GURU GHASIDAS VISHWAVIDYALAYA

BILASPUR [C.G.]

SESSION – 2019-20
MBA – 4th SEM

MANAGEMENT OF FINANCIAL SERVICES

DEBT SECURITIZATION

PRESENTED TO- PREPARED BY-

Mr. G.R Behra Sanskar Yadav
(Assistant Professor) Savina
Shipali Tiwari
Department of Management Studies Shivangi Sharma
Shubham Dubey
 THE SECURITISATION ACT,2002

The Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 has come into force w.e.f.
21st June, 2002, the date on which the ordinance was first
promulgated. The Act aims to regulate securitisation and
reconstruction of financial assets and enforcement of security
interest and for the matters connected therewith or incidental
thereto.
 Background

Before the enactment of this Act, banks and financial institutions

(FIs) had only one option available to recover their Non-Performing
Assets (NPAs) i.e. by way of filing the cases against the borrower in
the Debt Recovery Tribunals (DRTs) set up under the Recovery of
Debts due to Banks and Financial Institutions Act, 1993 or in Civil
Courts.
 Purpose of the act

Under section 13(4), the secured creditors may, after 60 days notice-

1. Take possession of the assets and dispose them of.

2. Take over the management of the assets.
3. Claim an amount from the acquirer of the security who owes a sum
on that account to the borrower.
 Short summary of the act

 PRE-REQUISITES TO FORM REGISTERED SECURITISATION

COMPANY /ASSET RECONSTRUCTION COMPANY

 Any existing Securitisation or Reconstruction Company shall make

an application for registration to RBI within 6 months from the
commencement of this Act and may continue to carry on the
securitisation/asset reconstruction work until a certificate is
granted or rejected.
.
 CONT…
 It has net owned funds of at least 2.00 crores or an amount not
exceeding 15% of total financial assets acquired/to be acquired
by the company.  
 The form and manner of the application are to be prescribed by
the RBI.
 The RBI shall for the purpose of considering the application for
registration shall conduct the inspection of books and records of
the company to satisfy itself about the compliance with terms
and conditions laid down in the Act.

.
 CONT…

 The company should not have incurred losses in any of three preceding
financial years.

 The company has made adequate arrangements for the realization of

the financial assets and shall be able to pay periodical returns and
redeem the investments made in the company.

 The directors have adequate professional experience related to

finance.
 CONT…

 The sponsors (persons holding not less than 10% of the paid-up
capital of a securitisation company) should not hold any
controlling interest or be a holding' company in the Securitisation
Company/Asset Reconstruction Company.

 The board of directors should not consist of more than half of its
total members as nominees of any sponsor.
 Cont…

 REJECTION OF APPLICATION

The registration to the securitisation company shall be granted on

such term and conditions as RBI may deem fit. The RBI may reject the
application after giving the applicant a reasonable opportunity of
being heard.
.
 Cont…

 PRIOR APPROVAL

RBI's prior approval shall be required in case of any substantial change in

management of the company or change in its registered office or change in its
name. Decision of the RBI in this regard shall be final. Substantial change in
management means change in management by way of transfer to shares or
amalgamation or transfer of the business of the company.
 Cont…

 CANCELLATION OF CERTIFICATE OF REGISTRATION

 Ceases to carry on business of securitization.

 Ceases to receive or hold any investment from a qualified
institutional buyer.
 Fails to follow any of the other prudential/pecuniary norms of the
RBI.
 CONT…

 Fails to maintain accounts in accordance with the requirements of

any law or any direction or order issued by the RBI under this Act.

 Fails to submit or offer for inspection its books of account or other

relevant documents when so demanded by the RBI.

 Fails to obtain prior approval of RBI u/s 3(6) of the Act.

 Cont…

 FILING OF AN APPEAL

 The securitisation company aggreived by the order of cancellation

of registration above may file an appeal with the Central Govt,
with in a period of 30 days from the date of the service of the
notice. The application may be rejected but only after giving the
applicant reasonable opportunity of being heard.
 Positive aspects of the act

Development of Securitisation
Market

Speedy Recovery of NPAs

Boost to Private Sector