Banks, financial institutions to get more teeth for loan recovery

Source :BL:NEW DELHI, OCT 13: 2011

Bill to be introduced in winter session of Parliament

Tough times are ahead for home loan and corporate defaulters.

 The Government has decided to introduce the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2001, during the Winter Session of Parliament.

The new Bill proposes to amend nine sections of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and four sections of the Recovery of Debts Due to Banks & Financial Institutions (RDBF) Act, 1993.

The new Bill could bring down lending rates for retail as well as corporate loan.

Among the proposed changes (see chart), one key provision relates to mandatory registration of subsisting security interest (equitable mortgages).

This registration will have to be done within 30 days of the transaction with the Central Registry.

 This is expected to promote innovation in credit information by banks.

Another key proposal is about conversion of debt into equity.

 At present, banks, on directions from the Reserve Bank of India (RBI), decide on corporate debt restructuring on a case-to-case basis

. Now, with change in the law, there would be general provision to convert debt into equity

 in cases of business restructuring or revival under Section 9 of the SARFAESI Act. 

Announcing the Cabinet's decision in this regard, the Information and Broadcasting Minister, Ms Ambika Soni, said, “The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, etc. without fearing for recovery, thus bringing about equity”.

IBA'S SUGGESTIONS

Although banks and financial institutions have the right to acquire assets of the defaulter, it takes too much time to dispose of the assets.

 So, the Government, acting on the suggestions of the Indian Banks Association, has proposed the amendments.

 “These will strengthen the regulatory and institutional framework related to recovery of debts that are due to banks and financial institutions.”

The effort is to reduce the level of non-performing assets (NPAs) of the banks.

 The Finance Minister, too, has expressed deep concern over increasing NPAs. 

Gross NPAs rose to Rs 74,617 crore till March-end 2011,

 from Rs 59, 927 crore in March 2010.

Shishir.s@thehindu.co.in

Keywords:  SARFAESI Act Changes