THE SECURITISATION
COMPANIES AND RECONSTRUCTION COMPANIES (RESERVE BANK) GUIDELINES AND
DIRECTIONS, 2003
The Reserve Bank of
India, having considered it necessary in the public interest, and being
satisfied that, for the purpose of enabling the Reserve Bank to regulate
the financial system to the advantage of the country and to prevent the
affairs of any securitisation company or reconstruction company from being
conducted in a manner detrimental to the interest of investors or in any
manner prejudicial to the interest of such securitisation company or
reconstruction company, it is necessary to issue the guidelines and
directions relating to registration, measures of asset reconstruction,
functions of the company, prudential norms, acquisition of financial
assets and matters related thereto, as set out below hereby, in exercise
of the powers conferred by sections 3, 9, 10 and 12 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, issues to every securitisation company or
reconstruction company, the guidelines and directions hereinafter
specified.
1. Short title and commencement
(1) These guidelines and
directions shall be known as THE SECURITISATION COMPANIES AND
RECONSTRUCTION COMPANIES (RESERVE BANK) GUIDELINES AND DIRECTIONS, 2003.
(2) They shall come into
force with effect from April 23, 2003 and any reference in these
guidelines and directions to the date of commencement thereof shall be
deemed to be a reference to that date.
2. Applicability of the directions
The provisions of these
guidelines and directions shall apply to securitisation companies or
reconstruction companies registered with the Reserve Bank of India under
section 3 of the Secruitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. However, in respect of the
trust(s) mentioned in paragraph 8 herein, the provisions of paragraphs 4,
5, 6, 9, 10(i), 10(iii), 12, 13, 14 and 15 shall not be applicable.
3. Definitions
(1)(i)"Act" means the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002;
(ii) "Bank" means
the Reserve Bank of India constituted under section 3 of the Reserve Bank
of India Act, 1934;
(iii) "Date of
acquisition" means the date on which the ownership of financial assets has
been acquired by seccuritisation company or reconstruction company;
(iv) "Deposit"
means deposit as defined in the Companies (Acceptance of Deposits) Rules,
1975, framed under section 58-A of the Companies Act, 1956;
(v) "Fair value"
means the mean of the earning value and the break up value;
(vi)
"Non-performing asset" (NPA) means an asset in respect of which:--
(a) interest or
principal (or instalment thereof) is overdue for a period of 180 days or
more from the date of acquisition or the due date as per contract between
the borrower and the originator, whichever is later;
(b) interest or
principal (or instalment thereof) is overdue for a period of 180 days or
more from the date fixed for receipt thereof in the plan formulated for
realisation of the assets referred to in paragraph 7(1)(6) herein;
(c) interest or
principal (or instalment thereof) is overdue on expiry of the planning
period, where no plan is formulated for realisation of the assets referred
to in paragraph 7(1)(6) herein; or
(d) any other
receivable, if it is overdue for a period of 180 days or more in the books
of the securitisation company or reconstruction company:
PROVIDED that the board
of directors of a securitisation company or reconstruction company may, on
default by the borrower, classify an asset as a non-performing asset even
earlier than the period mentioned above (for facilitating enforcement as
provided for in section 13 of the Act).
(vii) "Overdue"
means an amount which remains unpaid beyond the due date;
(viii) "Owned fund"
means the aggregate of paid up equity capital, paid up preference capital
to the extent it is compulsorily convertible into equity capital, free
reserves (excluding revaluation reserve), credit balance in profit and
loss account as reduced by the debit balance on the profit and loss
account and miscellaneous expenditure (to the extent not written off or
adjusted), book value of intangible assets and under/short provision
against NPA/diminution in value of investments, and over recognition of
income, if any; and further reduced by the book value of the shares
acquired in a securitisation company or reconstruction company, and other
deductions required on account of the items qualified by the auditors in
their report on the financial statements;
(ix) "Planning
period" means a period not exceeding twelve months allowed for formulating
a plant for realisation of non-performing assets (in the books of the
originator) acquired for the purpose of reconstruction;
(x) "Standard
asset" means an asset, which is not an NPA;
(xi) "Trust"
means trust as defined in section 3 of the Indian Trusts Act, 1882;
(2) Words or expressions
used but not defined herein and defined in the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002, shall have the same meaning as assigned to them in that Act.
