CERSAI

Gist of RBI notification dated 27th December, 2018 follows

It is now mandatory for banks/ NBFCs etc. to file security interest created on immoveable property (other than equitable mortgage by deposit of title deeds), moveable and intangeable assets in CERSAI.

CERSAI is central registry of securitisation asset reconstruction and security interest of India. It is an online platform for registration of transaction of securitisation, asset reconstruction of financial assets, and creation of security interest over property as contemplated in the SARFAESI Act.

Please refer to circulars DBOD.Leg.No.BC.86/09.08.011/2010-11 dated April 21, 2011, RPCD.CO.RRB.BC.No.72/03.05.33/2010-11 dated May 19, 2011, DNBS.(PD). CC.No.24/SCRC/26.03.001/2010-2011 dated May 25, 2011 and RPCD.CO.RCB.BC. No.73/07.38.03/2010-11 dated May 26, 2011 advising banks/financial institutions(FIs) to register the transactions relating to securitization and reconstruction of financial assets and those relating to mortgage by deposit of title deeds with CERSAI.

2. The Government of India has subsequently issued a Gazette Notification dated January 22, 2016 for filing of the following types of security interest on the CERSAI portal:

1. Particulars of creation, modification or satisfaction of security interest in immovable property by mortgage other than mortgage by deposit of title deeds.
2. Particulars of creation, modification or satisfaction of security interest in hypothecation of plant and machinery, stocks, debts including book debts or receivables, whether existing or future.
3. Particulars of creation, modification or satisfaction of security interest in intangible assets, being know how, patent, copyright, trademark, licence, franchise or any other business or commercial right of similar nature.
4. Particulars of creation, modification or satisfaction of security interest in any ‘under construction’ residential or commercial or a part thereof by an agreement or instrument other than mortgage.

3. CERSAI had started registration of the data in respect of paragraphs 2 (a) to (c) above, for the security interests created on or after January 22, 2016, w.e.f. May 25, 2016 for Scheduled Commercial Banks and w.e.f. July 1, 2016 for all other entities registered with them. Further, the registration of data in respect of paragraph 2(d) above has commenced since June 8, 2017 for all banks and FIs registered with CERSAI. Meanwhile, the banks/ FIs have also started registering the security interests created before January 22, 2016 (subsisting records). However, it is observed that the extent of registration on the CERSAI portal is very low, both for current and subsisting records.

4. Banks/FIs are therefore advised to complete filing the charges pertaining to subsisting transactions by March 31, 2019. Banks/FIs are also advised to file the current charges relating to all transactions with CERSAI on an ongoing basis.

NBFCs - securitisation transactions

Gist of RBI notification dated 29th November, 2018 on the subject.

Please refer to the Guidelines on Securitisation Transactions vide paragraph 102 of Master Directions on Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions dated September 01, 2016 and paragraph 89 of Non-Banking Financial Company –Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions dated September 01, 2016.

2. In order to encourage NBFCs to securitise/assign their eligible assets, it has been decided to relax the Minimum Holding Period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years, to receipt of repayment of six monthly instalments or two quarterly instalments (as applicable), subject to the following prudential requirement:

Minimum Retention Requirement (MRR) for such securitisation/assignment transactions shall be 20% of the book value of the loans being securitised/20% of the cash flows from the assets assigned.

3. The above dispensation shall be applicable to securitisation/assignment transactions carried out during a period of six months from the date of issuance of this circular. Other terms and conditions of the above referred Directions remain the same.

Hitherto, the limits were 12 monthly instalments or four quarterly instalments for Minimum Holding Period and the minimum retention requirement earlier was 10%. 

