Summary: This blog provides a brief overview of the new set of directions issued by the RBI consolidating the regulatory framework for ARCs. It also highlights additional requirements introduced for ARCs and discusses how the otherwise dispersed regulatory framework is now aligned under a unified set of directions.
Background
The Reserve Bank of India (“RBI”) on November 28, 2025, issued around 244 master directions consolidating and segregating the applicable guidelines for each of the regulated entities, such as commercial banks, Non-Banking Financial Corporation (“NBFC”), All India Financial Institutions (“AIFI”), and Asset Reconstruction Companies (“ARCs”) (collectively referred to as “Regulated Entities”). Accordingly, it also withdrew around 9445 circulars.[1] The objective behind this exercise is to eliminate regulatory overlaps, curtail repetition and cross referencing, and streamline the regulatory frameworks for the Regulated Entities otherwise dispersed across multiple guidelines/directions.
The regulatory prescription for ARCs was previously spread across various directions/guidelines applicable to Regulated Entities; however, with this consolidation, the RBI has carved out and compiled all relevant and scattered regulatory guidelines under a unified structure with a dedicated set of directions. This “one-stop repository” aims to simplify compliance and make all obligations and standards for ARCs easily accessible.
Consequently, the RBI issued the Reserve Bank of India (Asset Reconstruction Companies) Direction, 2025 (“2025 Directions”), repealing the Reserve Bank of India (Asset Reconstruction Companies) Direction, 2024, dated April 24, 2024 (“2024 Directions”). It also issued specific credit-reporting guidelines, know-your-customer norms, and regulations for reporting wilful defaulters and large defaulters for ARCs.
Overview of the consolidation exercise and few additions
By being a consolidation exercise, the 2025 Directions recapture the regulatory prescription available in previous directions (although scattered) while introducing the following two requirements:
Regulatory Mandate for Platform for Regulatory Application, Validation, And AutHorisation (“PRAVAAH”)
One of RBI’s pivotal developments in recent years has been the introduction of the PRAVAAH portal in 2024 to facilitate online submission, validation, and authorisation of various regulatory applications. Although operational since 2024, the 2024 Directions did not clarify about the submission of applications through the PRAVAAH portal.
Now, to avoid any confusion about the submission process, the 2025 Directions specifically mentions submission through the PRAVAAH portal, including applications for ARC registration, appointment/re-appointment of directors, declaration from directors/managing director/Chief Executive Officer, and changes in shareholding of an ARC. However, online submission is only an option, and physical application can still be submitted. This provides clarity about the modes of application submission to the RBI.
Mandatory formulation of Fair Practices Code (“FPC”)
The RBI first introduced FPC for ARCs vide guidelines dated July 16, 2020,[2] broadly outlining an indicative code of conduct (as formulated by their board of directors) for ARCs to follow as a discretionary requirement in their normal course of business, ensuring fair practices, both at the time of acquisition and resolution of financial assets. These fair practices are based on the principles of transparency, non-discrimination, and arm’s length approach.
While the FPC format as enshrined in the guidelines dated July 16, 2020, was reproduced in the 2024 Directions as a discretionary requirement, in the 2025 Directions, FPC formulation by ARC boards of directors is now a mandatory requirement.
Further, to avoid the need for cross referencing to another guideline/directions, the following guidelines have now been incorporated into the 2025 Directions:
Formulation of policies by the board of directors and periodic review
For ease of reference and simplification, the 2025 Directions include a separate chapter outlining the role of the ARC boards of directors in terms of formulating various policies and conducting periodic review. This chapter, inter alia, provides for an indicative list of all previously scattered policies that the board must formulate.
Responsible Lending Conduct
The Responsible Lending Guidelines dated September 13, 2023,[3] (“Responsible Lending Guidelines”), inter alia, provided for the time-bound release of property-related documents upon the full repayment by the borrower and was applicable to almost all Regulated Entities, including ARCs. These were applicable only through a cross reference in the 2024 Directions, but have now been incorporated as part of the 2025 Directions.
Implementation of accounting standards and submission of financial information to Information Utilities
Similarly, the accounting standards[4] as applicable to, inter alia,ARCs and the requirement of submission of financial information to information utilities under Section 215 of Insolvency and Bankruptcy Code, 2016,[5] which appeared only through a cross-reference in the 2024 Directions, have now been incorporated as part of the 2025 Directions.