Any other words or expressions not defined in that Act shall have the same
meaning as assigned to them in the Companies Act, 1956.
4. Registration and matters incidental thereto
(i) Every securitisation
company or reconstruction company shall apply for registration in the form
of application specified vide Notification No. DNBS. 1/CGM/(CSM)-2003,
dated March 7, 2003, and obtain a certificate of registration from the
bank as provided under section 3 of the Act;
(ii) A securitisation
company or reconstruction company, which has obtained a certificate of
registration issued by the bank under section 3 of the Act, can undertake
both securitisation and asset reconstruction activities;
(iii) Any entity not
registered with the bank under section 3 of the Act may conduct the
business of securitisation or asset reconstruction outside the purview of
the Act.
5. Owned fund
Every securitisation
company or reconstruction company seeking the bank's registration under
section 3 of the Act, shall have minimum owned fund of Rs. 2 crore:
PROVIDED that every
securitisation company or reconstruction company seeking the Bank's
registration under section 3, or carrying on business on commencement of
the Securitisation Companies and Reconstruction Companies (Reserve Bank)
(Amendment) Guidelines and Directions, 2004, shall have a minimum owned
fund not less than fifteen percent of the total financial assets acquired
or to be acquired by the securitisation company or reconstruction company
on an aggregate basis, or Rs. 100 crore, whichever is less:
PROVIDED FURTHER that--
(i) the minimum
owned fund for any securitisation company or reconstruction company shall
in no case be less than Rs. 2 crore;
(ii) a
securitisation company or reconstruction company carrying on business on
the commencement of the Securitisation Companies and Reconstruction
Companies (Reserve Bank) (Amendment) Guidelines and Directions, 2004 shall
reach the level of minimum owned fund specified in the first proviso
within three months from such commencement;
(iii) while
computing the amount for the purpose of the first proviso, no account
shall be taken whether the assets are transferred to a trust set up for
the purpose of securitisation or not;
(iv) the amount
shall be continued to be held by the securitisation company or
reconstruction company until realisation of assets and redemption of
security receipts issued against such assets;
(v) the
securitisation company or reconstruction company may invest the amount of
owned fund, in addition to the modes specified in clause (ii) of paragraph
10, in the security receipts issued by the trust set up for the purpose of
securitisation.
6. Permissible business
(i) A securitisation
company or reconstruction company shall commence/undertake only the
securitisation and asset reconstruction activities and the functions
provided for in section 10 of the Act.
(ii) A securitisation
company or reconstruction company, which is carrying on any other
business, shall cease to do such business by June 20, 2003.
(iii) A securitisation
company or reconstruction company shall not raise monies by way of
deposit.
7. Asset reconstruction
(1) Acquisition of
financial assets
(i) Every
securitisation company or reconstruction company shall frame with the
approval of its board of directors, a "financial asset acquisition
policy", within 90 days of grant of certificate of registration, which
shall clearly lay down the policies and guidelines covering, inter alia,--
(a) norms and
procedure for acquisition;
(b) types and the
desirable profile of the assets;
(c) valuation
procedure ensuring that the assets acquired have realisable value which is
capable of being reasonably estimated and independently valued;
(d) in the case
of financial assets acquired for asset reconstruction, the broad
parameters for formulation of plans for their realisation.
(ii) The board
of directors may delegate powers to a committee comprising any director
and/or any functionaries of the company for taking decisions on proposals
for acquisition of financial assets;
(iii) Deviation from the
policy should be made only with the approval of the board of directors.
(2) Change or take over
of the management/sale or lease of business of the borrower--No
securitisation company or reconstruction company shall take the measures
specified in sections 9(a) and (b) of the Act, until the bank issues
necessary guidelines in this behalf.
