THE SECURITISATION AND

RECONSTRUCTION OF
FINANCIAL ASSETS AND
ENFORCEMENT OF
SECURITY INTEREST ACT
2002

INTRODUCTION

Banking and non banking financial institutions play a

vital role in the industrial and economic development as
they are the loan providers against securities which can
be movable or immovable or both.
SARFAESI act is a weapon in the hands of such
institutions which empowers them to covert the
receivable into securities and trade or transfer, or to
treat the asset of the defaulter borrower as non
performing assets and sell them.
This act gives the inherent powers to the banks and non
banking financial institutions to recover without
approaching any court of law nor can a borrower
aggrieved of any such action can approach any civil
court.

If any borrower fails to discharge his liability in

repayment of any secured debt within 60 days of
notice from the date of notice by the secured
creditor, the secured creditor is conferred with
powers under the SARFAESI Act to:
Take possession of the secured assets of the
borrower, including transfer by way of lease,
assignment or sale, for realizing secured assets,
Takeover of the management of the business of the
borrower including the right to transfer by way of
lease, assignment or sale for realizing the secured
assets,
Appoint any person to manage the secured assets
possession of which is taken by the secured creditor,
Require any person, who has acquired any of the
secured assets from the borrower and from whom
money is due to the borrower, to pay the secured
creditor so much of the money as if sufficient to pay
the secured debt.

MEANING OF SECURITISATION
ACT

Securitisation is a method of converting existing

receivables or future cash flows into tradable
securities.
Securitisation of receivables is a process by
which cash flows or claims against third parties
of an entity, either existing or future are
identified, consolidated and separated from the
originating entity and then transferred into
securities to be offered to investors.

PARTIES TO A SECURITISATION
TRANSACTION

Originator
Special Purpose Vehicle (SPV)
Investors/Qualified Institutional Buyer
Rating Agency
Administrator or Service
Agent and Trustee
Obligor
Underwriter

SECURITISATION PROCESS
Receivables

Obligor(s)

Originator
Goods/
Services

cas
h

Liquidity
Support

Receivables

Credit
Enhanceme
nt

SPV
Rated
Securiti
es

cash

Investors

OBJECTS OF SECURITISATION
ACT

To provide a legal framework for securitisation of

assets.
Transfer of non performing assets to asset
reconstruction company, which will then dispose
of those assets and realise the proceeds.
Enforcement of security interest by secured
creditor(Banks/Financial Institutions).

ADVANTAGES OF SECURITISATION
FOR THE ISSUER

Alternative investor base

Solves asset liability mismatch
Better rating possible
Higher funding
Off the balance sheet financing
Helps in capital adequacy requirements
Traditional credit lines undisturbed
Arbitraging by repackaging

ADVANTAGES OF SECURITISATION
FOR THE INVESTORS

Better Security
Good Ratings
Rating Resilience
Matches with investors objectives
Defaults

ENFORCEMENT OF SECURITY
INTEREST

Security Interest:- It means right, title and interest of any

kind whatsoever upon property created in favour of any
secured creditor and includes any of the following:
1.
Mortgage
2.
Charge
3.
Hypothecation
4.
Assignment other than those specified in section 31
Enforcement of security interest Section 13:
Any security interest created in favour of any secured
creditor may be enforced, without the intervention of the
court or tribunal, by such creditor in accordance with the
provisions of this act

TAKEOVER OF
MANAGEMENT

Takeover is one of the ways by which asset

reconstruction is done. The provisions with
respect to the same are contained in section 15
of the act.
Management of business of a borrower can be
taken over by the secured creditor(Bank or, the
Secured Creditor).

Effects of take over

A notice to appoint the following persons must be

published in a newspaper, both in English and in an Indian
language of the place where the principal office of the
borrower is situated.
1.
Directors, in a case in which the borrower is a
company.
2.
In any other case, administrator of the business of the
borrower .
On publication of a notice under sub-section (1):
1.
All persons holding office as directors of the borrower
company shall be deemed to have vacated their office.
2.
Any contact of management between the borrower
and any director or manager thereof holding office as
such immediately before publication of the notice shall
be deemed to be terminated.

THANK YOU