{"id":22142,"date":"2023-04-21T10:24:04","date_gmt":"2023-04-21T04:54:04","guid":{"rendered":"https:\/\/gstguntur.com\/?p=22142"},"modified":"2023-04-21T10:25:17","modified_gmt":"2023-04-21T04:55:17","slug":"documentation-cs-professional-study-material","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/documentation-cs-professional-study-material\/","title":{"rendered":"Documentation – CS Professional Study Material"},"content":{"rendered":"

Chapter 14 Documentation – CS Professional Banking Law and Practice Notes<\/a>\u00a0is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Documentation – CS Professional Banking Law and Practice Study Material<\/h2>\n

Question 1.
\nAttempt the following:
\nState the objectives of loan documentation. (Dec 2007, 5 marks)
\nAnswer:
\nObjectives of Loan Documentation:
\nThe ultimate objective of documentation is to serve as primary evidence for enforcing the banks right to recover the contracted debt, in the event of all other resources proving to be of no avail, through Court of law as the final resort. Documentation will succeed in fulfilling this objective only when the following requirements are met:<\/p>\n

(a) The owing of debt to the Bank by the borrower is established by documents.
\n(b) The charge created on the borrower\u2019s amount as security for the debt is maintained intact; and
\n(c) The bank\u2019s right to enforce the recovery of the debt through court of law is not allowed to be time barred under the law of limitation.<\/p>\n

\"Documentation<\/p>\n

Question 2.
\nAttempt the following:
\nBriefly explain the process of \u2018securitisation\u2019. (Dec 2007, 5 marks)
\nAnswer:
\nSecuritization : Securitization in the process of liquidating the assets appearing in balance sheets of Banks\/Financial Institutions, Corporates which represents long-term receivables by issuing marketable securities against them. This involves conversion of an illiquid, non-negotiable and high valued financial asset into securities of small value which are tradable and transferable.<\/p>\n

The assets generally securitized by Financial Institutions are term loans to high rated companies, receivables from Government companies, credit card receivables, vehicle loans, mortgage loans, lease finance etc.<\/p>\n

Company sells receivables to Special Purpose Vehicles (SPVs) and takes cash.<\/p>\n

SPVs convert the assets into securities and sell to investors in the market in marketable lots.<\/p>\n

The repayment of loan installments is diverted by the company to the account of SPV\/Reserve Account.<\/p>\n

SPV pays the amount to the investors by way of returns from this amount. Any shortfall in case of non-recovery of installments is to be borne by the company for this purpose, a separate account is opened with funds which are utilized in case of any short-fall.<\/p>\n

\"Documentation<\/p>\n

Question 3.
\nWhat are the basic principles on which bank claims can be settled through Lok Adalats? (Dec 2008, 5 marks)
\nAnswer:
\nKeeping in view the utility of Lok Adalats, for reducing NPAs, Indian Banks Association has issued guidelines for settlement of claims through Lok Adalats. At present, only cases having any monetary claim can be settled through Lok Adalats. While agreeing for settlement through Lok Adalats, interest from the date of filing suit till date of realization, may be agreed upon as may be proposed by the Lok Adalats.<\/p>\n

When facilities of installments are agreed upon, repayment should not extend beyond 3 years. Efforts should be made to obtain some down payment at the time of settlement\/decree. When there was no exemption in court fee the expenses on court fee may be borne by the borrower and the bank equally.<\/p>\n

\"Documentation<\/p>\n

Question 4.
\nThe increasing non-performing assets (NPAs) and the time consuming legal process of loan recovery prompted enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Describe the important provisions of this Act having a bearing on NPAs. Is it justified to use the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as a tool in management of NPAs ? Has this Act helped in quicker recovery of loan and reducing NPAs ? (June 2014, 15 marks)
\nAnswer:
\nThe Securitization and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002 [SARFAESI] Act, 2002 was enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto.<\/p>\n

Provisions of SARFAESI related to NPA
\nThe right of the banks\/financial institutions to resort to the provisions of the SARFAESI arises only in the event where any borrower, who is under liability to a secured creditor under a security agreement, makes any default in payment of a secured debt or any installment thereof and his account in respect of such debt is classified by the secured creditor as non-performing asset.<\/p>\n

\"Documentation<\/p>\n

Therefore, classification of account as an NPA is a sine qua non and, the following eventualities can be called out for recovery under the provisions of SARFAESI, that is:<\/p>\n