Sarfaesi Act most effective tool to recover

bad loans: Report

Facilitates recovery without intervention of courts
Mumbai, Nov. 22:
Amidst rising non-performing loans, the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act (Sarfaesi Act) was the most potent tool in
the hands of banks for recovering bad loans.
The Sarfaesi Act empowers banks and financial institutions to recover their non-performing
assets without the intervention of courts.
The Act provides three alternative methods for recovery of non-performing assets
securitisation, asset reconstruction and enforcement of security without the intervention of
courts.
According to the RBIs Report on Trend and Progress of Banking in India, 2012-13, banks
have recovered Rs 18,500 crore through the Sarfaesi route. Also, in terms of efficiency, the
Act has proved to be more effective than the debt recovery tribunals (DRTs) or mediation by
Lok Adalats.
Pratip Chaudhuri, former SBI Chairman, in an interview to Business Line in September had
said that stay orders by DRTs led to delay in recoveries.
Under the Sarfaesi Act, notice is served and two-months time is given to the borrower to
discharge his liabilities, but Debt Recovery Tribunals (despite clear instructions from the
Supreme Court that they cannot give stay orders on Sarfaesi) are still giving stay orders. And
not one (order) has been justified.
Eventually, the stay order is lifted but in the process one to one-and-a-half years is lost,
without any benefit to anybody, he had said.
Also, the rising levels of stress across the banking system was reflected in the fact that the
number of cases under all the three mechanisms saw a massive increase of 66 per cent to
10.45 lakh cases.
(This article was published on November 22, 2013)



IV. TOOLS FOR RECOVERING NPAS
Lok Adalats
To settle disputes involving account in doubtful and loss category.
Outstanding balance of Rs. 5 lacs for compromise settlement.
Proved to be quite effective for speedy justice and recovery of small loans.
Debt Recovery Tribunals (DRT)
To recover bad debt quickly and efficiently.
DRT has powers to grant injunctions against the disposal, transfer or creation of third party
interest by debtors in the properties charged to creditor and to pass attachment orders in respect of
charged properties
In case of non-realization of the decreed amount by way of sale of the charged properties, the
personal
properties if the guarantors can also be attached and sold.
It is the special court established by Central Government for the purpose of bank or any financial
institutions recovery.
The judges of the court are the retired judges of high court.
SARFAESI act, 2002
The Act provides three alternative methods for recovery of non-performing assets, namely
Securitization
o Asset reconstruction
o Enforcement of security without the intervention of the court.
NPA loans with outstanding above Rs. 1. Lac.
NPA loan accounts where the amount is less than 20% of the principal and the interest are not
eligible to be dealt with this act.
This act empowers the bank:
To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge
their dues in full within 60 days from the day of the notice.
To give notice to any person who has acquired any of the secured assets from the borrower to
surrender the same to the bank.
To ask the debtor of the borrower to pay any sum due or becoming due the borrower.
Any security interest created over agricultural land cannot be proceeded with.
Asset Recovery Construction Industry Limited
(ARCIL)
A company which is set up with the objective of taking over distressed assets from banks or
financial institutions and to reconstruct or re-pack these assets to make those assets saleable.
To buy out troubled loan from banks and make special efforts at recovering value from the assets,
if necessary by special legislation, with special powers for recovery.
Restructuring of weak banks to divest the bad loan portfolio.
BIFR and AAIFR
BIFR has been given the power to consider revival and rehabilitation of companies under the Sick
Industrial Companies (Special Provisions) Act of 1985 (SICA), which has been repealed by passing of
the Sick Industrial Companies (Special Provisions) Repeal Bill of 2001.
The Board of Directors shall make a reference to BIFR within sixty days from the date of finalization
of the duly audited accounts for the financial year at the end of which the company becomes sick.
The company making reference to BIFR to prepare a scheme for its revival and rehabilitation and
submit the same to BIFR the procedure is same as laid down under the CPC.
The shelter of BIFR misused by defaulting and dishonest borrowers