(3) Rescheduling of
debts--(i) Every securitisation company or reconstruction company shall
frame a policy, duly approved by the board of directors, laying down the
broad parameters for rescheduling of debts due from borrowers;
(ii) All proposals
should be in line with and supported by an acceptable business plan,
projected earnings and cash flows of the borrower;
(iii) The proposals
should not materially affect the asset liability management of the
securitisation company or reconstruction company or the commitments given
to investors;
(iv) The board of
directors may delegate powers to a committee comprising any director
and/or any functionaries of the company for taking decisions on proposals
for reschedulement of debts;
(v) Deviation from the
policy should be made only with the approval of the board of directors.
(4) Enforcement of
security interest--Where taking recourse to the sale of secured assets in
terms of section 13(4) of the Act, a securitisation company or
reconstruction company may itself acquire the secured assets, either for
its own use or for resale, only if the sale is conducted through a public
auction.
(5) Settlement of dues
payable by the borrower--(i) Every securitisation company or
reconstruction company shall frame a policy duly approved by the board of
directors laying down the broad parameters for settlement of debts due
from borrowers;
(ii) The policy may,
inter alia, cover aspects such as cut-off date, formula for computation of
realisable amount and settlement of account, payment terms and conditions,
and borrower's capability to pay the amount settled;
(iii) Where the
settlement does not envisage payment of the entire amount agreed upon in
one instalment, the proposals should be in line with and supported by an
acceptable business plan, projected earning and cash flows of the
borrower;
(iv) The proposal should
not materially affect the asset liability management of the securitisation
company or reconstruction company or the commitments given to investors;
(v) The board of
directors may delegate powers to a committee comprising any director
and/or any functionaries of the company for taking decisions or proposals
for settlement of dues;
(vi) Deviation from the
policy should be made only with the approval of the board of directors.
(6) Plan for
realisation--(i) Every securitisation company or reconstruction company
may, within the planning period, formulate a plan for realisation of
assets, which may provide for one or more of the following measures:--
(a) Rescheduling
of payment of debts payable by the borrower;
(b) Enforcement
of security interest in accordance with the provisions of the Act;
(c) Settlement of
dues payable by the borrower;
(d) Chance or
take over of the management, or sale or lease of the whole or part of
business of borrower after formulation of necessary guidelines in this
behalf by the bank as stated in paragraph 7(2) hereinabove.
(ii) The plan for
realisation shall clearly spell out the steps proposed to reconstruct the
assets and realise the same within a specified time frame, which shall not
in any case exceed five years from the date of acquisition.
8. Securitisation
(1) Issue of security
receipts--A securitisation company or reconstruction company shall give
effect to the provisions of sections 7(1) and (2) of the Act through one
or more trusts set up exclusively for the purpose. The securitisation
company or reconstruction company shall transfer the assets to the said
trusts at the price at which those were acquired from the originator:--
(i) The trusts
shall issue security receipts only to qualified institutional buyers; and
hold and administer the financial assets for the benefit of the qualified
institutional buyers;
(ii) The
trusteeship of such trusts shall vest with the securitisation company or
reconstruction company;
(iii) A
securitisation company or reconstruction company proposing to issue
security receipts, shall, prior to such an issue, formulate a policy, duly
approved by the board of directors, providing for issue of security
receipts under each scheme formulated by the trust;
(iv) The policy
referred to in sub-paragraph (iii) above shall provide that the security
receipts issued would be transferable/assignable only in favour of other
qualified institutional buyers.
(2) Disclosures--Every
securitisation company or reconstruction company intending to issue
security receipts shall make disclosures as mentioned in the Annexure.
9. Requirement as to capital adequacy
(1) Every securitisation
company or reconstruction company shall maintain, on an ongoing basis, a
capital adequacy ratio, which shall not be less than fifteen per cent. of
its total risk weighted assets. The risk weighted assets shall be
calculated as the weighted aggregate of on balance-sheet and off
balance-sheet items as detailed hereunder:
WEIGHTED RISK ASSETS
On balance-sheet items: Percentage risk weight
(a) Cash deposits with scheduled commercial banks 0
(b) Investments in Government securities 0
(c) Other assets 100
Off balance-sheet
items:
All contingent liabilities 50
(2) Shares held in other
securitisation companies or reconstruction companies shall not attract any
risk weight.
