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Amendments To The Motor Vehicles Act, 1988 NBFC- AFCs’ Perspective

Amendments To The Motor Vehicles Act, 1988 NBFC- AFCs’ Perspective. Presented by : RAMAN AGGARWAL Co-Chairman, Finance Industry Development Council (FIDC) & Director, Bansal Credits Limited, New Delhi Telefax: 91-11-23242127 – 30, Email: bansal@satyam.net.in. 1.

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Amendments To The Motor Vehicles Act, 1988 NBFC- AFCs’ Perspective

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  1. Amendments To The Motor Vehicles Act, 1988 NBFC- AFCs’ Perspective Presented by : RAMAN AGGARWAL Co-Chairman, Finance Industry Development Council (FIDC) & Director, Bansal Credits Limited, New Delhi Telefax: 91-11-23242127 – 30, Email: bansal@satyam.net.in 1 Min. of Road Tpt. & Highways

  2. Asset Financing NBFCs (NBFC-AFCs) 2 2 Min. of Road Tpt. & Highways

  3. OVERVIEW • 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 3 3 Min. of Road Tpt. & Highways

  4. Role of NBFCs • 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 Min. of Road Tpt. & Highways

  5. Role of NBFC-AFCs • 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 5 5 Min. of Road Tpt. & Highways

  6. Customer Service • 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). 6 6 Min. of Road Tpt. & Highways

  7. Finance Industry Development Council (FIDC) • 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 7 7 Min. of Road Tpt. & Highways

  8. 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 Min. of Road Tpt. & Highways

  9. Finance Industry Development Council (FIDC) • 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 9 9 Min. of Road Tpt. & Highways

  10. Finance Industry Development Council (FIDC) • 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 10 10 Min. of Road Tpt. & Highways

  11. Issues Pertaining to The Motor Vehicles Act, 1988 11 11 Min. of Road Tpt. & Highways

  12. 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 12 12 Min. of Road Tpt. & Highways

  13. 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 Min. of Road Tpt. & Highways

  14. 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 14 14 Min. of Road Tpt. & Highways

  15. 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 15 15 Min. of Road Tpt. & Highways

  16. 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 16 16 Min. of Road Tpt. & Highways

  17. Section 51(5) – Issue of Fresh R.C. in the name of the Financier in case of Repossessed Vehicles (Contd..) 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. 17 17 Min. of Road Tpt. & Highways

  18. Section 51(5) – Issue of Fresh R.C. in the name of the Financier in case of Repossessed Vehicles (Contd..) 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 18 18 Min. of Road Tpt. & Highways

  19. 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 19 19 Min. of Road Tpt. & Highways

  20. 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 20 20 Min. of Road Tpt. & Highways

  21. THANK YOU 21 21 Min. of Road Tpt. & Highways

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