representing 0.01% of the Company’s shareholding. The Company said it completed transmission of the shares on July 30, 2025 and dematerialised them, meaning converted them into electronic form, on August 28, 2025.

What regulatory exposure does the Company disclose?

The Company disclosed that RBI had not levied a penalty or taken enforcement action for the stated non-compliances or during the preceding three fiscals. However, the Company also said it could not assure investors that its corrective actions would satisfy RBI, or that RBI would not make further observations or impose penalties in future.

Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, failure by an asset reconstruction company to comply with an RBI direction can result in a penalty of up to Rs 1 crore or twice the quantifiable amount involved, whichever is higher. If a penalty remains unpaid for 30 days after receipt of notice, the asset reconstruction company’s registration can be cancelled after it is given an opportunity to be heard.

The regulatory record is relevant to the Company’s operating scale because management and trusteeship fees are charged as a percentage of assets under management (AUM) for relevant trusts. The Company reported closing AUM of Rs 20,149.987 crore in Fiscal 2026, compared with Rs 16,852.570 crore in Fiscal 2025, while Fiscal 2026 acquisitions totalled Rs 5,958.800 crore.

Corporate loans accounted for Rs 13,852.761 crore, or 68.75%, of the Company’s Fiscal 2026 AUM of Rs 20,149.987 crore. Acquisition, valuation, due-diligence and resolution-policy controls therefore apply to the Company’s process for buying and managing a portfolio in which corporate loans represented more than two-thirds of AUM.

Conclusion

The Company’s disclosures show a sequence of RBI observations over three supervisory reviews, rather than a single historical issue. The February 2024 report focused on governance, policy, KYC and due diligence; the August 2025 review included repeat-compliance, acquisition and reporting controls; and the April 2026 communication added an Rs 8.34 crore risk-weighted-assets variance alongside security-receipt, settlement and KYC-policy matters.

The next disclosed point to watch is completion of the few June 2025 follow-on queries that the Company said were still in process. RBI’s future inspections will also assess whether the Company’s stated changes to KYC, acquisition, resolution, complaint-handling and security-receipt policies operate in accordance with applicable requirements.