The Hindu Business Line : Rs 2-crore fund floor set for reconstruction companies

SECURITISATION or reconstruction companies would be required to maintain a minimum net owned funds (NOF) of Rs 2 crore or an amount not exceeding 15 per cent of the total financial assets acquired or proposed to be acquired by it.

The proposed Ordinance for securitisation or reconstruction of assets of banks and financial institutions cleared by the Union Cabinet on Tuesday has, however, said that the Reserve Bank of India (RBI) would be allowed to specify separate floor levels of NOF for different class of such companies.

However, no such company would be granted permission by the RBI if it has made losses in any of the three preceding financial years.

The Ordinance also provides for the setting up of a Central Registry to record all the transactions made by the securitisation or reconstruction companies and creation of security interest. Details of the transactions have to be filed within 30 days of entering into the deal in the Central Register to be maintained by the Registry.

It has also been specified that any "substantial change" in its management structure of the recovery companies by way of transfer of shares, amalgamation or transfer of business have to be reported to the RBI. The RBI interpretation on "substantial change" would be final. The RBI would be laying down the prudential norms applicable to such companies.

In the process of recovering NPAs of the banks and FIs, the securitisation or reconstruction companies would possess powers to change or take over the management of the business of the borrowers.

They would also be allowed to sell or lease part or whole of the business of the borrowers, reschedule payment of debts payable by the borrower, enforce the security interests, settle dues of the borrowers and take possession of the secured assets.

In this process, the recovery companies would act as agents of the banks and institutions.

The Ordinance stipulates that all rights of a bank or financial institution over an asset would vest in the securitisation or reconstruction company after the latter acquires them.

It has also been provided that the creditor can enforce any security interest created in favour of a secured creditor without the intervention of any court or tribunal.

The new legal framework provides a maximum fine of Rs 5 lakh on the recovery companies for contravention of RBI directive.

Contravention of the stipulations in the Ordinance would attract imprisonment for a term of one year and a fine.

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