Asset Reconstruction Companies & SARFAESI Act, 2002 | Money & Banking | NPA | Part 3

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Regardings securitisation and ARS aspect to reconstruction securitization and asset see you will able to understand what this law is about when you read it securitisation and asset reconstruction of a face financial asset securitization and asset reconstruction of financial efforts and enforcement of and enforcement of enforcement of securities interest Act 2002 so here is 2000 try to understand that what is the purpose of this law will discuss ok it is nothing to address this problem of non-performing assets ok way back in 2002 so why this law is important is because the government have made some changes to the slope recently so that’s why this act is very important now regarding surfacey Act just have an idea what this Act basically indent the macing intention of this act is to is to get back some fund which how converted to non-performing assets that means that ok if a bank now what the bank can do if a default see I am NOT talking about whether he is a willful default or or the default of a normal default I’m talking about what will happen to the bank so what are the steps which can be taken by the bank to get back the asset which has lend it to the borrower for that Teagan DUIs the mod gauge asset which is there with the bank in the form of if in fact if a housing property or any mod gauges which has been given to the bank he can sell off the bank or financial institutions you try to understand that from bank or some financial institutions like there are NB FCS non banking finance companies like Bajaj finance they provide loans data capital like that so so when you its this is applicable to both banks and financial institutions will be basically when we talk about financial institutions it is talking about non banking finance companies who also provide loan to the customer okay so be very clear that this act has empowered the banks and financial institutions to recover their loan how by selling off by selling off so see to do something it should be backed by a law so this the this act has empowered the bank to sell off the assets and recover the loan okay so it was a very important act from the bank’s point of view but to do that so be very clear so now try to understand that what is this securitisation secularization means secularization means that if we are given a property if you have given a property to a bank so that is a security now the bank if it require if it Wanda okay can use this at a later stage can give the security to someone else and get back cash that is what is called as securitisation okay and then so second ization means the security which you have given it’s been given to so what you are having a security in your hand you want money you want liquid liquidity so what you can do you can give that security or you can tell the security to someone else and get back the I will not get the exact amount but he may have to sell it Descanso water it buddy we’ll get some fun for it so this is what is what a securitisation ii is a satirical illustration what is it asset reconstruction this word is very important okay asset reconstruction asset reconstruction means we are talking about banks and financial asset financial institutions asset so what is the debit it slow it is loan only that be very clear okay so asset reconstruction what it is doing is that it need to reconstruct its etcetera so what it will do is it’s simple that it is simple that it will normally so this act is very important for one reason it has enabled a particular form of company to set up what is called as asset reconstruction company this is also very important AR C’s will come to it okay asset what is a RP very important for your problems asset reconstruction companies what does this aspect reconstruction companies it before asset reconstruction company you need to have an idea it is private asset reconstruction company private asset reconstruction company when you hear the word etc construction company it is basically a private company okay so what is this asset reconstruction is all about I’ll tell you what this asset to reconstruction of money will do then you will understand what is this asset reconstruction the asset the bank asset so this asset what has happened to the subsidy just become non-performing asset so this non-performing asset will be sold to a company now try to understand that aspect reconstruction company is set up under this act asset reconstruction company such that under surfacy act for what to reconstruct the asset of the banks or financial institution to recover what they will do is what they will do is see try to understand that if a bank for example take the case of State Bank of India State Bank of India is having a imagine that a hundred crore non-performing from a bar over 100 crude loan have become now this loan have become this loan have become substandard or doubtful or loss you know that what is the how we are categorizing whether this non-performing asset the substandard so if based on the categorization whether it is substandard doubts lore loss now that if it is lost now what is the you know that if it is if the bank have find out that this account have become lost account lost non-performing asset account then the what the bank has to do it has to write off it so better instead of writing off that you will not get back we have one more option to sell this asset so the security is to sell the security to this asset reconstitution company and the eccentric incision company will pay him some amount so that is between that amount will be managed between the bank and they will say that so but if the bank is selling this asset at a earlier date like in the case of if it is substandard then they may get a bit of return is there but