SARFAESI ACT 2002 | Important Definition | Section 2| Asset Reconstruction | Securitisation | Part 2

[UltraVid id=32 ]hello folks welcome to the EDA pedia world and I am Abin Agatha today we’ll continue with the topic that Sarfati Act 2002 the longer niemals the securitization and reconstruction of financial assets and the enforcement of security interest acts 2002 this is just a second lecture and to revise in the previous lecture we have seen the flow chart the process of the entire securitization the entire process right so what we had seen over there is that we have four main component one is the obligor second is the obligated which is the bank or securitization and reconstruction company and the qualified institutional buyers right so we had seen the entire flow the relation between obliga and the bank’s the bank gives them the financial assistance and in return the obligor gives him a financial asset a security right then when the bank is not able to recover they hire a secured evasion and reconstruction company who now take the financial asset from the bank at their own name and give them a compensation for the theme which is the settlement amount right we had taken an example maybe a five-floor asset accepted for 3.5 or 4 crores and then the secured additional reconstruction company when they want to pay the settlement amount they approach the qualified an institutional bias and give them a security receipt and in return they take the money and then pay to the bank and take the financial asset and the qualified institutional buyers will get a share after they have reconstructed the asset from the obligation right so this is the entire flow of the company of the entire this is the entire process of how the securitization company works where the let’s roll come into play and how is it reported who supports the securitization company in the matter of finances right we’ll move ahead today to look at some of the important definitions and although definitions are not very important for your exam point of view you don’t need to code them but this is one chapter from which the definitions have already been asked in your previous examinations and those examinations are not very far it has been asked in November 2010 may 2013 and again may 2014 and the basic definitions that have already been asked in your examinations are what is that reconstruction what is a financial asset or Toothaker relation and what are non-performing assets right so these are four definitions that have already been asked below mentioned in the list we have some other definitions that are equally important from your example interview right you need to know them we need to understand I need you need to write it in your examination now if I take an example of how the questions are being asked in your examination it is they do not straightaway ask you to write the definition of perfection to know what they ask is to explain like if I read out a question that is explained a third Reconstruction and financial asset under the securitisation and reconstruction of commercial asset enforcement of security interest Act 2002 so this is what they did they asked you to explain the terms right but even if you are going on to explain the terms in your examination my difference make it a point you will have to quote the words given in the text right you cannot vaguely go on in your own language in your own English you’ll have to code the words and then explain the meaning otherwise that won’t fetch you a mark right so since this is an important topic we’ll dedicate the lecture today to the various definitions various words the meanings that you need to understand right for understanding the entire chapter as well as from your exam point of view to write it in your paper right to start with we’ll see what is asset reconstruction this is one question that has already been asked in your examination so first I’ll read out the text as per your ad and then we’ll discuss and highlight the points that are important in this definition right so as for the text asset reconstruction means acquisition by any secured aggression company or reconstruction company of any right or interest of any bank or any financial institution in any financial assistance for the purpose of realization of such financial assets right so you have various points that you need to highlight in into you need to remember and explain in your own source first is that it is an acquisition by again the security visionary construction company right acid reconstruction means they acquire an asset that is the first point right now what is it that they acquire they acquire the right or the interest of any bank now if any bank is making or advancing any loan to any person they have some interest in it now what is the interest of the bank the interest is the amount of interest country on whatever be the percentage right so because investment in financing is the basic purpose of a bank right so that is the interest and it is not only about the bank it is also about the financial institution that we are talking about even if any financial institution is making any advance – or be giving any loan to any obligor right then also the role of a third reconstruction and securitization company comes into play right so asset reconstruction would include the reconstruction of acid from of a bank or even of a financial institution right and now what is it that the reconstruct and what is their interest their interest within the financial assistance that they care right you do try to avoid writing the work writing the word loan right instead of loan try and use the words financial assistance wherever possible let big because the bank or the financial institution is advancing the financial assistance so when the bank is not able to recover the financial assistance they involve a securitization company who acquire the right or the interest of the bank or the financial institution and that financial assistance right and for the purpose of realization of such financial assistance now this is how the definition goes and how you need to explain it in your examination you need to highlight and explain the meaning of the various points that are covered in the definition right so next we have the securitization now what what do you mean by securitization so again if we go by the text secured relation means acquisition of financial asset by any secured ization or reconstruction company from any obligate er whether by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers or issue of security representing undivided interest in such financial asset or otherwise so the basic difference between reconstruction and securitization is when you talk about the correlation that is about acquiring the asset from the bank like you give the banker security okay you are not able to recover your financial assistance we will do it for you this is the amount you take this is the settlement amount so now you are secured you get the recovery even one hundred percent 70 percent 80 percent whatever it be and that is where your securing the band at the secured relation right now how do you take it you borrow money from the qualified institutional buyers in exchange the security will keep that you to them and then you pay the bank and the bank is secure and you take the financial assistance from