10. Deployment of funds
(i) A securitisation
company or reconstruction company may, as a sponsor and for the purpose of
establishing a joint venture, invest in the equity share capital of a
securitisation company or reconstruction company formed for the purpose of
asset reconstruction;
(ii) A securitisation
company or reconstruction company may deploy any surplus available with it
only in Government securities and deposits and deposits with scheduled
commercial banks on terms of a policy framed in this regard by its board
of directors;
(iii) No securitisation
company or reconstruction company shall invest out of its owned fund in
land and building, provided that this restriction will not apply to funds
borrowed as also to owned fund in excess of the minimum prescribed.
11. Accounting year
Every securitisation
company or reconstruction company shall prepare its balance-sheet and
profit and loss account as on March 31 every year.
12. Asset classification
(1) Classification--(i)
Every securitisation company or reconstruction company shall, after taking
into account the degree of well-defined credit weaknesses and extent of
dependence on collateral security for realisation, classify the assets
into the following categories, namely:--
(a) Standard
assets;
(b) Non-performing
assets.
(ii) The
non-performing assets shall be classified further as,--
(a) "Sub-standard
asset" for a period not exceeding twelve months from the date it was
classified as non-performing asset;
(b) "Doubtful
asset" if the asset remains a sub-standard asset for a period exceeding
twelve months;
(c) "Loss asset"
if the asset is non-performing for a period exceeding 36 months or if the
asset is adversely affected by a potential threat of non-recoverability
due to either erosion in the value of security or non-availability of
security or if it has been identified as loss asset by the securitisation
company or reconstruction company or its internal or external auditor.
(iii) Assets acquired by
the securitisation company or reconstruction company for the purpose of
asset reconstruction may be treated as standard assets during the planning
period, if any.
(2) Asset
reconstruction: Renegotiated/rescheduled assets--(i) Where the terms of
agreement regarding interest and/or principal relating to standard asset
have been renegotiated or rescheduled by a securitisation company or
reconstruction company (otherwise than during planning period) the asset
concerned shall be classified as sub-standard asset with effect from the
date of renegotiation/reschedulement or continue to remain as a doubtful
asset as the case may be.
(ii) The asset may be
upgraded as a standard asset only after satisfactory performance for a
period of twelve months as per the renegotiated/rescheduled terms.
(3) Provisioning
requirements--Every securitisation company or reconstruction company shall
make provision against non-performing assets, as under:--
Asset category Provision required
Sub-standard assets A general provision of 10 per cent. of the
outstanding;
Doubtful assets (i) 100 per cent. provision to the extent the asset is
not covered by the estimated realisable value of security;
(ii) In addition to item (i) above 50 per cent. of the remaining
outstanding.
Loss assets The entire asset shall be written off. (If for any reason
the asset is retained in the books 100 per cent. thereof shall be
provided for).
13. Investments
All investments should
be valued at lower of cost or realisable value. Where market rates are
available, the market value would be presumed to be the realisable value
and in cases where market rates are not available, the realisable value
should be the fair value. However, investments in other registered
securitisation company or reconstruction company shall be treated as
long-term investments and valued in accordance with the accounting
standards and guidance notes issued by the Institute of Chartered
Accountants of India.
14. Income recognition
(i) The income
recognition shall be based on recognised accounting principles;
(ii) All the accounting
standards and guidance notes issued by the Institute of Chartered
Accountants of India shall be followed insofar as they are not
inconsistent with the guidelines and directions contained herein;
(iii) Interest and any
other charges in respect of all the NPAs shall be recognised only when
they are actually realised. Any such unrealised income recognised by a
securitisation company or reconstruction company before the asset became
non-performing and remaining unrealised shall be derecognised.