normally what happens in case of in India what we will will wait the wait till that account will become loss account okay so be very so what this asset the what is the purpose of this asset reconstructionist eccentric construction is done by a company what is called as asset reconstruction company which is set up on the surface react what this company will do it will purchase the asset it will purchase the assets from the bank and pay the bank some amount so what the band will do then then that non-performing assets will be it will say that if this message have received whether it is some loss metalbender but it is now it is removed from the bank account means bank balance sheet that now this is settled up now what this eccentric construction company will do because they are experts they are specialists they the only one function they may send some good does it’s not good don’t say like what see this exactly what you said week insertion committee will do they’ll give to some quotation here and they will go and sit in front of the order the next little bit inside the hope the third else is that I will sell it offer but and what are they I have not said that that’s a wrong way of getting the that suddenly their specialist is a specialist in the sense of graded so she was to get the asset back so anyway but now the legal system is is quite difficult but anyway if the default is powerful person then hoping will happen it will only happen to the common man poor person but deflesh if it does say he also out ten Gunda change nothing will happen or more than that nothing will happen would try to understand that don’t go to that perspective what they do is through following the proper loss that is dect recovery loss and by putting special people like lawyers and other procedural formalities to get back the loan they will recover it okay so at least from the bank’s point of view banks point of view they are earlier they will not get anything now they will get something from the non-performing assets now this asset or a construction company is very important okay we’ll discuss in detail regarding just have an idea what is the function of this is very important what is the function of this asset reconstruction company what they do they will acquire the suspect what type of asset this non-performing asset they will manage it for something and later sell it off so what is the how the deal will be dealt with a RP will discuss then so it is it is for what financial assets and then enforce meander you can enforce it this law can be enforced try to understand that to enforce or so to make this process faster so selling of this security is faster separate codes have been set up we call it as depth recovery tribunals so be very clear how depth recovery tribunals at the term suggests it is a tribunal the tribunal and what is the function of this tribunal to recover the depth so basically this depth recovery triple have been set up too fast in the decisions okay what the border will do he will go for appeal to civil courts already you know about our judicial system there are lots of pending cases are there now so for to deal with this special issue depth recovery turbulence was acceptable but same issues there in depth recovery table also file a cases pending in depth recovery tribunals and the main problem is that there are no people to head this depth because there are less judicial officers to manage this depth recruitable I’m not going to that but that’s another issue okay so now what the government have done with it so this surface react even though it was enacted in 2002 and from 2003 onwards we have a set reconstruction companies but both the asset reconstruction companies and the surface react failed failed to deal address this problem what has happened is in relation to the the procedure the legal procedure through depth recovery terminal have taken the same fate of the normal judicial system okay the there is no a time set to resolve a dispute it keep on dragging dragging dragging and I told you already lot of cases of spending is pending in the depth record tribunal so in order to address this but we try to understand that our recently recently government understood that see with one by one measure this can be addressed it should be simultaneously several measures have been had to be taken to address this non-performing asset problem so in order to address this issue of making so what has happened why IRC failed you know why depth recovery tribunal were not affected because same judicial problem they also faced now from your problems point of view you need to understand why I asset reconstruction companies failed sassette reconstruction companies also could not able to see in the initial stage in 2000 the first TRC came in – don’t get confused I’m talking about these asset reconstruction compass companies okay this eccentric construction companies I try to understand most of the earlier from a Satori construction companies were promoted by the bank itself the promoters of this eccentric construction companies will Bank itself so there will be a conflict of interest yes or no obviously bank and asset or a construction company so banks are the main promoters of this asset or a construction company so then how the deal will happen so and the bank also feared okay that if they sell a property at a lesser price – etc concession company in future corruption charges will be blamed against them and then they will come under CBI investigation and other things that’s the present other issue going on presently regarding the bank head are fearing it especially after this Vijay Mallya cases when many of the bank heads were also arrested for in relation to this or this case is going against them also now many of the banks higher officials are having a fear to sell off this non-performing assets okay so just