Power of the Reserve Bank to determine policy and issue directions:

If the RBI is satisfied that in the public interest or to regulate financial system of the country to its advantage or to prevent the affairs of any securitisation company or reconstruction company from being conducted in a manner detrimental to the interest of investors or in any manner prejudicial to the interest of such securitisation company or reconstruction company, it is necessary or expedient so to do, it may determine the policy and give directions to all or any securitisation company or reconstruction company in matters relating to income recognition, accounting standards, making provisions for bad and doubtful debts, capital adequacy based on risk weights for assets and also relating to deployment of funds by the securitisation company or reconstruction company, as the case may be, and such company shall be bound to follow the policy so determined and the directions so issued. (Section 12(1)).

Section 12(2): Without prejudice to generality of the powers vested under Section 12(1), the RBI may give the following directions to ARCs in general or specific or a class of ARCs:

a.    the type of financial asset of a bank or financial institution which can be acquired and procedure for acquisition of such assets and valuation thereof;

b.    the aggregate value of financial assets which may be acquired by any securitisation company or reconstruction company;

c.    the fee and other charges which may be charged or incurred for management of financial assets acquired by any asset reconstruction company;

d.    the transfer of security receipts issued to qualified institutional buyers.

Section 12A: The RBI can call for statements and information from ARCs.

Section 12B:

(1)  The Reserve Bank may, for the purposes of this Act, carry out audit and conduct inspection of an asset reconstruction company from time to time.

(2)   It shall be the duty of an asset reconstruction company and its officers to provide assistance and cooperation to the Reserve Bank to carry out audit or inspection under sub-section (1).

(3)  Where on audit or inspection or otherwise, the Reserve Bank is satisfied that business of an asset reconstruction company is being conducted in a manner detrimental to public interest or to the interests of investors in security receipts issued by such asset reconstruction company, the Reserve Bank may, for securing proper management of an asset reconstruction company— (a) remove the Chairman or any director or appoint additional directors on the board of directors of the asset reconstruction company; or (b) appoint any of its officers as an observer to observe the working of the board of directors of such asset reconstruction company.

(4)  It shall be the duty of every director or other officer or employee of the asset reconstruction company to produce before the person, conducting an audit or inspection under sub-section (1), all such books, accounts and other documents in his custody and to provide him such statements and information relating to the affairs of the asset reconstruction company as may be required by such person within the stipulated time specified by him.

Section 12C: Penalty for contravention: If any ARC fails to comply with RBI directions, penalty up to Rs.1 Crore or twice the amount involved, whichever is more is leviable. If the failure is continuous one, up to Rs.1 Lakh per day during the continuity of default can be levied as penalty.