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The Finance Ministry has allowed large non-banking finance companies (NBFCs) to take recourse to the SARFAESI law to recover bad loans.
This move comes 16 months after the 2015-16 Budget announcement that allowed expanding the coverage of SARFAESI to certain NBFCs.
In line with the budget announcement, the Finance Ministry has now said that NBFCs with asset base of ₹500 crore or above as per their last audited balance sheet could use the SARFAESI law to demand repayment of defaulted loan.
It has also notified the names of the 196 NBFCs who could avail this recovery tool.
However, the latest move comes with a rider that such NBFCs cannot avail the SARFAESI law in respect of loans less than ₹1 crore.
Not handyThis has come as a surprise for asset-financing NBFCs, who felt that there was no justification to introduce this rider at this stage as the tool may not come in handy for the recovery of most defaulted MSME and retail segment loans.
“We welcome the Finance Ministry move to expand coverage of SARFAESI law to certain NBFCs.
“However, this rider is not justified especially when a similar dispensation is not being prescribed for commercial banks which also do lot of retail and MSME lending,” Raman Aggarwal, Chairman of Finance Industry Development Council (FIDC), told BusinessLine .
FIDC is a self-regulatory organisation representing asset-financing NBFCs.
Aggarwal also highlighted that there was now parity between banks and NBFCs in terms of 90-day period for recognition of non-performing loans. Bringing such rider now only for NBFCs “seems to be imprudent”, he added.
Consultation with RBIWhile asset-financing NBFCs may be unhappy about this rider, a senior Finance Ministry official maintained that this has been introduced after due consultations with the Reserve Bank of India.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers banks and financial institutions to attach pledged assets of the borrower in the event of the non-repayment of dues by the borrower.
Till recently, only banks and financial institutions had recourse to the SARFAESI law.
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