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.
IND vs PAK: 'I had decided as soon as I reached Dubai, some things are above sportsmanship', said SKY, referring to the Pahalgam attack
Indian captain Suryakumar Yadav finally broke his silence on refusing to shake hands with Pakistani players and closing the door of the Indian dressing room after the high-voltage match of the Asia
Jammu and Kashmir: Rohingyas fall, preparations begin to send more than 150 people to their homeland
Action has begun against Rohingyas in some parts of India. First, the process of sending more than 150 Rohingya Muslims into custody in Jammu and Kashmir and sending them to Myanmar and Bangladesh has
Beating Retreat: Beating the Retreat concludes with Shaan-o-Shaukat, armies will return to the barracks today
Beating Retreat Ceremony Latest Update: Like every year, this time the closing ceremony of Republic Day ended with great pomp. During this, President Ram Nath Kovind reached the venue of the ceremony
Know- what is the New Start Deal, whose issue was also shadowed between Biden and Putin
The talks between US President Joe Biden and Russian President Vladimir Putin after a decade were proof that the atmosphere between the two countries has not deteriorated so much that it cannot be
'Iran cannot have nuclear weapons', G7 supports Israel; Iran held responsible for the attacks
The G-7, a group of the world's seven most powerful countries, has expressed its support for Israel in its conflict with Iran. The G-7 countries clearly stated in their statement that they stand with
Scam 2003: This actor got a chance to become the mastermind of 20 thousand crore scam, Hansal will not direct
ISRO joins hands with Elon Musk, will launch communication satellite GSAT-20 for the first time from Space
Partnering for the first time with billionaire businessman Elon Musk, India will launch its communications satellite GSAT-20 (newly named GSAT-N2) on his company SpaceX's Falcon-9 rocket. This
Star Health to raise Rs.400 cr from new investors
Chennai, March 13 (IANS) India's first stand-alone health insurer, Star Health and Allied Insurance Company Ltd, hopes to raise Rs.400 crore from new and existing investors, a top company official
We played some outstanding cricket: Clarke
Sydney, March 26 (IANS) Australia skipper Michael Clarke on Thursday said he is proud the way his team played in the semi-final against India but pointed out that the final against New Zealand
Vikram Hospitalized: South actor Vikram's health deteriorated, admitted to Chennai hospital
Ponniyin Selvan Vikram Hospitalized: The health of South cinema veteran Vikram has suddenly deteriorated. According to reports, Vikram has been rushed to Kauvery Hospital in Chennai. In such a
