India finds balance in NPLs recovery and borrower rights

NEW DELHI: The government has approved amendments in two banking laws to allow banks to recover their dues and deal with their non-performing loans 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. (Economic Times)