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Selling of mortgage loans in foreign through securitization

(Querist) 08 April 2020 This query is : Resolved 
Can banks/NBFCs sell their loan pool(mortgage) in foreign countries under the securitization process?

Raj Kumar Makkad (Expert) 08 April 2020
Yes. They can. There is no legal hurdle while completing the secularization process.
P. Venu (Expert) 09 April 2020
What are the facts? What is the context?
Rajendra K Goyal (Expert) 09 April 2020
Seems like an examination question.

Please state clear and material facts for proper reply.

Rajendra K Goyal (Expert) 09 April 2020
Please state:
where is the property?
When was loan taken?
What was the purpose of the loan?
Whether the mortgage was as borrower or as guarantor?
When it became NPA?
When recovery notice under law was received?
What was reply from borrower / guarantor side?

Full case file need to be referred, seems a case of considerable amount, discuss with local lawyer, expert in debt tribunal cases, in detail.
Shobhit Jain (Querist) 09 April 2020
Let's say the property is in Mumbai, the loan was a home loan and it has not become NPA.

In an ideal situation, whether it is allowed to sell a loan pool (mortgages) in foreign country?
Raj Kumar Makkad (Expert) 09 April 2020
If the foreign situated property has been got mortgaged then the banker shall definitely invoke its rights to recover its debt by selling the said property once the account becomes NPA but generally such property is not accepted by Indian Banks in India as mortgaged property while advancing loans.

Otherwise your query is vague having no substance at all.
Shobhit Jain (Querist) 10 April 2020
The real case is:
An Indian NBFC had given mortgage loans to its customers. Since NBFC is in need of funds, it wants to sell off these loans by forming a loan pool through a securitization process.

But NBFC wants to sell these loans to a foreign entity in a foreign nation, is it within the purview of law?

Please note NBFC has already held these loans for minimum period as per minimum retention requirements.
Raj Kumar Makkad (Expert) 10 April 2020
The Reserve Bank of India has relaxed end-use restrictions on external commercial borrowings (ECBs) for companies and Non-banking lenders. Borrowing upto 7 years can be got availed by NBFC on lending. Corporates can also raise 7 years funds for capital expenditure. Banks that have extended loans to defaulters can sell these stressed loans to overseas lenders. However, the all-in-cost limits applicable to ECBs will continue to apply.

Rajendra K Goyal (Expert) 10 April 2020
Agree with the advice from expert Raj Kumar makkad ji.

Any transaction involving foreign currency has to be in accordance with RBI / FEMA guidlines.
T. Kalaiselvan, Advocate (Expert) 11 April 2020
I endorse the views of learned expert Mr. Makkad sir.
T. Kalaiselvan, Advocate (Expert) 11 April 2020
Securitisation is a structured finance process, which involves pooling and repackaging of cash flow producing financial assets into securities that are then sold to investors .
securitisation is a process in which pools of individual loans or receivables or actionable claims are packaged, under written and distributed to investors in the form of securities. It is a process of liquidizing assets appearing in the balance sheet of a Bank or financial institution which represent long term receivables by issuing marketable securities there against. It involves conversion of cash flow from a portfolio of assets in negotiable instruments or assignable debts which are sold to investors. The name securitization is derived from the fact that the form of financial instruments used to obtain funds from the investors is securities. All assets can be securitised so long as they are associated with cash flow. Hence, the securities which are the outcome of securitisation processes are termed asset-backed securities (ABS). From this perspective, securitization could also be defined as a financial process leading to an issue of an ABS.
T. Kalaiselvan, Advocate (Expert) 11 April 2020
When a Bank transfers a pool of loans, the bonds that emerge are called collataralised loan obligations or CLOs. Where the Bank transfers a portfolio of bonds and securitises the same, the resulting securitised bonds could be called collateralised bond obligations or CBOs. A common name given to the two is collateralised debt obligations or CDOs, as in a number of cases, the portfolio transferred by the Bank could consist of loans as well as bonds, and at times, even Asset Backed Security.
T. Kalaiselvan, Advocate (Expert) 11 April 2020
For securitisation to be great help, the institutional infrastructure in a country will be of great advantage. If the institutions are fully developed and legal system is quick to respond to changing commercial norms, this process is likely to face difficulties. It has been rightly said that “securitisation is an ignitive tool for Indian capital markets”.
About the SARFAESI Act 2002, a popular definition goes no law is perfect law there are some loopholes in the Securitisation Act. The strict capital requirement is making it difficult for the asset reconstruction companies.

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