Securitisation and Reconstruction of Financial Assets

Introduction

Securitisation and reconstruction of financial assets act give financial institutions and banks full confidence to recover their NPA loans or non-performing assets with the court’s intervention. Securitisation is where marketable securities are backed up by existing automobiles or home loans. The asset will be convertible into marketable security on default and sold to recover the NPA dues. Reconstruction gives the lender the full authority to manage or sell a portion of the whole asset or reschedule the payment installment dates.  A register or KYC  is maintained in electronic and non-electronic forms to keep this smooth. 

Securitisation and Reconstruction of Financial Assets Act

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act fall under Section 13(2). The financial institutions and the banks invest their amount in loans and get the interest amounts, whereas any individual or institution borrowing uses the amount for investment purposes. The borrower can not always repay the loan; they may face a loss in their investment or simply be involved in fraud. In case of fraud, the lenders have to recover the dues via court, which was a hectic and long process. Section 13 (2) of the securitisation and reconstruction of financial assets act gave the banks and financial institutions the power to recover the dues following different norms. Under accountability to a secured creditor or security accordance, any borrower makes any negligence in debt repayment or partial installment.  The secured creditor categorises his account regarding such debt as a non-performing bond or loan. Then, the secured lender may need to take notice in writing to release in full his authorities to the secured lender within a span of sixty days from the notice date. Failing which, the secured lender shall be permitted to exercise all or any of the virtue under sub-section. The motives of the act are:

• Rapid and efficient recovery of NPA’s or non-performing assets of financial institutions.
• The legal framework to provide securitisation activities.
• They allow financial institutions to auction properties when the borrower can’t repay the loan.

Movable, immovable, or any financial assets are given as security or mortgage, or security interest comes under this act.  Yet some loans are not covered under this act; they are:

• The loan amount is less than 20% of the principal and interest.
• Security or money issued under the Sale of Goods Act or Indian Contract act
• A  lease with no security interest.
• Any asset under section 60 of the Code of Civil Procedure, 1908

Central Registry of Securitisation Asset Reconstruction

Central registry of securitisation asset reconstruction, also called CERSAI, is set up under sub-section 1 of section 20 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The act was authorised in 2015 to perform the central KYC record registry act under the said rules. The Central KYC registry was established to prevent money laundering. Central registry of securitisation asset reconstruction is established under section 25 of the companies act, 1956. The companies should maintain the central registry for and on behalf of the Central government. The major shareholder of CERSAI is the central government of India, public sectors bank and the National Housing Bank. The main motive of the Central registry of securitisation asset reconstruction and security interest of India are:

• To centralise the registering equitable mortgages.
• It allows the financial institutions to register transactions regarding asset securitisation and reconstruction. 
• It also includes the registration of security interests created via factoring or accounts receivables.
• The function of CERSAI was extended to include the registration of security interests created on tangible assets and all kinds of mortgages usual in India. 
• Any financial institution can register themselves on the CERSAI platform to pull any pieces of information on any asset or fortune to validate if another lender has created any other security interests. 

Impact of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is also called the SARFAESI act. The financial assets include debts to the lender; they can be of various types. Some types of financial assets are listed below.

• A claim to any receivables, whether it is secured or not
• The debt secured by mortgage of immovable assets or movable asset
• Financial assistance
• Any right in debt, whether full or part of receivables.

It has empowered financial institutions by giving them authority to act. With the act’s implementation, the financial institutions faced less fraud and could retrieve their money by asset reconstruction. Asset reconstructions give the lender the authority to manage or sell partial or whole of the asset. It also gave rights to the borrower like compensation in case of default of an officer or rectifying the grievance.

Conclusion

The financial institutions are registered to RBI, apex bank regulatory body, and the excellent job of the bank and institutions is to grant loans to legal individuals and institutions. This process helps the lender as well as the borrower. The lender gets authority to recover dues, and the borrower has the authority to act and save their financial assets if the lender were not reliable or faking the process. The electronic and non-electronic gives a record to the Central institution, and thus, the act helps and defends both the lender and borrower from frauds.