Chennai, March 9 (IANS) The central government's move to extend the applicability of the SARFAESI Act to non-banking finance companies (NBFC) would speed up recoveries by these firms, according to Moody's Investors Service.
Industry officials said the government has now agreed to the sector's long pending demand.
Union Finance Minister Arun Jaitley presenting the budget for 2015-16 proposed to designate NBFCs with asset base over Rs.5 billion as 'financial institutions' under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act).
According to an article in the latest issue of `Moody's Credit Outlook', the Indian government's move is a "credit positive" for lenders of loans against borrower properties - residential and commercial.
"The NBFC industry as well as Sundaram Finance Ltd has been demanding this for the past 10 years. This is part of the harmonisation of regulations and it is a welcome measure," T.T. Srinivasaraghavan, managing director, Sundaram Finance, told IANS here on Monday.
"The move is for protecting public funds. The government's decision gives NBFCs a better platform to enforce their rights," he added.
According to him, the government's move in a way equates NBFCs with the banks.
Residential mortgage-backed securities (RMBS) backed by loan against property (LAP) originated by these NBFCs would also benefit from speedier loan recovery, Moody's report notes.
"The SARFAESI Act would expedite NBFCs' repossession of the underlying property backing the LAP because NBFCs would have the ability to demand repayment of any defaulted loan within 60 days after the lender classifies such loans as non-performing assets (NPAs)," the article notes.
If the defaulted borrower refuses to repay the outstanding loan in full within 60 days of notice, lenders would be allowed to seek repossession through the chief metropolitan magistrate or district magistrates in the jurisdictions in which the properties are located.
Under the current practice, NBFCs must resort to civil court proceedings to recover their loans and take repossession of a property whose recovery time is difficult to determine.
Repossession through the chief metropolitan magistrates and the district magistrates, which normally takes 18-24 months, should offer a speedier recovery.
Apart from the standardised protocols around loan recovery, inclusion under the SARFAESI Act would allow lenders to take over the management of a borrower's business if the defaulted borrower does not discharge his liability in full, states the research report.
Citing the fiscal 2013 data of the Reserve Bank of India, the report states that non-performing assets (NPA) recovery through the SARFAESI Act (as opposed to debt recovery tribunals and other recovery means) accounted for about 80 percent of the total amount of the banking sector's NPAs recoveries at Rs.232 billion, and the collection rate was 27.1 percent.
Among the NBFCs that are active in loans against property field) (LAPs) and that would benefit from the central government's proposal are Cholamandalam Investment & Finance, Indiabulls Financial Services, Magma Fincorp, Reliance Capital, Religare Finvest and Fullerton India Credit Company, which have all been active in securitisation, the report states.
According to Srinivasaraghavan, the applicability of the SARFAESI Act to NBFCs will not result in cheaper funds or better credit rating.
Violence was seen across the country for alcohol, people started in line since morning
In the third phase of lockdown (liquor shops) have been opened. People living without alcohol for nearly one and a half months looked so desperate that a long line was put out of contracts since
'Extreme Heat' raining from the sky, heatwave warning issued in many parts of Bihar till June 15; When will it rain?
After Jeth, the sky is raining fire in Ashadh as well. There is not much difference between morning, afternoon, and evening. The increase in humidity along with the temperature is making one feel the
Dispute on caste: Sameer Wankhede presents cast certificate in SC commission in Delhi, the commission seeks report from Maharashtra government
Narcotics Control Bureau (NCB) Zonal Director Sameer Wankhede reached Delhi on Monday following allegations by Nawab Malik, a minister in the Maharashtra government. He reached the Scheduled Castes
The government said- stop Rahul Yatra: the country has to be saved from Corona, Congress said- did Modi go to Gujarat wearing a mask
The central government has appealed to Rahul Gandhi to stop the yatra. For this, the increase of corona epidemic has been cited. Union Health Minister Mansukh Mandaviya has written a letter to Rahul.
Efforts to hold talks between India-PAK: Organization of Islamic countries said- Our plan is ready; India said - do not interfere
The organization of Islamic Cooperation i.e. OIC has said that it is trying to start talks between India and Pakistan. The organization said that it has also prepared a plan for this.
Another Person Tests Positive For Coronavirus, Cases Rise To 30 In India
New Delhi: Health Minister Harsh Vardhan today briefed members of the Rajya Sabha on the steps taken by India to control the outbreak of the highly contagious Novel Coronavirus or COVID-19. Another
PM Modi ignored Justin Trudeau at the G-20, bilateral talks did not take place, and India-Canada relations may be the reason.
Tension has increased in the relations between India and Canada in the last few months. Canadian Prime Minister Justin Trudeau has worsened the relations with India to a great extent. Perhaps this is
Tiddi Dal: Difficulties in flying, landing with locust crew, DGCA issued instructions
Locust parties that are wreaking havoc on greenery in the country after entering Pakistan have also caused problems for the planes. The aviation regulator DGCA has instructed the pilots to take extra
Train Accident: Goods train crashes near Gurpa station on the Howrah-New Delhi route, and many trains canceled
Train Accident Howrah New Delhi Route 53 bogies of a coal-laden goods train derailed near Gurpa station between Koderma and Gaya Junction of Grand Card Saxon on the Howrah-New Delhi route. The
Rohit became emotional after 8 consecutive defeats: Said on social media - We did not give our best, but it happens
The current season has been no less than a nightmare for Mumbai Indians, the most successful team in IPL history. The team has played 8 matches so far and lost all the matches. Mumbai has become the