the bank and then you go ahead with reconstruction of that financial assistance financial asset that you have taken right and when you reconstruct and recover the money you pay the share of qualified institutional buyer and keep your share of profit so that is reconstruction so when we talk about this chapter when we talk about this company it is always secured deviation and reconstruction company right so means that they will first secure the asset and then reconstruct the asset this is what the name signifies so when we talk about securitisation there are a few points to keep in mind that is it is the acquisition of the financial asset of the company of the bank or institution whatever it is right by whom again the secured additional reconstruction company how do they do that by raising funds from the qualified institutional buyers by issue of security receipt to them and now water security receipt is also explained it is the undivided interest in such financial asset or otherwise right so now I think the two terms the Reconstruction and securitization is clear in your mind if you have any issues again please go back to the previous video or re-listen the entire region I am sure that will be clear in your mind and that will help you to write your answers in your examination to not anymore difficult topic at all it is not difficult it is just a matter of understanding once you understand what reconstruction and secured deviation means the chapter flows very smooth right then we have the definition of security vision company and reconstruction company so obviously the company involved in securitization and the company involved in reconstruction are called securitization and reconstruction company right now you have the term of liquor so far in the definition you did not come across the term or because while we were understanding the definitions above now who is the obligor we have discussed this term obligor in the flow chart that we were discussing about the process of secure deletion and reconstruction there we had seen that the person approaching the bank for the loan right or you can call the debtor of the bank he is the obligor or that person or that body is obliga right now if we go by the text of obligor then an obligor means a person liable to the originator right whether under a contract or otherwise to pay a financial asset could discharge an obligation in respect of the financial asset whether existing future conditional or contingent and includes the borrower so as for the text that we have just read right obligor means a person liable to the originator know who is the originator originator is basically the bank or the financial institution who advanced the financial assistance right so so we have seen that obligate liable to the originator right and this is this may be under any contract or otherwise like without any contract also it is binding and what is he liable for they are liable to pay a financial asset to discharge any obligation respect of financial asset means they have taken the financial assistance from the bank and given a I had a security any land and he premised anything and now Bank has a charge on that asset now to discharge that charge of the bank on that asset they will have to pay back the financial assistance pay the money pay the cash right so the text says that to pay a financial asset which is the money or whatever means you being fit to discharge any obligation in respect to the financial asset that they have already secured with the bank and that can be existing that can be future that can be conditional that can be contingent right and they will also include the power so now I hope you understand what obligate is obligated the person who is taking the loan and the key elements of the definition that you will have to involve in your answer while you are attempting a question in your examination there are a few points that you need to involve that is that they are liable to originator they may be a contract they may not be a contract right they’ll pay a financial asset remember our friends use the term financial asset right and why will they pay a financial asset to discharge an obligation on the other financial asset that they had secured with the bank and it can also be existing future conditional contingent and includes the borrower’s leave a valid point that you will have to understand and write it down in your explanation you will have to explain all these points in order to secure the marks awarded in the question right then we come to the next topic that the originator we have already seen who the originator is let us we read the text about what the Act says about originator so as for the act originator means the owner of the financial asset which is acquired by the securitization company or reconstruction company for the purpose of secured relation or asset reconstruction so this will look at the definition closely what we understand is that when we are talking about the obligor right we refer to the originator because there is a relationship between the obligor and the originator as we have also seen in the flowchart behind right and when we are talking about the originator we connect it to the asset reconstruction company here because now they have a relation now what when what when do we talk about originator it is when the originator needs to give its financial asset to the asset reconstruction company for the purpose of reconstruction right so the depth as per the definition you have seen that originator is the owner of the financial asset which is acquired by the securitisation or reconstruction company right and while it is acquired obviously for securitization and reconstruction so it is a very simple definition if it comes to examination it’s a lottery for you you need to just explain to three parts right now you have financial asset the first will read the text as per what is financial asset for the act so salon shell asset means debt or receivable and includes a claim to any debt or receivable or part thereof with a secured or unsecured or any debt or receivable secured by mod gauge of or charge on a movable property or a mod gate charge hypothecation or pledge of movable property or any right or interest in the security whether full or part underlying such debt or receivables or any beneficial interest in property whether movable or immovable or in such debt receivable whether such interest is existing future accruing conditional or contingent or any financial assistance so this is a long definition right so when you have you have been asked question on this topic to explain the financial asset this is all that you need to include in your explanation and this has already been asked in your November 2010 examination so it is a critical topic you need to understand and memorize these terms so when we talk about financial asset we get into the shoes of the bank the originator all into the shoes of the reconstruction company with the lapse of time so from the bank’s point of view a financial asset is a claim to any debt or receivable or even a part thereof and whether it is secured or unsecured no matter what so it is because the bank has given a financial assistance it is receivable and on the part of a bank so it is considered as financial asset for the bank and in the second point they are talking