Carving out specific guidelines/directions
Segregation of other guidelines
Before the introduction of new directions related to credit reporting, know-your-customer norms, and framework surrounding wilful defaulters and large defaulters, certain composite directions[6] were generally applicable to all Regulated Entities, including ARCs. Now, all the above guidelines have been carved out as specific directions for ARCs without any modification to the substantive part of these guidelines.[7]
Transfer of loan exposure
The Reserve Bank of India (Transfer of Loan Exposure) Directions, 2021 (“2021 Directions”),[8] governed the transfer of stressed loans from lenders, such as commercial banks, NBFCs, AIFI, etc. to ARCs. The RBI has now split these into specific directions for each class of lender. While the new directions have retained the substance of the 2021 Directions, the transfer of loans to ARCs will now be governed by the directions specific to the transferring entity.
Conclusion
This consolidation exercise by the RBI reflects its efforts towards simplifying the regulatory framework and enhancing clarity. This will go a long way in easing the navigation of the otherwise fragmented framework governing various Regulated Entities and helping ARCs (and other Regulated Entities) reduce the compliance burden and avoid potential confusion regarding applicable directions. ARCs can now refer to a consolidated regulatory framework, thereby reducing overlaps, repetitions, and the need for extensive cross-referencing as previously required under the old regime.
The RBI’s effort is commendable; however, since the industry’s aim has long been to make the Indian secondary loan market ecosystem more mature and self-sufficient, it is important that RBI now focus on bringing in certain key changes to the ARC regulatory framework that the industry has sought from time to time. These comprise, inter alia,expanding the definition of qualified buyers to include certain other entities (such as HNIs, corporates, family offices, pension funds, distressed asset funds, etc.) to widen the investor base, permitting ARCs to acquire financial assets from regulated entities such as AIFs and FPIs to expand the secondary loan trade base, and increasing the threshold of a “sponsor” from 10 per cent to 20 per cent to ensure that sponsors with strong capital infusion capabilities are duly invested in ARCs.
For further information, please contact:
Abhishek Mukherjee, Partner, Cyril Amarchand Mangaldas
abhishek.mukherjee@cyrilshroff.com
[1] Reserve Bank of India issues Consolidated Master Directions, Press Release: 2025-2026/1588 dated November 28, 2025.
[2] Fair Practices Code for Asset Reconstruction Companies dated July 16, 2020, RBI/2020-21/13 DOR.NBFC(ARC) CC. No. 9/26.03.001/2020-21.
[3] Responsible Lending Conduct – Release of Movable / Immovable Property Documents on Repayment/Settlement of Personal Loans dated September 13, 2023, RBI/2023-24/60
DoR.MCS.REC.38/01.01.001/2023-24.
[4] Implementation of Indian Accounting Standards dated March 13, 2020, RBI/2019-20/170 DOR (NBFC).CC.PD.No.109/22.10.106/2019-20.
[5] Submission of Financial Information to Information Utilities dated December 19, 2017, RBI/2017-18/110
DBR.No.Leg.BC.98/09.08.019/2017-18.
[6] Master Direction – Reserve Bank of India (Credit Information Reporting) Directions, 2025 dated January 06, 2025, RBI/DoR/2024-25/125 DoR.FIN.REC.No.55/20.16.056/2024-25; Master Direction – Know Your Customer (KYC) Direction, 2016, RBI/DBR/2015-16/18 Master Direction DBR.AML.BC.No.81/14.01.001/2015-16; Master Direction on Treatment of Wilful Defaulters and Large Defaulters dated July 30, 2024, RBI/DoR/2024-25/122 DoR.FIN.REC.No. 31/20.16.003/2024-25.
[7] Reserve Bank of India (Asset Reconstruction Companies – Credit Information Reporting) Directions, 2025 dated November 28, 2025, RBI/DOR/2025-26/375 DOR.FIN.REC.No.294/20.16.056/2025-26; Reserve Bank of India (Asset Reconstruction Companies – Know Your Customer) Directions, 2025 dated November 28, 2025, RBI/DOR/2025-26/377 DOR.AML.REC.No.296/14.01.010/2025-26; Reserve Bank of India (Asset Reconstruction Companies – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025 dated November 28, 2025, RBI/DOR/2025-26/376 DOR.FIN.REC.No.295/20-16-003/2025-26.
[8] Reserve Bank of India (Transfer of Loan Exposures) Directions dated September 24, 2021, RBI/DOR/2021-22/86 DOR.STR.REC.51/21.04.048/2021-22.