come back this issue now regarding this be very clear asset this is very important point for you from the surface I what is the purpose of this act what is the purpose of this act actors to recover non-performing assets of banks and financial assets now from this Act only a RP were set up now what does the recent amendment made in relation to what are the recent amendment made in relation to surface act and in relation to asset reconstruction company so actually the changes were mainly done in relation to a oxys if you want to make in if you want to make AR make changes to AR see what you have to do you have to make changes to the surface II Act which have from there only as we have been set okay now we will see that what does the issue in relation to asset reconstruction companies now this is very important along with surfacy asset reconstruction companies are very important and recently I try to understand the regulator the regulator of Osetra construction companies is also RBA this one important point the rags banks you know the regulator is our way for asset of a construction company also the regulator s RB now we need to understand the process we need to understand the process how this a bank sells the assets to asset of a construction company okay now one of the problem with acid reconstruction beliefs that they are having insufficient capital it is said that okay we are having which klore I said that in relation to how much non-performing assets are there six as per the latest data there are its fact but just have an idea that you will understand what is this insufficient gaps banks is having 6.5 lakh crore non-performing assets now see this this a acidly comes personally there are somewhere around 21 companies essentially concession companies are their number is not that it was this 21 or 22 did very recently in 2006 the end of 2016 RBI in 2016 2 5 or 6 license I have been given to around 6 to 7 Osetra construction companies so that sorry suppose that be very clear asset or a concession company is very important again lot of changes also happened in relation to asset reconstruction companies all are very important ok now it is said that they are having only a 4000 crore worth capital this 25 asset of a concession company is having about 4000 now how they are going to purchase this 6.5 light crew so we require this companies require sawfish capital now what actually happened what actually happened so I will be that how this the mechanism between banks and etcetera construction companies have happened this what they do is initially before that is initially asset reconstruction companies will give them will give bank five percentage upfront payment very important even though this fact is very very important initially initially what they do is eccentric construction company will first set it dealer that for how much amount I am going to purchase your asset so suppose a hundred crore worth loan that asset is 100 crore but you know that okay this loan have become loss account so maybe the asset to reconstruction company will be purchasing at 50 crore nowt of this 50 crore so the deal has been set for 50 crore that then what the what what the deal so value have been fixed but the 50 crore will not be given first in the first time itself by the ARP to Bank instead of that what they will do they will give only five percentage of that amount as upfront remaining amount remaining how much it is 95 percent agent remaining 95% is what will say that okay it will issue a security received AR see this term is very important security receipts you’ll see it in the newspaper so 5 percent a just cash and 95 percentage a security reciprocate that okay it will give you a receipt I think that I have taken your security and this much amount is balance and what it will do I will pay back this 95 percentage only when I recover or I when I sell that effective very clear this a condition okay when the bank will get that amount only when the asset reconstruction company sells that effect I record the amount and then only they will give that like that 95% other otherwise they have to wait for it so what happened is especially in the 2013-14 and 1415 in these two years around fifty thousand crore worth of non-performing assets were purchased by a RC but in August 2014 RBA made some changes in August 2014 RB made some changes in relation to this upfront payment it’s very very important ok so this is one of this RBA changes are affected a Satori construction companies what they are we have done in August 2014 is that it have increased from 5 to 15 percentage now it is 15 for stage presently the upfront payment is presently the upfront upfront payment is 15 per stage earlier it was 5 percentage so what will happen now the AR see how to give so already I told you a artists having comparatively less capital okay so and now the the return for the investment will come down because we have to make a higher higher three times earlier it was five percentage now it is 15 person is three times they have to argue as upfront payment so because of this increase in the next two years in 1516 and 1617 the amount of come down almost 20,000 crore and the 15 thousand crore so now air ceases facing with this problem so once the RBI increase the upfront payment the margin or the benefit the return of investment for AR see how come down drastically now AR C’s are not purchasing as in the case of in the last previous two years that is one issue regarding so this is very very very important for you how much upfront payment AR see how to give to bank presently presently s15 15 percentage if you read any articles on AR see I told you in not only in economics there are in every news one common point will be there also know and that point is your a question in if you are reading in relation to a RC this is the common point they will