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11422&Mode=0

Securitisation/ Reconstruction Companies - amendments in regulatory framework

RBI has issued notification dated 5th August, 2014 wherein certain amendments to the regulatory framework involving securitisation/ reconstruction companies have been carried out in order to check the sale of bad loans to SRCs/ARCs and making them i.e. the SRCs/ ARCs more accountable according to this Economic Times news report here

The salient features of the new guidelines are briefly summarised as under

1. Investment of SCs / RCs in Security Receipts (SRs) - At present, SCs/RCs have to mandatorily invest and hold minimum 5% of the SRs issued by them against the assets acquired on an ongoing basis. Henceforth, SCs/RCs shall, by transferring funds, invest a minimum of 15% of the SRs of each class issued by them under each scheme on an ongoing basis till the redemption of all the SRs issued under such scheme.
2. More time for due diligence - Before bidding for the stressed assets, SCs/RCs may seek the auctioning banks to give adequate time, not less than 2 weeks, to conduct a meaningful due diligence of the account by verifying the underlying assets.
3. Change in definition of Planning period - Planning period will mean a period not exceeding six months (instead of twelve months as at present) allowed for SCs / RCs to formulate a plan for realization of non-performing assets of the selling bank acquired for the purpose of reconstruction.
4. Valuation of SRs -The initial valuation of SRs should be done within a period not exceeding six months of acquiring the underlying asset (instead of one year as at present) to enable all the stake holders to realistically assess the value of SRs at an earlier date.
5. Management fees - Management fees should be calculated and charged as percentage of the net asset value (NAV) at the lower end of the range of the NAV specified by the Credit Rating Agency (CRA) (rather than on the outstanding value of SRs as at present), provided that the same is not more than the acquisition value of the underlying asset. However, management fees are to be reckoned as a percentage of the actual outstanding value of SRs, before the availability of NAV of SRs.
6. Membership in Joint Lenders’ Forum (JLF) - In terms of Circular DBOD.BP.BC.No.97/21.04.132/2013-14 dated Feb. 26, 2014 on ‘Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)’, the banks have been advised that as soon as an account is reported by any of the lenders to ‘Central Repository of Information on Large Credits’ (CRILC) as SMA-2, they should mandatorily form a committee to be called JLF if the aggregate exposure (AE) [fund based and non-fund based taken together] of lenders in that account is Rs 100 crore and above. SCs/RCs also should be members of JLF and should be a part of the process involving the JLF with reference to such stressed assets.
7. Reporting to Indian Banks’ Association (IBA) - In terms of the same circular, banks are to report to IBA the details of the recalcitrant CAs, Advocates and Valuers who have committed serious irregularities in course of rendering their professional services. Likewise, the SCs / RCs are to report to IBA the details of such CAs, Advocates and Valuers for placing it on the IBA database of Third Party Entities involved in fraud. However, the SCs/RCs will have to ensure that they follow meticulously the procedural guidelines issued by IBA (Circ. No. RB-II/Fr./Gen/3/1331 dated August 27, 2009) and also give the parties a fair opportunity to explain their position and justify their action before reporting to IBA. If no reply / satisfactory clarification is received from them within one month, the SCs/RCs may report their names to IBA. SCs / RCs should consider this aspect before assigning any work to such parties in future.
8. Additional disclosure

i. At present it is mandatory for the SCs / RCs to disclose in their balance sheet the value of financial assets acquired during the financial year either on its own books or in the books of the trust. In addition, SCs / RCs will have to mandatorily disclose the basis of their valuation if the acquisition value of the assets is more than the Book Value (the value of the assets as declared by the seller bank in the auction). Similarly, SCs / RCs will have to disclose the details of the assets disposed off (either by write off or by realisation) during the year at substantial discount (say more than 20% of valuation as on the previous year end) and the reasons therefor. SCs / RCs are, also, to declare upfront the details of the assets where the value of the SRs has declined substantially below the acquisition value.
ii. SCs / RCs should put up in their website the list of wilful defaulters, (by adopting the process as defined in DBOD Master Circ. No. CID.BC.3/20.16.003/2014-15 dated July 1, 2014) at quarterly intervals. Further, in terms of DNBS (PD-SC/RC).CC.No.23/26.03.001/2010-11 November 25, 2010, each SC / RC is required to become a member of at least one credit information company (CIC) and provide to the CIC periodically accurate data/history of the borrowers. In this case, also, they should furnish the data of wilful defaulters to the CIC in which they are members.