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Thursday, April 22, 2010

Total period of realisation is 8 years for Securitisation Company, loss assets, date of acquisition defined, surplus investment in NABARD/SIDBI & more disclosures in Balance sheet - SARFAESI provisions amended

The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003 – Amendments (under SARFAESI provisions)

RBI clarification on certain issues as regards acquisition of financial assets by trusts floated by Securitisation Companies or Reconstruction Companies, extension in time frame allowed for realization of financial assets, deployment of surplus funds, acquisition of land and buildings by Securitisation Company or Reconstruction Company; asset classification, additional disclosures in the balance sheet etc. as detailed hereunder:-

(Directions here means Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003)

(a) Amendment of paragraph 3(1)(iii) of the Directions - Date of acquisition
Date of acquisition means the date on which the ownership of financial assets is acquired by Securitisation Company or Reconstruction Company either in its own books or directly in the books of the trust.

(b) Amendment of paragraph 7(1) of the Directions - Financial Assets Acquisition Policy
Framing of ‘Financial Assets Acquisition Policy’ by the Securitisation Company or Reconstruction Company shall cover acquisition of financial assets either in its own books or directly in the books of the trust.


(c) Amendment of paragraph 7(6)(ii) of the Directions - Plan of realisation
In terms of clause 7(6)(i) of the Directions, every Securitisation Company or Reconstruction Company is required to formulate a plan for realisation of financial assets acquired by providing for one or more measures listed therein. Further, in terms of clause 7(6)(ii) of the Directions, the plan of realisation shall clearly spell out the steps proposed to reconstruct the assets and realize the same within a specified timeframe of (within) 5 years from the date of acquisition.
On a review, it has been decided that on expiry of 5years from the date of acquisition of financial assets, the Board of Directors of the Securitisation Company or Reconstruction Company may increase the period for realisation of financial assets so that the total period for realisation shall not exceed 8years from the date of acquisition of financial assets concerned. The Board of Directors of the Securitisation Company or Reconstruction Company shall specify the steps that will be taken by the Securitisation Company or Reconstruction Company to realise the financial assets within the time frame as above.
Qualified Institutional Buyers (QIB) shall be entitled to invoke the provisions of Section 7(3) of the SARFAESI Act only at the end of such extended period (post 5 years) as explained above. If the period for realisation is not extended, the Qualified Institutional Buyers shall be entitled to invoke the provisions of Section 7(3) of the Act at the end of period of realisation (within) 5 years from the date of acquisition of the financial asset concerned.

(d) Amendment of paragraph 8(1) of the Directions- Issue of Security Receipts
Paragraph 8(1) of the Directions prescribes that a Securitisation Company or Reconstruction Company shall give effect to the provisions of Sections 7(1) and (2) of the Act through one or more trusts set up exclusively for the purpose. The Securitisation Company or Reconstruction Company is required to transfer the assets to the said trusts at the price at which those assets were acquired from the originator. It is clarified that Securitisation Company or Reconstruction Company can acquire the assets from banks/FIs either in its own books and then transfer the assets to trusts or directly acquire the assets in the books of the trusts. In case such financial assets are first acquired in its own books by the Securitisation Company or Reconstruction Company, such financial assets shall be transferred to trust at the price at which those assets were acquired by Securitisation Company or Reconstruction Company from the originator.


(e) Amendment of paragraph 10(ii) of the Directions - Deployment of surplus funds
A Securitisation Company or Reconstruction Company may deploy any surplus available with it only in Government Securities and deposits with scheduled commercial banks in terms of policy framed in this regard by its Board of Directors.
To provide additional avenues to the Securitisation Company or Reconstruction Company for deployment of surplus funds, Securitisation Company or Reconstruction Company, subject to policy framed by its Board of Directors, may also deploy surplus funds as deposits with Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) or such other entity as may be specified by the Reserve Bank of India from time to time.

(f) Amendment of paragraph 10(iii) of the Directions- Acquisition of land and buildings by Securitisation Company or Reconstruction Company.
Presently, no Securitisation Company or Reconstruction Company is allowed to invest out of its owned fund in land and building, provided that this restriction will not apply to funds borrowed as also to owned fund in excess of the minimum prescribed.
On a review, it has been decided that no Securitisation Company or Reconstruction Company shall, invest in land and building;-
provided that this restriction shall not apply to investment in land and/or building by Securitisation Company or Reconstruction Company for its own use upto 10% of its owned fund,
provided further that any land and/or building acquired by Securitisation Company or Reconstruction Company in the ordinary course of its business of reconstruction of assets while enforcing its security interest, shall be disposed of within a period of 5 years from the date of such acquisition or such extended period as may be permitted by the Bank in the interest of realization of the dues of the Securitisation Company or Reconstruction Company.


(g) Amendment of paragraph 12 of the Directions - Asset classification
It is clarified that provisions relating to asset classification are applicable only in respect of assets held in the books of Securitisation Company or Reconstruction Company. Further, the meaning of the term “Loss asset” has been expanded to include the financial assets including Security Receipts continued to be held by the Securitisation Company or Reconstruction Company which has not been realized within the total time frame specified in the plan for realization formulated by the Securitisation Company or Reconstruction Company under Paragraph 7 (6)(ii) or 7(6)(iii).

(h) Amendment of paragraph 15 of the Directions- Disclosures in the Balance Sheet
It has been decided that every Securitisation Company or Reconstruction Company shall make additional disclosures on following issues in the balance sheet:-
(i) Value of financial assets acquired during the financial year either in its own books or in the books of the trust;
(ii) Value of financial assets realized during the financial year;
(iii) Value of financial assets outstanding for realization as at the end of the financial year;
(iv) Value of Security Receipts redeemed partly and the Security Receipts redeemed fully during the financial year;
(v)Value of Security Receipts pending for redemption as at the end of the financial year;
(vi) Value of Security Receipts which could not be redeemed as a result of non-realization of the financial asset as per the policy formulated by the Securitization company or Reconstruction company under Paragraph 7(6)(ii) or 7(6)(iii).
(vii)Value of land and/or building acquired in ordinary course of business of reconstruction of assets (year wise)

Source: Notification No. DNBS.PD(SC/RC). 8 /CGM (ASR) - 2010 dated April 21, 2010 is enclosed vide RBI/2009-2010/413 DNBS (PD) CC. No. 18 / SCRC / 26.03.001/ 2009-2010

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