Presented by : RAMAN AGGARWAL Co-Chairman, Finance Industry Development Council (FIDC) & Director,...

Presented by :

RAMAN AGGARWALCo-Chairman, Finance Industry Development Council (FIDC) &

Director, Bansal Credits Limited, New Delhi Telefax: 91-11-23242127 – 30, Email: [email protected]

27th November 2009Min. of Road Tpt. & Highways 1

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About 365 players registered as NBFC-AFCs with RBI

Spread all across the country

Total number of NBFCs is about 13,000

Total Asset base of Rs. 70,000 Cr as on March 31, 2008

Total deposit base of Rs. 2,000 Cr as on March 31, 2008

Financing Economically Productive Assets Commercial vehicles

Passenger cars

Multi-utility & multi-purpose vehicles

Two-wheelers & Three-wheelers

Construction equipments

Consumer durables


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Prevent concentration of credit risk in banks only

Financial Inclusion – providing finance to unorganized and under

banked segment of the society

Product innovation gives NBFCs a competitive edge

- used vehicles financing

- small ticket personal loans

- three wheeler financing

- IPO financing

- finance for tyres & fuel

Robust asset quality is major strength of NBFCs


As recognized by RBI & Expert Committees / Taskforce

Development of sectors like Transport & Infrastructure

Substantial employment generation

Help & increase wealth creation

Broad base economic development

Irreplaceable supplement to bank credit in rural segments Major thrust on semi-urban, rural areas & first time buyers / users

Provide finance to economically weaker sections – Financial Inclusion

Huge contribution to the State exchequer


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The key factor for our survival & growth

Prompt, tailor made service with least hassles - Compensates for the higher lending rates of AFCs as compared to Banks & FIs

Personal Touch – guidance in insurance matters and help in their hour of need

NBFC-AFCs cater to a class of borrowers who are unbankable and who:-- Do not necessarily have a high income- But have adequate net worth- Are honest and sincere (gauged by the personal touch maintained with them).


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Self Regulatory Organization (SRO)

For RBI Registered NBFC-AFCs

Registered as a Section 25 Company

Head Office in Mumbai with Regional Chapters started at Delhi, Kolkata, and Chennai

Code of Conduct & Fair Business Practices has been formulated and enforced

Full recognition from MOF,RBI, IBA & SIAM as the representative body of NBFC-AFCs

Equal representation to small & big NBFC-AFCs in the – Managing Committee


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FIDC has been formed with a very clear focus

To protect the interest of its members

To promote Asset Finance Business

To represent to Govt., RBI & various statutory & Trade Bodies

To promote brotherhood amongst members

To ensure fair and ethical practices among its members

To bring NBFCs on the mainstream of the financial sector of the country


Major activities and Achievements

Invited by the Finance Minister for Pre-budget discussion

Invited by Governor, RBI twice a year before announcement of Credit Policy and its Mid-Term Review

Invited by RBI to address senior state govt. and state police officers Invited by the special committee constituted by Govt. of India to

tackle the recent liquidity crises

Invited by Economic Advisory Council to the P.M. for discussion on steps to be taken to boost credit off take in retail asset backed lending


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Major activities and Achievements (Contd…)

After consultation with FIDC, Govt. of India announced a special line of credit for NBFCs engaged in commercial vehicle financing in the stimulus package announced in January, 2009

“FIDC Handbook on Repossession“ – A comprehensive document on all aspects relating to Repossession in case of default – Released by Dr. Justice AR. Lakshmanan, Former Supreme Court Judge and Chairman, Law Commission of India

“FIDC News” – A newsletter circulated on quarterly basis


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Overview The tremendous growth shown by the transport sector has been

possible due to ready finance provided by NBFC-AFCs and more recently by banks

The prime security in all finance agreements is the vehicle financed

Proper and speedy procedures are must for vehicle financing pertaining to:

lien in the R.C. in favor of the financier

sufficient safe guard to prevent fraudulent deletion of the lien

transfer of the R.C. in the name of the financier in case of repossessed vehicles

Financier’s liability to pay road tax arrears in case of transfer of repossessed vehicles in their name


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Amendments Required in Section 51

Section 51(2) – Change in registered owner in case of amalgamation of Companies

Issues

There is no provision for change in registered owner in case of registered owner being companies and amalgamation of such company

