Government approves changes in two banking laws for banks to recover dues and deal with non-performing loans

Source :14 OCT, 2011, 03.19AM IST, ET BUREAU 

The government has approved amendments in two banking laws to allow banks to recover their dues and deal with their non-performingloans effectively without compromising borrowers' rights. 


The Cabinet approved the introduction of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, in the winter session of Parliament, Information and Broadcasting Minister 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," a government release said

. "Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information," the release added. 


The bill will amend the Securitisation and Reconstruction of Financial Assets and Enforce ment of Security Interest (SARFAESI) Act and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act so as to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions. 


The government had enacted the RDBF Act in 1993 and SARFAESI Act in 2002 for expeditious recovery of non-performing assets (NPAs) of the banks and financial institutions. 


The reworking of the law is timely as banks' non-performing assets are likely to spike because of the slowdown. 


The suggested amendments would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of non-performing assets, Soni said. 


The minister noted that banks and financial institutions were facing numerous problems in recovery of defaulted loans on account of delays in disposal of recovery proceedings. 


Banks had sent suggestions for further strengthening of secured creditor rights acknowledging that these two acts had helped in reducing NPAs. 


According to Department of Financial Services Secretary DK Mittal, four sections of the RDBF Act, 1993, and six sections of the SARFAESI Act, 2002, will be amended. 

Govt paves way for easy loan recovery by banks

Source :BS Reporter / New Delhi October 14, 2011, 3:35 IST



The Cabinet on Thursday cleared two amendment Bills paving the way for banks to recover loans from errant borrowers. The move would also help the financial institutions to reduce their non-performing assets and release funds for home, retail or corporate credit needs.


The Bills to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act were listed in the Budget for 2011-12 as one of the financial sector reforms that the government would carry out this fiscal.



The Sarfaesi Act, 2002, allows banks and financial institutions to auction properties of borrowers if they fail to repay their loans. It also envisaged to securitise and reconstruct the financial assets through two special purpose vehicles — Securitisation Company (SCO) and Reconstruction Company (RCO). The RDBF Act, 1993 envisaged summary procedure for ascertainment of dues.



Although the two acts helped banks bring down bad debts, there were certain procedural issues faced by banks. These amendments proposed to simplify these procedures.


For instance, if a borrower had objection to a foreclosure, then the bank had to respond within seven days. If the banks did not respond within seven days, borrowers could go to court and get a stay order. The time limit, now, has been extended to 15 days.


There were also certain powers of chief metropolitan magistrates and district magistrates relating to issuing orders on recovery, but they were not non-delegable. These powers were sought to be delegated to the additional metropolitan magistrate and additional district magistrate as well.


“The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, without fearing for recovery, thus bringing about equity,” said Information and Broadcasting Minister Ambika Soni.


According to RBI data, net NPAs of scheduled banks (excluding regional rural banks) declined to 1.1 per cent of advances in 2009-10, from 7.6 per cent in 1998-99.

Amendments to SARFAESI Act : BA Prabhakar, Bank of India

Source :14 OCT, 2011, 02.50PM IST : ET NOW -TV Interview


In an interview with ET Now, BA Prabhakar, ED,Bank of India,
 gives his views on the amendments made
 in the SARFAESI Act. 


Excerpts: 

What is your first take of the amendments and 

how they speed up the process of actually recovering 

bad debts and bringing down NPAs? 

The details of the proposed amendments are not very clear but what we read from the press is that it is more about the procedural issues that are involved in the invoking of the SARFAESI Act. 

We understand that it enables the government to create an electronic registry for all the mortgages created.

 It is also going to simplify the approval process that banks have to obtain from the District Magistrate or the Metropolitan Magistrate before they really go ahead with the action.

 But we do not have the full details about this proposed amendment. 

If you could highlight with an example,

 about how this act which came into place in 2002,

 will really help banks in bringing down their NPAlevels

 and speeding up the process of recovery for bad debts? 

It has definitely helped the banks improve the recovery performance. 

We need to differentiate the NPA recovery in 2 ways. 

One is: If the NPA has to be recovered through sale of securities, then definitely this act has been helpful to the banks. 

But if we are looking to NPA recovery, then we have to wait for the whole environment to improve and the economy to perform better. 

Then only much of the NPAs can be recovered. 

Most of the NPAs fall in the category which are subject

 to the stresses in the economy and what you can recover

 from sale of security is not a very significant portion. 

What we are finding is in many of the recovery actions taken by us, 

we find that the borrowers immediately go to the courts,

 put stay orders, even though banks are allowed as per the act

 to sell the securities. 

So the whole process of vacating the stay will take time. 

So these are some of the bottlenecks which are being streamlined now. 

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

Banks may get more teeth as govt speeds up loan recovery

Source :6 May 2010, 0528 hrs IST,Dheeraj Tiwari,ET Bureau


NEW DELHI: 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 timeframe 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.