{"id":29417,"date":"2020-03-05T14:21:46","date_gmt":"2020-03-05T08:51:46","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=29417"},"modified":"2021-01-05T12:36:14","modified_gmt":"2021-01-05T07:06:14","slug":"eligibility-limit-for-nbfcs-reduced-for-debt-recovery","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/eligibility-limit-for-nbfcs-reduced-for-debt-recovery\/","title":{"rendered":"Eligibility Criteria for Debt Recovery Reduced for NBFC\u2019S: Under SARFAESI Act"},"content":{"rendered":"<p class=\"has-drop-cap\">The Ministry of Corporate Affairs (MCA) in its notification dated 24th February 2020 has notified that the eligibility limit for <strong><a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;NBFC&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Non-Banking Financial Companies (NBFC) operate similarly to banks but do not possess the legal status of a bank. Registered under the Companies Act 2013 and governed by the RBI Act&amp;#039;s section(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/nbfc\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>NBFC<\/a>&rsquo;s having assets worth Rs. 100 crore<\/strong> and above can be conferred the status of financial institutions. Financial institutions here are explained as per the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is NBFC (Non-Banking Financial\nInstitutions)?<\/h2>\n\n\n\n<p>Non-Banking Financial Companies or NBFC&rsquo;s are registered under the Companies Act, 2013 and are governed by the&nbsp;<strong>RBI<\/strong>. The activities of the NBFCs are similar to that of a bank but not precisely the same. NBFC&rsquo;s do not perform the primary action of a bank which is accepting deposits from the public. NBFC&rsquo;s are engaged in <strong>providing financial services<\/strong> such as disbursement of loans and advances, acquisition of shares or bonds, etc. NBFCs contribute to the growth of the Indian economy by providing alternatives for transforming savings into investments. &nbsp;According to section 45-I (c) of the RBI Act, a Non &ndash; Banking Company which carries on the business as a financial institution will be an NBFC. <em><a href=\"https:\/\/enterslice.com\/nbfc-registration\"><strong>NBFC registration<\/strong><\/a> is done according to the Companies Act 2013 and RBI Act, 1934.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Object <\/h2>\n\n\n\n<p>Finance Minister, Nirmala Sitharaman in an aim to address the ailing Non-Banking Financial Corporations or <strong>NBFC&rsquo;S in her budget 2020 speech<\/strong> had proposed a reduction in the limit for eligibility for debt recovery for NBFC&rsquo;S. This proposal is a saving grace to the NBFC&rsquo;s as it will ease the ability of NBFC&rsquo;S to recover loans from borrowers. The asset-wise eligibility criteria to be admitted under the debt recovery process have been reduced.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Threshold for Applicability of Sarfaesi Act on NBFC&rsquo;s as per the\nNotification<\/h2>\n\n\n\n<ul><li><em>The prior eligibility limit for NBFC&rsquo;s was Rs.500 crore of asset size or loan size of Rs.1 crore for debt recovery.&nbsp;<\/em><\/li><li><em>The eligibility limit for NBFC&rsquo;s has been reduced to Rs.100 crore of asset size and Rs.50 lakh on loan size. <\/em><\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/complete-analysis-debt-recovery-tribunal-in-india\/\">Complete Analysis DEBT Recovery Tribunal in India\n<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Key Features<\/h3>\n\n\n\n<ul><li><em>The reduction in eligibility limit for NBFC&rsquo;s would mean that now NBFC&rsquo;s or Non-Banking Financial Corporations debt recovery enforces the security interest for lower ticket size loans.<\/em><\/li><li><em>This will also improve their ability to recover smaller loans and improvise the financial health of NBFCs debt recovery with all inadequate performing assets of lower value<\/em>.<\/li><li>The <strong><a href=\"https:\/\/enterslice.com\/learning\/applicability-of-sarfaesi-act-for-nbfc\/\">SARFAESI Act allows lenders<\/a><\/strong> to auction properties of defaulters to recover their dues.<\/li><li><em>The rights under the SARFAESI Act will be available even if the lender has initiated recovery proceedings through other methods<\/em>.<\/li><li>More than 80% of cases in the NBFC sector are below Rs. 50 lakh bracket and hence the government should have considered a lower threshold like Rs. 5 lakh.