Amendments To The Motor Vehicles Act, 1988 NBFC- AFCs

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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_at_satyam.net.in

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Asset Financing NBFCs (NBFC-AFCs)
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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

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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

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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

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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).

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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

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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

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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

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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

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Issues Pertaining to The Motor Vehicles Act, 1988
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• 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
• Financiers liability to pay road tax arrears in
  case of transfer of repossessed vehicles in their
  name

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• 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
• Financiers NOC to be mandatory for making such
  changes

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• 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

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• 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

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• 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

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• 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.

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• 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

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• 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

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• General Observations Suggestions
• A clear provision stating the financiers 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

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THANK YOU
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