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Regulation of Securitisation and Reconstruction of Financial Assets of Banks and Financial Institutions Introduction The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act) is responsible for rules and guidelines for securitisation and reconstruction companies to conduct their business. Lefts look at the different aspects of the regulation of BALANCE securitisation and reconstruction offinancial assets of banks and financial institutions. Learning Objectives + Recognise the features ofthe regulatory framework for securitisation and reconstruction companies. + Identify the ways in which securitisation and reconstruction companies raise funds and acquire assets, Securitisation and Reconstruction Companies A securitisation ar reconstruction company needs to obtain certification of registration from the Reserve Bank of India (RBI) in order to conduct its business It should own atleast Rs. 2 crore or atthe maximum 15% of the total financial assets acquired or to be acquired, as specified. The RBI can vary the funds for different classes of securitisation or reconstruction companies. The SARFAESI Act and the RBI provide guidelines for these companies and specify how'to raise money and carry out changes in the management asi wo ey fH Click each button to learn more. Securitisation and reconstruction companies can raise money by issuing security receipts for formulating schemes. The SARFAESI Act provides the legal framework for this Raising Money Changing Management anging Managemen Securitisation or reconstruction companies need approval of the RBI to change its management, registered address or name. Business Activities The SARFAESI Act and related RBI guidelines permit securitisation or reconstruction companies to perform some business activities: + Creating separate schemes for each financial asset * Creating separate trusts for each scheme, maintaining distinct records and accounts andissuing security receipts to the investors * Acting as trustees for the trusts and managing the assets held * Arranging for realisation of money from the assets. Non- realisation of assets will impact investors! beneficiaries. Companies do notinvest their own funds, but utilise the money invested on risk assessment and acquire assets only after careful consideration. Risk factors need to be analysed and disclosed to investors.