<\/li><li>According to&nbsp;<strong>CRISIL, <\/strong>a&nbsp;rating agency, the reduction for applicability under the SARFAESI Act is affirmative action. It will bring an additional of 12-15 per cent NBFCs&rsquo; loan against the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Property&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Property refers to the legal designation of ownership over valuable items or assets held by an individual or a business. This ownership grants the holder certain legal rights to use, consume,(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/property\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>property<\/a>, which stands at around Rs 1 lakh crore on March 2019, under the <strong>SARFAESI Act<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Securitisation_and_Reconstruction_of_Financial_Assets_and_Enforcement_of_Security_Interest_Act,_2002\"><strong>[1]<\/strong><\/a><\/sup>.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Takeaway<\/h2>\n\n\n\n<p>Y.S Chakravarti, Managing\nDirector at Shriram City Union Finance said that the reason for NBFC&rsquo;s not\nopting for the SARFAESI route lies in the administrative roadblocks in bringing such cases to a successful,\ntime-bound closure. In the past NBFC&rsquo;s have preferred to either arrived at a\nsettlement with all the defaulting borrowers or by taking the National Company\nLaw Tribunal (NCLT) route for recovery of the loan. The delay in recovering\ndues acts as a significant hindrance to NBFC&rsquo;s contemplating action through the\nSARFAESI path. Many NBFCs were unable to dispose of the immovable property of\ndefaulter borrowers even after filing the case under SARFAESI Act. It takes a\nlong time to get a favourable income through the SARFAESI route because it\ntakes a long span of time to seek permission from the revenue department. This\nnew\nprovision of decreasing the eligibility limit\nfor NBFC&rsquo;s will allow a number of NBFCs to move to SARFAESI for asset recovery.<\/p>\n\n\n<a href=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/03\/NBFC-NOTIFICATION-DATED-24.2.2020.pdf\" class=\"pdfemb-viewer\" style=\"width: 767px; \" data-width=\"767\" data-height=\"max\" data-toolbar=\"bottom\" data-toolbar-fixed=\"on\">NBFC-NOTIFICATION-DATED-24.2.2020<br><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Ministry of Corporate Affairs (MCA) in its notification dated 24th February 2020 has notified that the eligibility limit for NBFC&rsquo;s having assets worth Rs. 100 crore and above can be conferred the status of financial institutions. Financial institutions here are explained as per the Securitization and Reconstruction of Financial Assets and Enforcement of Security [&hellip;]<\/p>\n","protected":false},"author":27,"featured_media":29418,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,6],"tags":[],"acf":{"service_id":"8"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Eligibility limit for NBFC&#039;s Reduced for Debt Recovery<\/title>\n<meta name=\"description\" content=\"The MCA in its notification dated 24th February 2020 has notified that the eligibility limit for NBFC\u2019s having assets worth Rs. 100 crore\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/eligibility-limit-for-nbfcs-reduced-for-debt-recovery\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Eligibility limit for NBFC&#039;s Reduced for Debt Recovery\" \/>\n<meta property=\"og:description\" content=\"The MCA in its notification dated 24th February 2020 has notified that the eligibility limit for NBFC\u2019s having assets worth Rs. 100 crore\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/eligibility-limit-for-nbfcs-reduced-for-debt-recovery\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2020-03-05T08:51:46+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-01-05T07:06:14+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/03\/Eligibility-Criteria-for-Debt-Recovery-Reduced-for-NBFC\u2019S-Under-SARFAESI-Act.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"670\" \/>\n\t<meta property=\"og:image:height\" content=\"352\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Deepti Shikha","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/01\/Deepti-Shikha.jpg","authorDescription":"Deepti is a Law graduate with an avid interest in reading and very proficient in summarizing legal cases. 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