Suggestions

The registered owner in the R.C. should be changed to new company based on a letter from the transferee company alongwith a suitable proof

Such change should be made without disturbing the hypothecation endorsement in favour of the financier

Financier’s NOC to be mandatory for making such changes


Section 51(3) – Safeguards to prevent fraudulent cancellation of H.P./ Lease/ Hypothecation endorsement

Issues

this provision has been misused by the borrower (registered owner)

fraudulent cancellation of H.P./ Lease/ Hypothecation endorsement is done based on submission of the prescribed form with forged signatures of the financier

Suggestions

on receipt of the prescribed form for such cancellation the registering authority(RTA) shall seek confirmation from the financier within 7 days

the financier shall confirm in writing within 7 days from the receipt of notice from the RTA

Failing which it shall be construed that the financier have No Objection for cancellation of above said endorsement


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Section 51(5) – Issue of Fresh R.C. in the name of the Financier in case of Repossessed Vehicles

Issues

RTAs, taking advantage of the word “may”, refuse to issue fresh R.C. due to:

• insisting on financiers to pay Road Tax/ Permit Fee arrears payable by the registered owner

• asking financiers to pay the tax (arrears) applicable to corporates even when the registered owner is an individual

• insisting on financiers to surrender the permit inspite of the fact that registered owner is the permit holder

• There is no provision in the Act for issuance of R.C. in the financiers’ name in case of repossessed vehicles which are unregistered


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Section 51(5) – Issue of Fresh R.C. in the name of the Financier in case of Repossessed Vehicles (Contd..)

Issues

Frustrating delays in issuance of fresh R.C. in the name of financier due to:• no time limit prescribed for such issuance

• RTAs send several notices to the defaulting registered owner despite the provision of only one such notice

• The registered owner (defaulter) files his objection raising some disputes with the financiers which are outside the scope of The Motor Vehicles Act

• the registered owner (defaulter) files objections saying the matter is sub-judice in a court of law

• even when the financier submits original R.C. alongwith the application the RTA follows the usual process


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Suggestions

• the word “may” should be replaced with the word “shall” in section 51(5)

• a clear provision exempting the financier from the liability to pay the Road Tax arrears and the permit fee (the same should be recovered from the defaulting registered owner)

• a clear provision exempting the financier from submission of the permit

• a new provision for registration of unregistered repossessed vehicles directly in the name of financier

• Only one notice to be sent to the defaulting registered owner by registered post with acknowledgement due at his address entered in the R.C.

• a maximum period of 30 days should be prescribed for issuance of fresh R.C.


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Suggestions (Contd..)

• the RTA should only verify on the default committed by the borrower as per the finance agreement

• the onus of proving otherwise lies with the borrower (registered owner)

• all other objections raised by the borrower pertaining to the dispute with the financier should not be entertained as RTA is not the proper forum for such disputes

• Unless there is a specific court order against the financier or the RTA for transferring vehicles, such objections should not be entertained

• In case the financier submits the original R.C., the RTA should issue fresh R.C. in its name under intimation to the borrower without going through the usual process


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Requirement of Trade Certificate under Chapter-III of The Central Motor Vehicle Rules, 1989

Issues

Trade Certificate is required by a dealer of motor vehicles for exemption from registration of new vehicles till the time it is sold and registered in the name of the owner

RTAs insist on financier to obtain & submit Trade Certificate for endorsement of Hypothecation in the financier name in the R.C. at the time of registration of a new vehicle

Suggestion

Trade Certificate should not be mandatory for RBI registered NBFC-AFCs

NBFC-AFCs should be given the choice to get the Trade Certificate and also decide the number of certificates required


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General Observations & Suggestions

A clear provision stating the financier’s Right to Repossess vehicles in case of default subject to terms and conditions/ guidelines prescribed by Reserve Bank of India

“Time is Money” and as such time limits should be prescribed for RTAs

A system of one time Road Tax (life time tax) should be introduced for all class of vehicles. This shall:

• Address the problem of backlog of Road Tax arrears due to which many cases are pending before various courts all over the country

• Enable the govt. to save large quantum of time and resources in collection of Road Tax

• Not hurt the customer since a vast majority of vehicles purchased are financed


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Presented by : RAMAN AGGARWAL Co-Chairman, Finance Industry Development Council (FIDC) & Director,...

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