What changed
The RBI amended the Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003, following the April 2010 Monetary Policy Statement. Key changes include: (a) defining 'date of acquisition' as when ownership is acquired by the SC/RC either in its own books or directly in the trust's books; (b) requiring the Financial Assets Acquisition Policy to cover both direct and trust-based acquisitions; (c) allowing the Board of Directors to extend the asset realisation period beyond 5 years up to a total of 8 years, with Qualified Institutional Buyers able to invoke SARFAESI Section 7(3) only after the extended period; (d) clarifying that SCs/RCs can acquire assets from banks/FIs either in their own books or directly in trust books, and must transfer assets to trusts at the acquisition price.
What it means for you
For SCs and RCs, this provides greater operational flexibility by allowing asset acquisition directly into trust books, reducing double transfer costs. The extended realisation timeline (up to 8 years) gives more time to resolve stressed assets, but requires board-level oversight and specific steps. Banks and FIs dealing with SCs/RCs should note that the acquisition price for trust transfers must equal the original acquisition price, ensuring transparency. The clarification on SARFAESI Section 7(3) invocation protects QIBs' rights while allowing SCs/RCs additional time for resolution.
What you must do
- Update your Financial Assets Acquisition Policy to explicitly cover acquisitions both in your own books and directly in trust books.
- Ensure board-approved realisation plans specify steps and timelines, with any extension beyond 5 years capped at 8 years total and documented with board resolution.
- Verify that asset transfers to trusts are recorded at the same price as acquired from the originator, whether acquired directly or via your books.
- Inform Qualified Institutional Buyers about the revised timeline for invoking SARFAESI Section 7(3) rights, which now aligns with the extended realisation period.
Who it affects
All registered Securitisation Companies (SCs), All registered Reconstruction Companies (RCs), Banks and financial institutions that sell financial assets to SCs/RCs, Qualified Institutional Buyers (QIBs) investing in security receipts
What is the new maximum period for realising financial assets under these amendments?
The standard realisation period remains 5 years from the date of acquisition. However, the Board of Directors can now extend this period so that the total does not exceed 8 years from acquisition. The board must specify the steps to be taken for realisation within the extended timeframe.
Can an SC/RC acquire financial assets directly into a trust without first booking them in its own books?
Yes, the amendment clarifies that SCs/RCs can acquire assets from banks/FIs either in their own books and then transfer to trusts, or directly acquire the assets in the books of the trust. In either case, the transfer to the trust must be at the price at which the assets were acquired from the originator.
How does this affect Qualified Institutional Buyers (QIBs) under SARFAESI?
QIBs can invoke Section 7(3) of the SARFAESI Act only at the end of the extended realisation period (if extended by the board) or at the end of the standard 5-year period if no extension is granted. This ensures QIBs' rights are preserved while giving SCs/RCs additional time for asset resolution.