The government has allowed NBFCs with asset base of Rs.500 crore and above to be covered under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act 2002 for cases of above Rs.1 crore, like all other financial institutions.

The restriction on using SARFAESI for cases of Rs.1 crore would mean that NBFCs couldn’t enforce the security interest for lower ticket size loans. This would restrict their ability to recover smaller loans.

As per the financial stability report dated June 2016 NBFCs performance in terms of asset quality, ROE and ROA is much better as compare to banks. Therefore the new FDI norms shall further make the NBFC sector as an attractive proposition for any foreign investor.

Currently, FDI is permitted subject to minimum capitalization norms which require infusion of foreign capital upfront from $ 0.5 million to $ 50 million depending on the level of stakes being invested in.

SARFAESI ACT

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the Sarfaesi Act) is an Indian law .It allows banks and other financial institution to auction residential or commercial properties to recover loans. The first Asset Reconstruction Company (ARC) of India, ARCIL, was set up under this act.

Under this act secured creditors (banks or financial institutions) have right for enforcement of security interest under section 13 of SARFAESI Act, 2002. If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as Non performing Asset by secured creditor, then secured creditor may require before expiry of period of limitation by written notice to the borrower for repayment of due in full within 60 days by clearly stating amount due and intention for enforcement.