The Finance Ministry has now allowed all housing finance companies with asset size of over ₹100 crore to use SARFAESI law to recover dues. This move is expected to be a shot in the arm for thousands of small HFCs, as it will facilitate quick recovery of dues and encourage these companies to lend more.

SARFAESI law, enacted in 2002, empowers lenders to attach the pledged assets of the borrowers in the event of non-payment of dues.

Till now, HFCs with assets over ₹500 crore and notified by the Finance Ministry, were allowed to use SARFAESI law to recover dues. Currently, there are nearly 100 HFCs that are registered with NHB. The top-10 HFCs account for 70-80 per cent of the assets of the housing finance industry.

“Allowing all HFCs with asset size of over ₹100 crore to have recourse to SARFAESI will bring stability to the sector and to the HFCs doing the lending. With this support they will be able to extend loans to more categories and little more freely,” RV Verma, former Chairman and Managing Director of National Housing Bank (NHB), told BusinessLine .

Srinath Sridharan, corporate advisor and independent markets commentator, said the latest move by the Department of Financial Services (DFS) will enable smaller HFCs with AUM between ₹100 crore and ₹500 crore to access the SARFAESI powers.

Risk matrix

Sridharan said that the latest Finance Ministry move will enable the smaller HFCs to improve their collections and develop better risk matrix for accessing wider consumer segments.

Currently, these smaller HFCs don’t have access to quicker resolution to defaulting accounts, he pointed out.

India’s home finance sector has an outstanding of over ₹20 lakh crore, and the banking system accounts for 65 per cent of these assets. The remaining is accounted for lending by the housing finance companies.

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