Lok Sabha approves Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011

Lok Sabha approved Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 which seeks to change the system of debt recovery. The Bill seeks to convert any part of debt of a defaulting company into shares by the asset reconstruction company.

Why this amendment was essential? How the current amendment would help?

Why this amendment was essential?

In current scenario, where Non-Performing Assets (NPAs) of all nationalized banks in India stand at Rs 1.23 lakh crore which are currently equivalent to approximately 3.5 % of total loans, it was imperative on the behalf of government   to ease the burden of NPAs on banks and financial institutions (FIs) which were facing numerous problems in recovery of defaulted loans on account of delays in disposal of recovery proceedings. The Government, therefore, enacted the RDBF Act (Recovery of Debts due to Banks & Financial Institutions) in 1993 and SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) in 2002 for the purpose of expeditious recovery of non-performing assets (NPAs) of the banks and FIs. Although these two acts have helped in reducing the NPAs, banks have sent certain suggestions for further strengthening of the secured creditor rights.

How the current amendment would help?

• The Bill seeks to amend the SARFAESI Act and RDBF Act so as to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions through the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011.
• It would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of the 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.
• It would enable banks to ameliorate their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, etc. without fearing for recovery, thus bringing about equity. Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information.

Month: Current Affairs - December, 2012