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The government plans to tweak laws to facilitate seizure of assets from defaulting borrowers to help banks reduce non-performing assets, which are on the rise after the recent economic downturn.The finance ministry is expected to move a proposal before the cabinet suggesting changes in the Securitisation and Reconstruction Of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.

“It is a step to ensure that the recovery process is not time-consuming,” a finance ministry official said while assuring that the changes will not lead to harassment for borrowers.

Rating agency CRISIL expects gross NPAs of Indian banking system to swell to around 5% of the advances in March 2011. Currently, banks need permission of the relevant Chief Metropolitan Magistrate or the district magistrate for seizing an asset. The new rule will require the district administration to carry out due diligence and take a decision within 120 days of the request.

The proposed changes are in response to concerns expressed by the Indian Banking Association over the rising NPAs and the regulatory hurdles that delay the process of recovery.The current law came into force in 2002 and was widely seen as empowering the lender, but has not really helped because of operational issues. “There is no time frame under which the concerned authority has to take a decision. This leads to the whole process being delayed by several months,” the finance ministry official said, requesting anonymity.

Asset Reconstruction Companies (ARCs), specialised institutions that deal in distressed assets, feel changes in the rules will incentives the banks to sell bad loans. RBI has given permission to 13 ARCs. “Easy recovery norms will further facilitate the business,” said a senior official with Asset Reconstruction Company of India (ARCIL) who asked not to be named. The company acquired bad loans worth about of Rs 12,000 crore in the financial year 2009-10.

The new rules will also give banks at least 15 days to reply to the objections raised by the borrower. “The borrowers generally raise a list of objections. It is impossible for the banks to reply within a week, which is the current time frame. This severely impacts if the case goes to the debt recovery tribunal,” the official said. Banks have also requested for a reduction in the 60 days time they have to provide to the borrower to settle dues before they can send a recovery notice.

“Already, if a borrower is lagging on his payments we keep sending reminders. An extended period of 60 days further delays the whole process,” said an IBA official, requesting anonymity. CRISIL sees a deterioration in asset quality of Indian banks over the medium term on account of the slowdown and the seasoning of loan portfolio after a period of rapid credit growth between 2002-03 and 2007-08.

The net NPAs of India’s banks stand at 0.99% of their net advances, but gross amount is much higher, indicating that banks have been able to set aside funds for covering losses but recovery remains low.

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0 Comments

  1. Santo Dormer says:

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  2. manoj kumar sahu says:

    SARFASI Act has helped our financial sector to recover the rising NPAs, And it is one of the major tool in the hands of Banks/financial institutions for the speedy recovery of loans and realisation of assets by selling it in the public or with the help of Reconstruction companies, with no interference of courts. SARFASI Act has given power in the hand of Bank/FI. But at the same time, sometime Banks/FI use this tool against the poor borrowers who are unable to repay the loans due to there incapacity and they are unable to hire Advocates, so Banks sells there property. As we are welfare and liberal nation and a large community is poor. so the banks should have given some power to check about the capacity to return the secured loans from the borrowers and the banks should categorise it lenders who are incapable to pay and who are willfully not paying the loans. another area of concern is that of third party rights in the mortgaged properties which need to be addressed by the Apex court and should give clear guideline about the third party rights at the point of sale of secured property. Because sometime third party is the lesse or tenant and he dont have any other means of livelihood so the SARFASI Act should also consider these issue and need to be addressed.

    Thank you
    Manoj kumar sahu
    9028963598

  3. Pathak R K says:

    Any amendment in the act for speedy seizure of assets will empower the financial institution vast and absolute power & absolute power corrupts implementing manpower absolutely.

    Premier Bank of India, very recently invoked the provisions of SARFAESI Act of 2002 for STANDARD ASSETS & also attaching the agriculture Land.
    All these acts attracts provisions of section 29 of the act attracting one imprisonment for violators of the law. But poor borrower could not access law for want of funds & have to bear the atrocities of Banker.

    Amendment must be coupled with Lenders Liability for wrong acts & benefit / compensation to to borrower by speedy means.

