ADB, 23 housing finance companies can apply securitisation

Our Banking Bureau
12 November 2003

New Delhi: The Securitisation Act can now be applied by Asian Development Bank (ADB) and housing finance companies (HFCs) to exercise powers provided under the legislation.

In separate notifications issued, the ministry of finance said ADB and 23 HFCs will be allowed to tackle their loan defaulters under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, commonly referred to as the Securitisation Act.

The move to broaden the ambit of legislation comes even as a petition challenging the very legality of the Act is pending before the Supreme Court involving Mardia Chemicals and ICICI Bank. It has been argued before the apex court that the law is heavily biased in favour of lenders.

The Securitisation Act provides enormous powers to lenders to take possession and subsequently dispose of assets of chronic defaulters without the need of going through the cumbersome and time-consuming legal process under the civil laws.

"ADB can now act under the law to deal with defaulters of its loans as any other bank or financial institution can do," a senior finance ministry official was quoted as saying while confirming the issuance of the notifications.

On the housing finance front, the government has stipulated that only those HFCs which are registered with National Housing Bank (NHB) and having a minimum tier-I capital of Rs 10 crore will be eligible for exercising the powers under the Act. The eligibility norm allows only 23 of the larger HFCs to be included under the Act.