Applicability of SARFAESI Act for NBFC

Applicability of SARFAESI Act for NBFC

Applicability of SARFAESI Act for NBFC SARFAESI act refers to The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2016.

The Ministry of Finance has notified 196 NBFC companies which have been brought under the definition Financial Institution under the SARFAESI Act. This announcement comes after the budget announcement in the year 2015-16; it has allowed the applicability of SARFAESI to certain NBFC’s.

SARFAESI Act is a legislation that helps financial institutions to ensure asset quality in many ways. It mainly helps in addressing the problem of Non-performing assets.

Power of NBFC’s and Banks under SARFAESI act: Take possession of the assets which are hypothecated sell the assets which have been hypothecated; If the borrower has already sold the asset to a third party, the third party can be ordered to surrender the asset With the significant changes that favour SARFESI act by 2016 amendment bill, the NBFC Companies are also brought up to the power of banks. These changes have been implemented to 196 companies in total, which are systematically important Non-Banking Financial Company.

Related: Difference between NBFC’s and Banks

Applicability of CERSAI

The new amendment of the act provides that secured creditors would be unable to take possession of the collateral unless it is registered with the central registry under section 26 D of the act. If the security interest is not registered with the central registry and the new security interest is made on the hypothecated property, then the recent security interest will prevail.

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NBFC’s which are covered by SARFAESI Act

196 NBFCs which are notified by The Ministry of Finance on 5th August 2016 All NBFCs having assets of more than Rs.500 crore according to their last audited balance sheet the Central Government informed certain NBFCs as public financial institutions under section 4A of the Companies Act,1956, such NBFCs are also allowed to exercise powers under the SARFAESI Act. The value of security created and the amount of loan in favour of any NBFCs for the amount of debt should not be less than 1 crore.

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