  4. Tira.T says:

    There is a saying in English:laws are made for fools. Another oft quoted is:the law is an ass.
    Both the comments above go only to establish the truth of these. Yes, in-spite of and, perhaps only because of, these laws intended to protect the ruling class at the cost of the common man all the swindling by the rich and the powerful continue unabated. The parties (or, in terms of the fashionable and current jargon, the stake-holders or the ‘interest group’ in)to the continuous and planned swindling is comprised traditionally of the politicians and their goons and the bureaucrats from the top to bottom.
    In a tiny ‘token’ state in the South, for instance, all the govt. owned companies and the cooperative banks/units have been running in losses ever since these were taken over or from their inception, mainly to accommodate politicians of the ruling parties defeated in the hustings and the civil servants of that UT-turned-full-State cadre. And, despite the losses being incurred over decades, the political Chairmen and the bureaucratic MDs shamelessly enjoy the benefits of frequent but totally fruitless air travels, use of fleets of cars at the cost of these critical units on life-saving device and having domestic servants and drivers and security guards and even daily ration-cum-food budget at home being taken care of by these dying outfits. The taxes due from these are never recovered nor paid. Tax officers also enjoy freebies at the cost of these clinically dead units, and the powerful CAG never bothers to highlight the fact of the conventionally losing concerns spending huge and unproductive sums, mainly met out of blood money (read: subsidies from the UT/State govt.). And this is going on and on, with not one NGO ever raising its voice against keeping these total liabilities alive, as political parties find these as the safest permanent parking places for their cadre and the civil servants their domestic servants. And, once absorbed in these non-functioning units, the future of the employees become politically insured, thanks to Indian communists.
    The scene in the holier-than-thou states run by the Leftists is worse and even more filthy.

    The grand protectors of all this of course is a corrupt and bent bureaucracy who train and guide politicians from the block-level all the way up to the central cabinet!

  5. Suresh Bakare says:

    I don’t feel that these amendments will do any difference. Classic example is powers invested with registrar of co op and status of co op institutions- banks, credit societies, farmers co ops every where common man is harassed for missing few installments while those who have swindled crores are enjoying protection from politicians and fruits of their influence.

  6. Nisherje B says:

    The government’s plan to bring in further laws “to facilitate seizure of assets from defaulting borrowers to help banks reduce non-performing assets, which are on the rise after the recent economic downturn….(and) to ensure that the recovery process is not time-consuming”, …without any (additional?) “harassment for borrowers” is rather dubious. As it is, the govt. machinery cannot handle and effectively administer the plethora of existing laws. As a result, the influential people/groups with the requisite amount of financial and political clout are always successful in subverting govt. policies and laws in their favour.
    Consecutive govts. of all parties with blind, endless and unreasonably total faith in the generalists, entrusted with determining the destiny of this accursed country failed to realise that, for the stated purpose, the bureaucrats have to compulsively condescend to come down from their high pedestal and interact with the officers of the “subordinate” outposts like the IT deptt., &c., who may be able to feed the more powerful authorities with the trends seen in the accounts of the subject companies, their directors, &c. This will also ensure the availability of a database in respect of these (mostly fraudulent, family-run business houses, masquerading as public limited companies or ‘mutual benefit funds’ in respect of the growth of capital of those in charge of these companies run mostly on borrowed cap[ital, including public subscriptions, with the sole intention of defrauding the banks.
    The govt. and its managers, the IAS, are certainly not so naïve to believe that the borrowings were NOT made with the connivance of and pecuniary arrangements with the top bosses of the (PSU) banks. One only hopes that this aspect is also suitably factored in the proposed law being framed and no loopholes are (deliberately) left for the fraudster defaulters to take advantage of. And, if for income tax assessments with huge Revenue stakes can be forced to be completed within unreasonably fixed time-limits, there can be no earthly (and transparent) reason why the proceedings against the defaulting borrowers cannot be concluded within much shorter time-frame.
    It is public knowledge that, while the promoters and directors of these defaulting companies continue to prosper and live in style and ever-growing wealth, their companies show very poor results in the accounts over years and the lenders (invariably the PSU banks) feign helplessness in recovering the dues. At the same time, the alacrity with which these very banks act in recovering tiny amounts from smaller people with hardly any means-as they are sitting ducks-is indeed startling!

    The govt, under the relentless tutelage of the IAS for six decades, must never forget that, the largest shareholder in the big business, run with public money received as bank loans, is the public and all the pelf and wealth and the money power of these icons and leaders of industry is out of the deposits made by small depositors. The intersts of these poorer stakeholders, being the majority in this democracy too, must never be lost sight of.

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