15. Disclosures in the balance-sheet
(1) Every securitisation
company or reconstruction company shall, in addition to the requirements
of Schedule VI of the Companies Act, 1956 prepare the following schedules
and annex them to its balance-sheet:
(i) the names
and addresses of the banks/financial institutions from whom financial
assets were acquired and the value at which such assets were acquired from
each such bank/financial institutions;
(ii) dispersion
of various financial assets industry-wise and sponsor-wise (dispersion is
to be indicated as a percentage to the total assets);
(iii) details of related
parties as per accounting standard and guidance notes issued by the
Institute of Chartered Accountants of India and the amounts due to and
from them; and
(iv) a statement
clearly charting therein the migration of financial assets from standard
to non-performing.
(i) The accounting
policies adopted in preparation and presentation of the financial
statements shall be in conformity with the application prudential norms
prescribed by the bank.
(ii) Where any of the
accounting policies is not in conformity with these directions, the
particulars of departures shall be disclosed together with the reasons
therefor and the financial impact on account thereof. Where such an
effect is not ascertainable, the fact shall be so disclosed citing the
reasons therefor.
(iii) An inappropriate
treatment of an item in balance-sheet or profit and loss account cannot be
deemed to have been rectified either by disclosure of accounting policies
used or by disclosure in notes to balance-sheet and profit and loss
account.
16. Internal audit
Every securitisation
company or reconstruction company shall put in place an effective internal
control system providing for periodical checks and review of the asset
acquisition procedures and asset reconstruction measures followed by the
company and matters related thereto.
17. Exemptions
The bank may, if it
considers it necessary for avoiding any hardship to securitisation company
or reconstruction company, or for any other just and sufficient reason
exempt all securitisation companies or reconstruction companies or a
particular secrutisation company or reconstruction company or class of
securitisation companies or reconstruction companies, from all or any of
the provisions of these guidelines and directions either generally or for
any specified period, subject to such conditions as the bank may impose.
ANNEXURE
(1) DISCLOSURE IN OFFER DOCUMENT:
A. Relating to the
issuer of security receipts:
(i) Name, place
of registered office, date of incorporation, date of commencement of
business of the securitisation company or reconstruction company;
(ii) Particulars
of sponsors, shareholders, and a brief profile of the directors on the
board of the securitisation company or reconstruction company with their
qualifications and experience;
(iii) Summary of
financial information of the company for the last three years or since
commencement of business of the company, whichever is shorter;
(iv) Details of
securitisation/asset reconstruction activities handled, if any, in the
last three years or since commencement of business, whichever is shorter.
B. Terms of offer:
(i) Objects of
offer;
(ii) Description
of the instrument giving particulars relating to its form, denomination,
issue price, etc., together with an averment that the transferability of
security receipts is restricted to the qualified institutional buyers;
(iii) Arrangements made
for management of assets and extent of management fee charged by
securitisation company or reconstruction company;
(iv) Interest
rate/probable yield;
(v) Terms of
payment of principal/interest, date of maturity/redemption;
(vi) Servicing
and administration arrangement;
(vii) Details of
credit rating, if any, a summary of the rationale for the rating;
(viii) Description
of assets being securitised;
(ix) Geographical
distribution of asset pool;
(x) Residual
maturity, interest rates, outstanding principal of the asset pool;
(xi) Nature and
value of underlying security, expected cash-flows, their quantum and
timing, credit enhancement measures;
(xii) Policy for
acquisition of assets and valuation methodology adopted;
(xiii) Terms of
acquisition of assets from banks/financial institutions;
(xiv) Details of
performance record with the originators;
(xv) Terms of
replacement of assets, if any, to the asset pool;
(xvi) Statement of
risk factors, particularly relating to future cash-flows and steps taken
to mitigate the same;
(xvii) Arrangements,
if any, for implementing asset reconstruction measures in the case of
default;
(xviii) Duties of the
trustee;
(xix) Specific asset
reconstruction measures, if any, or which approvals will be sought from
investors;
(xx) Dispute
redressal mechanism.
(2) DISCLOSURE ON QUARTERLY BASIS:
(i) Defaults,
prepayment, losses, if any, during the quarter;
(ii) Change in
credit rating, if any;
(iii) Change in
profile of the assets by way of accretion to or realisation assets from
the existing pool;
(iv) Collection
summary for the current and previous quarter;
(v) Any other
material information, which has a bearing on the earning prospects
affecting the qualified institutional buyers
