SARFAESI ACT 2002 | Introduction | Bank | Obligor | Qualified Institutional Buyers | Part 1

[UltraVid id=33 ]hello folks welcome to the Iberia world and I am apena Gupta today we will start with a very interesting and fresh topic which is in short known as the surf Asti Act 2002 if you go by the detail of the name it is a securitization and reconstruction of financial asset and enforcement of the security interest Act 2002 I know that the name of the Act it a little scary it goes as a bouncer it is difficult to understand what the Act wants to say and I have had reviews of lot many students who have complained that this is one act for which the terminologies are very difficult to understand right what happens in the surf a see act is just out of our reach but my dear friends let me tell you one thing that this is actually one of the most simplest chapter or the most simple chapter in your entire curriculum you just need to know the base on which the entire chapter is created there is one single flow of the entire system once you understand that and there are basic terminology you need to feel them you need to understand what they mean and then the entire act is very smooth because the terminologies are very difficult and they’re confusing right if you go to mug them up and to understand them by the bare act or the text but once you get the feeling of what they mean once you get an understanding in a layman’s term it becomes very easy for you so today I’ll make an attempt to give you the basic of the chapter the entire flow of the securitization the reconstruction of the financial asset right and also the enforcement of the security interest from where and what what flows and what are the meaning of the terminology it’s not about the definition that I’m talking about I won’t go by the text and explain you and give you the definition but yeah I will give you the basic meaning of what it means in the layman’s term right so let us begin with the chapters so all we need to see today is the flow chart the flow chart of what happens and how it flows so we basically have four components in the entire chapter starting with the obligor now again this word sounds very peculiar letters what does an obligor mean my different just keep in mind or bleaker is nobody but that person who comes to the bank for a loan right they are the borrower or the guarantor for that borrower right there they those people are known as the optical if you go to a loan to to a bound to take a loan and you take a friend along as a guarantor then both of you will be considered to be an obligate I’m obligate for this actor right next component in this flow chart will be the bank because when we are talking about the secured division reconstruction of financial assets that financial asset is basically the debtor of the bank right so the bank gives out loan and when it is not able to recover its loan that is the time when the securitization and reconstruction company stands in the frame right so next component we have is a securitization reconstruction company and the fourth and the last component is the qualified institutional buyers right so now these are the four components that you basically need to understand yes the debtors the borrower’s are known as the obligor and the bank is known as the obligate ur like who is giving away the loan so first thing is we need to understand the transaction relationship between the bank and the or Pickers right consider yourself to be an oblique ER and then there is a bank right so what happens is the bank gives you some financial assistance which is the loan that you have desired you go to a bank and ask okay okay let us all consider you mr. X goes to the bank and ask the bank I want a loan for rupees 5 crores will the bank give him a loan know what the bank needs in return is the documentation the bank needs some security some asset some guarantor not just a person going away to the bank and asking please give me 5 5 4 rupees bank won’t give it right bank would give them the financial assistance only when they give them the financial asset in return okay financial asset is the Sakura that the property two financial assets basically are these because you obligated a financial asset from the bank point of view right debtors are the assets if you talk in terms of your accountancy debtors are your assets so for the band’s point of view they’re obligates are known as a financial asset their right to financial it is not the person it is not the debtor it is a debt that the bank gives the bank has advanced debt the bank is advanced loan and taken the property in an in exchange so this is the financial asset for the bank and the money and the loan amount that the bank gives to them is the financial assistance right so you go to the band you take the money you give a security right so that is the financial assistant you are taking in the financial asset you are giving to the back right now for example he had taken a loan for a period of one year and at the end of one year mr. act is not able to pay the loan back what is the bank bank will send a notice to mr. X mr. X still denied to pee but the bank logic logs in a case against mr. X right it goes to the quote and files a petition that we need our money back from mr. X he has taken 500 rupees from us and has not returned it now what will the code do the code will call mr. X and ask him the code will inquire as to what is the reason behind it why are you not giving him the money and then mr. X in most of situation says the code my honor my lord I am bankrupt I don’t have money with me right and these are the things going on so I’m not able to repay at the moment but I will do it in near future and the bank will say okay this is our interest that will be levied on you this is a little bit of penalty and please do it as soon as possible and the case is closed next again the bank the person mr. X is not paying the loan again bank goes to them in a bank till the bank has an identity in the market right so the bank cannot go to mr. ice and forcefully take the money from him or chase him out of his house and sell his house no the bank cannot do that all that the bank can do is go to the coat right and once bank goes to that person to get the money the person goes to the court and gets a stay order that he is not able to pay he will take his time the order so at that point of time the bank is under a very critical situation five rupees have gone it was the order from the court neither the bank has the asset the financial asset that were given the house the banker nor sell it because the other stay order on that and the money is already with the obligor so what is remaining with the band is nothing the bank is at a loss the bank is losing interest on that money he is not able to spend that money he is not able to lend that money right we have seen the banking regulation asked so over there the main purpose of the banking is stopped again because the bank doesn’t have the money so this is when the bank takes the help from the secularization and reconstruction company right so what is securitization and reconstruction securitization is taking the financial asset from the bank at securing the