The Hindu Business Line : Budget promise to amend Securitisation, DRT Acts

MUCH to the relief of bankers, the Finance Minister has agreed to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act and even the Debt Recovery Tribunal (DRT) Act to speed up the bad loan recovery process.

The Sarfaesi Act had been made pretty much a `toothless tiger' with the Supreme Court ruling that borrowers could stay proceedings by banks without any deposit amount. Earlier, the deposit amount had been fixed at 75 per cent of the outstanding debt. The apex court's concern had been that small borrowers would not get adequate notice and opportunity to make a settlement. Following this ruling earlier in the year, banks have been in trouble, with borrowers staying proceedings by banks to seize and sell their assets.

The banks' actions against lenders were since stalled at every juncture in their attempt to make recoveries from wilful defaulters. A classic case was that of ICICI Bank vs Mardia Chemicals in which the borrower, Mr Rasiklal Mardia, procured a stay from the Ahmedabad Debt Recovery Tribunal to stall ICICI Bank from taking over its properties.

Said Ms Kalpana Morparia, Deputy Managing Director, ICICI Bank, "The FM's announcement to amend the Act is a very positive one for the banking sector. Perhaps the deposit amount required from borrowers could be revived keeping in mind the Supreme Court's concerns, at maybe a lower amount."

"The DRT Act may be amended to give the DRT judge more discretionary powers in granting a stay against the lenders' proceedings. This would uphold the Supreme Court's concerns by giving any borrower a right to appeal, but a stay would be granted only if the grounds were sound. This way, not every frivolous appeal by a defaulter would end up in a stay," said a legal expert.

The new Government's strong intention to deal with the slowed recovery issue right in its first Budget itself highlights its commitment. Although amendments to the Acts may be a long-drawn out process with both the Houses of Parliament required to pass the amendments, bankers feel the Finance Minister's announcement is very timely with interest rates headed northwards. Higher interest rates would mean lower treasury income; treasury profits had been used actively to wipe out banks' bad debt over the last two years. In the coming years, recoveries of bad debts would certainly push banks' bottom lines.

Mr M. Balachandran, Executive Director, Bank of India, said the proposed amendment to the SARFESI Act would enable better NPA recovery. "The stance on interest rates indicated stability in the regime. With this, the bond prices are also likely to remain attractive"' he said while commenting on the Budget proposals.

Mr A.K. Purwar, Chairman, State Bank of India, said the increase in the FDI cap in infrastructure, civil aviation, telecom, and insurance and in the debt market could help broaden and deepen the capital markets.