SARFAESI Act, 2002

THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITIES INTEREST ACT 2002

The basic purpose of introducing this Act is to be help banks and Financial Institutions to recover their non-performing assets.
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Applicability of the Act.

Sec. 1 of the Act states that the Act is applicable to the whole of India including the state of J&K The Act is applicable to all banking companies which includes SBI, its subsidiaries, all private and public sector banks, foreign banks and co-operative banks. The Act has been applicable to Regional Rural Banks from May2007.

As per Sec. 31, the Act do not apply in the following types of securities / circumstances.

Securities charged by way of lien or pledge Security interest in an aircraft/shipping vessel. Security interest in Agricultural land. Assets on conditional sale/hire purchase/lease. Right of unpaid seller. The outstanding in the NPA to be recovered does not exceed Rs.1Lac. The Amount due is less than twenty percent of the principal amount and interest thereon. Property not liable to attachment or sale under code of Civil Procedure.
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STEPS UNDER THE ACT:

Identification of Eligible cases, Authorized Officer : Issuing 60 days notice under Sec.13(2) of the Act., Objection, if any by borrower / guarantor should be replied within a week of receipt of objection, Taking possession: Immovable property: Symbolic or Actual. Movable property: Actual physical possession and not symbolic possession. witness and Inventory.
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STEPS UNDER THE ACT CONTD.

Safe custody of Secured assets. Valuation and Reserve Price. Sale procedure:a) 30 days notice, b) Detail of o/s dues with upto date interest, c) Description of asset proposed to be sold, d) Reserve price fixed, e) Mode of sale proposed to be adopted, f) Proposed date, time and place of sale, 5 g) News paper publication

EXPIRY of 60 days NOTICE PERIOD:-

If the borrower(s)/guarantors) do not come forward for liquidation/ settlement, after expiry of 60 days, the authorized officer may take possession of the secured assets If the possession is resisted by the borrowers/guarantors or otherwise deemed fit, the AO may file an application before the Chief Metropolitan Magistrate for seeking his help in acquiring of the assets

PROCEDURE FOR TAKING POSSESSION :AO shall take possession as per Rule 8(1) & 8(2) the possession of immovable property can be taken by the AO: By delivering a possession notice Affixing the possession notice on the outer door or at some conspicuous part of the property Publishing the possession notice in two leading newspapers, of which one in vernacular language having sufficient circulation

Securitization companies
A securitization company (SC) or Asset Reconstruction company (ARC) acquires non-performing asset from banks / FI by issuing bonds or debentures to them. The ARCs help in focused and professional management of distressed credit in financial system to improve their economic value and recovery of troubled loans.

The ARC/SC can provide the following services:

Enforcing the security interest Take-over or change in the management of the business of the borrower Sale or lease the borrowers business Settle the borrowers dues Restructure or reschedule the debt Acting as recovery agents
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Mechanism or steps in Asset securitization

Different parties required in securitization. The originator SPV or a Trust A merchant banker A credit rating agency The original borrowers or obligors. The prospective investors the buyers of securities or general public.
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SECURITIZATION PROCESS
Obligor Interest and principal Ancillary service provider

Sale of assets
Originator Special Purpose Vehicle

Issue of securities

Investors

Consideration for assets purchased

Subscription of securities Credit rating of securities

Rating Agency

Structurer
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Securitisable Assets
Term loans to financially reputed companies Receivables from Government Departments and Companies Credit card receivables Hire purchase loans like vehicle loans Lease Finance Mortgage loans etc. Housing loans.

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Benefits of Securitization
Additional Source of Fund Greater Profitability Enhancement of Capital Adequacy Ratio Spreading of Credit Risk Lower Cost of Funding Provision of Multiple Instruments Higher Rate of Return Prevention of Idle Capital Better than Traditional Instruments Other Benefits

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Securitisation benefits for banks

Innovative and low cost source of fund Better capital adequacy norms Creation of More credit Increased Profitability Tool for Asset- liability Management and Risk Management
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