financial asset for the bank that is secured elation right and reconstruction is to get that money or from the object I am talking in the layman’s term we are not going by the definition of the chapter right it is just in the layman term to make it easy and simple for you to understand right securitization is you take the asset from the band and secure it and reconstruction is to get it to repaid from the obligor right now why will the securitization company come to help the banks obviously it needs something in return now what does the securitization and reconstruction bridge construction company need obviously it’s the money so the securitization company approaches the bank okay this is the asset you have and you have a stay order on it great and the person has taken mr. X has taken five rupees from you and is not repaying you are going at a loss there is a chance he won’t be repaying it at all and you will not be able to do anything so let us get into a deal give me that financial asset for rupees three crores I’ll give you three to love bu three crores and that’s financial asset will be mine and I will get the money or from the obligor and whatever comes out it’s mine so that is the kind of deal so the bank gets to settle it for three crores which are the loss of two crores and this two crore is actually the profit for the securitization company if it is able to get the money or from the public or if it is able to reconstruct that asset right so what does the bank do is once they get into an agreement the Spang gives the financial asset to the securitization company right it hands it over to them and in return the securitization and the reconstruction company give the settlement amount to the bank and now the responsibility of the bank is over the loan for the bank is over the financial asset has shifted to securitization company and the financial assistance that the bank had given to the obligor has returned at a diminishing value from the securitization company right so over here till now the bank is at a net loss of rupees to close like and now the securitization company can go ahead to the obligor chase him out of the house and tell the house that these are those kind of people right they’ll get the bulldozer and then the house is gone the obligor won’t be able to do anything and even the code will not interfere securitization and reconstruction company a such company that are present in the market to reconstruct the other to reconstruct the loan amount and when they go ahead to do their work there is no code intervention so now the obligor can’t go to the court and say I want a stay order this guy’s coming with a bulldozer form on my house no you can’t do that right the securitization and reconsidering company the people will go they’ll chase him out of his house and sell down and get the money back and if after that also the money for example if the sell the house and the value is already degraded and they get for example foreclose on the air at a loss of 1 crore right so at this point of time they can approach the debt recovery tribunal for assistance and they’ll say this man has taken five crore loan from us and they and we have sold his house we have owned for clothes but till 1 crore is at stake so the debt recovery tribunal will take further action against the obligor and we’ll get the money out and but you remember but when the securitization company comes to the obligor and chases him out of the house the obligor has no right to approach the debt recovery tribunal so I so these people have that kind of a power and that is why they come into the scene because the bank is not able to do this bank has or the liability certain responsibilities it has an image in the market but the securitization company are basically meant for this purpose right and now the point is from where do the securitization company gets the money to to the bank the settlement among the three crowd that we’re talking about for that they approach the qualified institutional buyers they are the basic investors in the entire flow right they go to them they prepare a scheme okay this is the asset that we are taking this is how we are trying to reconstruct it and whatever amount we get this will be your shell should be your profit I think they prepare an entire scheme right and then approach the qualified institutional buyer and give them a security receipt and this receipt is not compulsory to be registered we’ll just give them a security receipt okay this is the receipt of your amount that you have paid to us and we will maintain it in a separate bank account and reconstruct the acid and pay you your money back with the profits that we have decided to share right and the qualified written buyer in exchange gives in the finance hope you take the money and that financed goes to the bank and the bank is settled so this is the entire flow and by this I guess it is clear with you that what is a reconstruction and secured for a securitization or reconstruction company what is their use what will they do in the market right and their powers and their actions and the entire procedure entire flow when legal things will do in the provisions of the Act will see the various sections will understand it and appeal but this is in layman’s terms what is going to happen right so I have tried to create a base for you so that you understand and you have a set of mind to flow into the direction of the chapter to flow into the direction of the Act right because unless and until you understand what’s the cure relation and reconstruction of financial asset means you cannot commence with the Act so I hope this class was very useful for you right and in the coming lectures we will complete the provisions of the Act so other sections and mark my words this is one of the most easiest chapters and we have already done the Banking Regulation Act if you see my previous lectures so Banking Regulation Act and the sick surfacey Act these two acts are clubbed as per your practice manual and shoddy materials so if you see questions in your practice manual you have questions based on both the acts combined combined means in the same chapter you have the question and the same is for your study material to and if you look at the waiting in the examination it is on an average of eight marks right you have very limited and very easy sections in the banking act and very limited and very easy sections in the surface he act there is no reason why you leave this chapter or take it lightly it is a very both of these chapters are very important on a combination you get a question of one an average eight marks in examination and eight marks in CA final is a very crucial amount right so make sure you go through these acts very precisely and in the end of the lecture I will in the end of the chapter I will also discuss the important sections the questions the kind of questions are two new examinations and what are the past year questions that have been asked right so I will try and make an attempt to make it very simple for you and useful right so until then this is AB in Apopka signing off stay tuned for the coming lectures thank you bye bye

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