Overview of NBFCs & Issues Relating to Repossession

Presented by :

RAMAN AGGARWAL Co-Chairman Finance Industry Development Council (FIDC)

NBFCs : OVERVIEW
13000+ players registered under RBI : A & B categories
Spread all across the country
Approx. 570 NBFCs authorized to accept public deposits (Catg. A) Assets worth Rs. 15000 Crore financed annually & growing steadily

Asset financing
Commercial vehicles Passenger cars Multi-utility & multi-purpose vehicles

Two-wheelers & Three-wheelers

Construction equipments Consumer durables

Role 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 To finance economically weaker sections Huge contribution to the State exchequer

Role of NBFCs (Contd..)

70-80% of Commercial Vehicles are finance driven
Indian economy is more dependent on roads Heavy Govt. outlay for mega road projects Heavy replacement demand anticipated 30 lacs commercial vehicles by the year 2007 Another Rs.6000 Crores required for phasing out old commercial vehicles CRISIL in its study has placed commercial vehicle financing under low risk category Each commercial vehicle manufactured, sold and financed gives employment to minimum 20 persons (direct and indirect)

Customer Service
The key factor for our survival & growth
NBFCs provide prompt, tailor made service with least hassles. This more than compensates for the higher lending rates of NBFCs as compared to Banks & FIs

All customers get direct and easy access to and individual attention of the top management
NBFCs cater to a class of borrowers who :- Do not necessarily have a high income - But have adequate networth - Are honest and sincere (gauged by the personal touch maintained with them).

Customer Service (Contd..)

Weak and Fly by Night operators have been weeded out by RBI Deposit mobilization at the doorstep of the depositors with personalized approach, interest warrants are delivered in advance NBFCs provide financial assistance to their borrowers in case of emergency needs NBFCs provide assistance and guidance to their customers in matters relating to insurance

FIDC - Introduction
Self Regulatory Organization for RBI Registered NBFCs

Deposit Taking NBFCs to be enrolled in the beginning

Registered as a Section 25 Company Head Office in Mumbai with Regional Chapters started at Delhi, Kolkata, Chennai and Jalandhar Code of Conduct & Fair Business Practices has been formulated and enforced

Full recognition from MOF & RBI Invited for Pre-Budget & Credit Policy discussions
Equal representation to small & big NBFCs in the Managing Committee

FIDC - Purpose
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

FIDC - Benefits / Services To Members

Code of Conduct Standardization of Practice System Manual Risk Management Defaulters List Compilation of Data / Statistics Pool of Funding / Contingency Fund Recovery Agents Trainings / Seminars / Workshops Web Site Members Directory Journal Grievance Forum

Recovery & Repossession

Procedure
Notice to the borrower & the guarantor on default Seizure by authorized repossession agents Signing of seizure list by financier & borrower / representative Intimation to the police by dialing 100 & in writing to the local police station immediately after repossession Final notice to the borrower : To pay & release the asset

Compliance of procedure by authorized repossession agent

Repossession Rights
Agreement clearly mentions the Financiers right to repossess in case of default Rights upheld and endorsed by Supreme Court Rulings Orix Auto Fin. Ind. Ltd. V/s. Jagmander Singh, 2006 Charanjit S. Chadha V/s. Sudhir Mehra, 2001 K.A.Mathai & Others V/s. Kora Bibbi Kutty, 1996 Manipal Finance V/s T Bangarappa, 1993 Trilok Singh and Others V/s Satyadeo Tripathi, 1979

Issues
False criminal complaints : harassment & threats FIRs lodged due to ignorance and misguidance Supreme court : Issue is CIVIL (not criminal)

FIRs lodged at police stations other than the police station under whose jurisdiction the place of repossession lies and where the intimation by the recovery agents has been given Typical allegations Thefts & act of dacoity Loss of cash & valuables Physical abuse

Issues (Contd..)
Lack of awareness on legal rights leading to aggravation of problem
Rights under finance agreement & Supreme Court ruling Civil & criminal disputes : need for clear distinction Ownership under Motor Vehicles Act & Sale of Goods Act Only 1 to 2% of the cases lead to repossession blown up by the media

Criticality of repossession for survival of NBFC

Obligation towards depositors & investors Timely Recovery of our dues ensures timely repayment of our liabilities including public deposits Cascading effect due to malafide intentions of defaulters

Suggestions
Issuance of Circulars
Repossession rights of financiers Differentiation of civil & criminal offences

Verify before lodging FIRs for theft / robbery against the Financiers
Stringent Procedure for dealing with false complaints Interconnectivity of various police stations within the State

Organization of Awareness Programs at State levels

Work in conjunction with the RBI to educate Open channels of communication

Repossession Agents to be issued Licenses

Credentials to be Verified on the lines of Domestic Servant Verification System

THANK YOU