say that a RC is facing problem because RBI in August 2014 have increased this upfront payment from 5 to 15 whenever you read the news on IRC this point you will see it so this is very very very even though it is a fact very important fact okay then so what then another condition and the condition another problem which has affected a RC in duration you do you think that okay a RC this asset reconstruction company find it difficult to raise capital they can raise capital okay there are different method is said but again there are say norm which have restricted for a RC to raise money that that norm is also very important one is RB you know the norm was earlier earlier so this you write downs very important point write down this point earlier in relation to earlier the promoters a single single person or a promoter single promoter can’t have a stake of more than 49 percentage in ER see earlier almost the promoter or the say that in the promoter can’t have is take off more than 49 percentage in a RC so if it is so it means that the man control to get control of a company how much air is required 51 percentage so since many of the people who are interested you when they feel that okay they will not have the control over the company that also have affected this issue now what the recent changes happened in relation to this amendment how change it is that now now a single investor or the promoter can how now the present is so in 2016 this was changed now the promoter can have hundred percentage holding because now the gunman realized that okay we have to ensure that the AR sees capital infusion have to be strengthened by various measures so one of the treasure is in relation to a RC is that from earlier forty-nine percentage cap to this promoter it has now increased to 100 percentage this is again a very important changes happened in 2016 in order to make a our C’s more active in order to get an adventure that AR C’s will get sufficient capital to purchase this non-performing assets from banks and financial institution that is another thing third is in order to attract foreign investment in order to attract foreign investment to asset reconstruction company yesterday I posted an article what is that FDA FDA two important point FDI in a RC FDI in a RC have been increased FBI this term is very important now FDI in a RC a our C’s are 100 percentage through automatic route for asset reconstruction company now foreign direct investment is allowed up to hundred percentage through which route automatic route the term is very important the term itself I told you because of fib be the budget automatic route is very important now I told F of Fi baby is abolished okay now the government is trying to bring all the sectors which is not having any threat to the national security under automatic route okay so this already been done injure in 2016 now be very clear earlier earlier this up to fault earlier how much it was up to 49 percentage it was earlier up to 49 percent age it was photomatic Road but now it is under percentage under automatic Road will remain with automatic route without the the foreign investor can bring investment directly without any permission after investing then you just need to inform that we have brought the money no approval is required okay so these are the major change so now we are hoping that now we are hoping that this private asset reconstruction companies so now try to understand along a while allowing a artists by allowing ERC’s to increase the stake of the single promoter by allowing FDI under percentage from the automatic route okay at the same time the gunman in the by using this amendment at the surface reacted how empowered or given wider power for RBI to regulate Osetra construction companies via this is also very important okay earlier also assets reconstruction companies are regulated by RBI but in the recent amendment along with these changes along with these changes where the amendment happened happened it changes our happened in the surface reactor be very clear okay the relation between surface react and AR sees a our C’s are created under this surface react so we if you want to do something to ask you how to make changes to the surface reactive so l now while doing so it also have empowered or widen the power for RBI to more regulate to have more control over asset reconstruction company these points are sufficient be very clear which I will give you a small material but be very clear with that okay now try to understand that they will only ask you core point okay what will point out discuss of the most important point we clear with that okay so essentially construction company these points are oneness in relation to the promoters increase FDA and the automatic route and that 15 percentage upfront payment these are the three and are we have been given more wider power to regulate asset reconstruction company now this asset reconstruction company our private asset reconstruction company I will just link I’ll link this asset or a construction company to the economic service okay economic service the latest economic survey have said that while dealing with this problem of there was a chapter in economic survey dealing with we already just have a given hand what is called as twin balance sheet problem okay so actually this economic survey that module is also covered in what all things I am discussing now what all things is there in economics are it’s the summary of it and plus what is not there in the economic story also I will link data okay so in the economic survey so this is say now I am going to compare a are say with para okay both are same but only one slight difference is there okay so be very clear be very clear this asset reconstruction company this asset ray construction company [Music] you [Music]

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