The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003 ("Guidelines") were enacted by the Reserve Bank of India ("RBI") with effect from April 23, 2003 in exercise of the powers conferred by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("Act").
Pursuant to RBI’s notification dated 29th March 2004, the minimum owned fund requirement for commencement of business of securitisation or asset reconstruction was increased to an amount not less than 15% of the total financial assets acquired or to be acquired by the securitisation or reconstruction company on an aggregate basis or Rs 100 crores whichever is lower irrespective of whether the assets were transferred to a trust set up for the purpose of securitisation or not.
It was further directed by RBI that the securitisation or reconstruction company would be allowed to invest the amount of owned fund in the security receipts issued by the trust set up for the purpose of securitisation.
Having considered it necessary in public interest to do so, to enable RBI to advantageously regulate the financial system and to prevent the affairs of securitisation companies or reconstruction companies from being conducted in a manner detrimental to the interest of investors or prejudicial to the interest of such securitisation or reconstruction company, RBI has vide its Notifications introduced certain amendments to the Guidelines.
Vide the Notification dated 20th September 2006 issued by the RBI, securitisation companies or reconstruction companies would now be permitted to invest, in security receipts issued by the trust set up for the purpose of securitisation, an amount not less than 5% under each scheme.
A securitisation or reconstruction company, which has already issued security receipts, is required to achieve the minimum subscription limit in security receipts under each scheme within a period of six months from the date of the said Notification.
As per RBI’s Notification dated 19th October 2006, a securitisation or reconstruction company would be required to commence business within six months from the date of grant of a Certificate of Registration by RBI. The RBI may however, on an application by the securitisation or reconstruction company, grant an extension of time for commencement of business for such further period, not exceeding one year from the date of grant of the Certificate of Registration.
Further, a securitisation or reconstruction company, having obtained a Certificate of Registration from RBI under Section 3 of the Act and not having commenced business as on the date of this Notification would be required to commence business within six months from the date of the Notification.
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