about those debts and receivables that are secured by an immovable property so they talk about its security by a mortgage of or charge on the mobile property either you keep it as mortgage or you create a charge on the theme and the third point you talk about movable property in second point it was immovable property in the third step it is the moveable property so it is either a mod cage or a charge or hypothecation or a pledge of property right so it has covered it has covered three parts of all whether the asset is secured or in Oran secured it doesn’t matter it is a financial asset and if it is an immobile property it can be secured by charge on the immobile property or by mortgage of the removal property and if it is a movable property it can be secured by mortgage charge hypothecation or pledge right and then in the fourth point it talks about any right or interest in the security whether full or part underlying such debt or receivables where it says that is there is a security for the debt for the underlying debt and receivable is a security then you can have a right or interest in full or even in spot right and then first part it covers the remaining thing status if you have any beneficial interest in property it may be movable it may be movable whatever it is right or in such debt receivable debt or receivable whether such interest is existing it may occur in future it may be accruing but not payable right now it may be conditional on any occurrence of some events or even contingent so all of these are covered and finally talks about any other financial assistance so basically it covers the entire embed but it has been it has divided them into six parts and so you will have to explain it according to the piece that you will have to talk about whether it is secured or unsecured a bit covered and you there are two points with immovable property it has to be mortgaged or it has to be or charge has to be created for removal properties there are four things mortgage charge hypothecation pledge right and then you also have interest in security and you have beneficial interest in any property now whether movable unmovable immovables so these all aspects are covered in your financial asset right so the next topic is the non performing asset now who are the non-performing assets you have done your banking in your IP ct2 and you are very familiar with the term that non-performing assets well as as usual will first read the text the non-performing asset means an asset or account of a borrower right which has been classified by the bank or financial institution as a substandard doubtful or loss asset right because standard assets are not covered and non forming category they are performing efforts right then now there are two points first is in case such bank or financial institution is administered or regulated by any authority or body stablished constituted or appointed by any law for the time being in force in accordance with the directions or guidelines relating to the asset classification issued by such authority or body and second point is in any other case it’s in accordance with the direction or guideline relating to asset classification issued by the river bank of India so whatever it is net net what you need to understand is when the asset or when the obligor the person who has taken your the financial institution or financial assistance from you when you stop paying the installments and on the interest amount the principal and the interest amount right so if it is for any defined period for example say three three months or six months or maybe some other cases as for any other law then when that it stopped paying it is standard for some time and then you consider it as substandard assets and then slowly with the lapse of time you they fall into the category of doubtful asset and then when there is no chance of recovery different to the category of loss asset so all the assets fall into the category of substandard doubtful as well as lost all these three categories right you consider them to be unknown performing asset right and as for the banking you also create a reserve for the same and stuff but that is not covered in your surfacey act when you are asked to explain non-performing asset these this is what you need to explain right now financial assistance they already talked about then the next topic is the scheme and the security receipt so the scheme means a scheme in Whiting subscription to the security receipt proposed to be issued by the securitisation company or the reconstruction comprehend of that scheme so basically what a scheme is when you approach the qualified institutional buyers for the finance assistance the money that they give to you you prepare a scheme as according to which when you get the asset and you get a reconstructed this is the amount that is your profit and this is what you will distribute to the finances right so that is the entire scheme of how you are going about with it and that is what you present to the qualifying institutional buyers and when they agree to it and find it’s feasible and profitable for them they give you the finance right and in return you give them the security receipt so now what a security receipt as per the definition security Latif means a receipt or other security issued by the securitization company or a construction company to any qualified institutional buyer pursuant to a scheme right evidencing the purchase of acquisition by the holder they are off of any undivided right title or interest in the financial asset involved in secure relation so now if you go by the definition there are other more things that you need to put in mind that you need to put on your paper then you need to explain so the first half part of the definition we have already discussed while you are discussing the security receipt well what is causing the scheme so the second part that is evidencing the purchase of acquisition of by the holder their office which means that if the qualified institutional buyers are holding the security receipt that means that PS they have made a payment and they have purchased the asset that is lying with the securitisation company right it is an evidence for that right of any undivided right title or interest in the financial asset involving security vision that means what they were right entitled that they have acquired from that asset that is undivided and will not be given to somebody else right if they have made the entire payment they have the entire asset right so that is all about the definition part we have tried to explain it in detail to you right and some layman context and pinpointing each of the aspects of the definition which will help you to explain it when you are asked questions in your examination there are one or two definitions that are a little difficult we you need to understand and memorize certain points but others are very simple and we have been discussing it from the last lecture to this lecture we have understand understood and grab the meaning so I hope this lecture working was useful to you people right so until a net lecture where we move ahead with the chapter about the conditions of reconstruction the certificates and stuff so until then this is Abednego Cooper signing off thank you very much stay tuned

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