Professional Documents
Culture Documents
Operational Framework
Legal Framework
The Act: SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) RBI Guidelines & Clarifications:
The Securitisation Companies and Reconstruction Companies
RBI Guidance Notes for Securitisation Companies and Sale of Financial Assets to Securitisation Company (SC)/
Reconstruction Company (RC) (Created under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and Related Issues Prudential Norms (Reserve Bank) Directions, 2002
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and financial scenario when law dodgers take protection under lenient provisions.
Overloaded Debt Recovery Tribunals (DRTs) and courts. Urgent need to reign in willful and habitual defaulters.
life, minimum paid-up capital of Rs 100 cr, and authorized capital of Rs 500 cr, with no function of securitization, taking over past NPAs of the banks at the time of incorporation and not the NPAs accruing subsequently.
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power to securitize, and with initial capital of Rs 2 cr or 15% of financial assets to be acquired.
in securitization.
Distinct scheme is formulated by ARC for each group of security
receipts issued.
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Security Interest
Security Interest: Right, title, and interest upon property created
Secured Debt: Debt secured by Security Interest. Secured Asset: Property on which Security Interest is created. Security Agreement: An agreement under which Security Interest
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Incorporation of ARC
Setup under Companies Act as Private or Public Ltd. Can be setup as subsidiary of Bank/FI. Can commence business if:
Owned funds of minimum Rs 2 cr. Registered with RBI.
Existing ARC must register with RBI within six months and can
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Owned Funds
Minimum Rs 2 cr or 15% of total financial assets acquired or to be
acquired.
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Eligibility Criteria
No loss in previous three years. Has made adequate arrangements to pay security receipt holders
(QIBs).
Directors have professional experience in finance. Sponsor must have less than 50% members in board. Directors must not be convicted. Sponsor can not have controlling stake in the ARC. Compliance with prudential norms specified by RBI.
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RBI issues certificate of registration. Approval of RBI required for any subsequent change in
appeal to GoI within 60 days. ARC continues to be a SC/RC until it repays the investments held by it within the period stipulated by RBI.
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modifications.
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thereon. FIs.
The Act covers only financial assets and that too by Banks and If the security is easily saleable then Bank/FI can handle it
themselves internally.
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Recovery Workflow
Step 1 - Physical Possession of Assets:
Bank/FI handles this directly. It prompts Borrower to repay.
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Recovery Workflow
Step 4 - Asset Reconstruction by ARC:
ARC uses powers given in the Act to ensure generation of recurring
to QIB.
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Notice to Obliger/Borrower
Bank/FI, if finds appropriate, may give notice of acquisition to
Obliger. ARC.
If notice is given then Obliger will make payment directly to If notice is not given then any payment subsequently received by
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Securitization of Assets
Not allowed to raise funds from Retail. Funds raised from QIB by formulating a scheme. ARC maintains separate account for each scheme. ARC ensures realization of assets and pays returns to investors. Issue of security exempted from registration of Security Receipt.
QIB holding >75% of value can call other QIBs for a resolution
Powers of RBI
Can determine binding policies pertaining to:
Income recognition. Accounting standards. Provisions for bad & doubtful debts. Capital adequacy based on risk weights. Deployment of funds by ARC. Type of assets that can be acquired. Procedure for acquisition and valuation. Aggregate value of assets that can be acquired.
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business and recycling of funds owned/raised by ARC. It enables ARC to pay for eventual redemption of securitized bonds by QIBs when they mature.
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turnaround:
Change/takeover of management of the business. Sale/lease of part/whole of business. Rescheduling of debt payments. Settlement of dues payable. Taking possession of secured assets.
Act as Agent for Bank/FI for recovering dues. Act as Manager of secured assets. Act as Receiver if appointed by court or tribunal.
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the assets.
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for pending cases before civil courts/DRT by getting them transferred. Security Interest and taken possession.
ARC comes into picture only after Secured Creditor has enforced
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Notice to Borrower
Notice given to Borrower to discharge his full liabilities within 60
days of the notice. Two requirements when the notice can be issued:
Borrower must have defaulted on at least one installment.
Secured Creditor.
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Other Provisions
Sundry Debtors of Borrower:
Secured Creditor can pursue any debtors of the borrower.
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Other Provisions
Consortium/Multiple Bank Financing:
Consensus of 75% by value needed to exercise rights.
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Other Provisions
Recovery of Residual Dues after Exhausting Security Interest
Enforcement:
If dues are not fully satisfied by sale of assets then Secured Creditor
assets.
Miscellaneous:
After receipt of notice secured asset can not be sold or transferred
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Right to Appeal
Any person (including Borrower) can appeal to DRT within 45
Borrower deposits 75% of the amount in notice. DRT can waive or reduce this deposit amount. Appellate Tribunal (AT) within 30 days. due to Bank/FI Act 1993.
Any person aggrieved by any order made by DRT can appeal to DRT/AT dispose of appeal in accordance with Recovery of Debts
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List of ARCs
Asset Reconstruction Company (India) Ltd, (ARCIL) Assets Care Enterprise Ltd., ASREC (India) Ltd, Pegasus Assets Reconstruction Pvt. Ltd. Dhir & Dhir Asset Reconstruction & Securitisation Company Ltd. International Asset Reconstruction Company Pvt. Ltd. Reliance Asset Reconstruction Company Ltd. Pridhvi Asset Reconstruction and Securitisation Company Ltd. Phoenix ARC Pvt Ltd.
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Thank You!
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