Regulation of Securitisation and Reconstruction of Financial Assets of Banks and Financial Institutions: Jaiib/DBF Paper 3 (Module C) Unit-3

Regulation of Securitisation and Reconstruction of Financial Assets of Banks and Financial Institutions: Jaiib/DBF Paper 3 (Module C) Unit-3

Dear bankers,

As we all know that is Regulation of Securitisation and Reconstruction of Financial Assets of Banks and Financial Institutions for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are Regulation of Securitisation and Reconstruction of Financial Assets of Banks and Financial Institutions (Unit-3), Banking Related Laws (Module C), Legal & Regulatory Aspects of Banking -Paper 3.

♦Registration of Securitisation Company Or Reconstruction Company

Can commence or carry business if

• Obtain certification of registration from RBI
• It has the owned funds not less than 2 Crores

♦Cancellation of Certificate of Incorporation

• The company ceases to carry on the business
• The company ceases to receive or hold any investment from a qualified institutional buyer.
• The company fails to comply with any of the conditions subject to which the certificate of registration was granted
• Fails to comply with RBI directions.
•  Fails to maintain accounts in accordance with directions issued by RBI.
•  Fails to give accounts and documents to RBI for inspection.

♦Acquisition of Right of Interest In Financial Assets

Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act 2002/Section 5 Acquisition Of Rights Or Interest In Financial Assets

• Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution,-

1. by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or
2. by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them.

• If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.
• Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers-of-attorney, grants of legal representation, permissions, approvals, consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of securitisation company or reconstruction company, as the case may be.
•  If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub-section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be.

♦Important Point

• Asset Reconstruction means acquisition of any right or interest of any bank of financial institution in any financial asset for the purpose of realisation.
• Securitisation Company needs registration from RBI for commencement of business.
• Right of acquisition of financial asset by Securitisation Company/RC is subject to the prior agreements or contracts about the asset. (False)
• Acquisition of financial asset by Securitisation Company/RC is with the liability also over such asset. (False)

♦The four documents involved in the Securitisation Transaction

• Offer Document – Full details of financial asset, loan details of bank etc.
• Debenture – A debenture for payment of consideration to be paid to the bank or financial institution for acquisition asset from it.
• Agreement – it is with originator to continue to service the assets.
• Security Receipt – It is in favour of investors.

Note: Any direction issued by the RBI under SARFAESI Act has Statutory effect and is binding on the parties concerned.

After application of SARFAESI Act existing companies have to get registered within six months from commencement of the Act.

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