Defaulters dodge loan recovery law summons with High Court stay

Source : B L :S. Bridget Leena :Chennai, Jan. 3


 Has the SARFAESI Act, arguably the most important means of recovery of bad loans, been losing its teeth in recent times?


The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, acted as a powerful weapon for bankers to recover loans by auctioning the bad assets of the borrower in three months' time.


In comparison, the Debt Recovery Tribunal (DRT) and Lok Adalats take years to recover these loans.


According to Reserve Bank of India data, there has been a steady fall in the amount of bad loans recovered under SARFAESI Act, as a per cent of the total amount of bad loans involved under this channel — a trend seen between 2008-09 and 2009-10.



Stay from High Court


Mr A.K. Bansal, Executive Director, Indian Overseas Bank, said that big borrowers with outstandings of over Rs 10 crore, stall the bank's efforts in taking possession of assets under SARFAESI Act, by getting a stay from the High Court or the Debt Recovery Tribunal.

A senior General Manager of a public sector bank said that nine out of 10 borrowers, who have been issued notices under SARFAESI, take banks to DRT to buy time.



No civil court (with the exception of the High Court) has judiciary powers when it comes to SARFAESI Act (Section 34).



Under the Securitisation Act, banks should be able to recover their bad debt in three months' time (with a notice period of 60 days). However, due to a large number of cases pending with the judiciary, it takes close to a year or more before banks can take possession of the property for auction, said the General Manager.



Currently, Indian Bank has issued SARFAESI notices to about 10,000 bad loans amounting to Rs 1,000 crore.



Sluggish property market


Adding to the banks' woes is the sluggish nature of the property market in the last two years, due to which banks were unable to recover the loan amount from such auctions.


One and half years ago, a major bank could not find bidders at an auction for a property in Thyagaraja Nagar (T.Nagar), in the heart of Chennai, for Rs 1.5 crore. Today, the same property has been sold for over Rs 4 crore.