Banks may be allowed to accept immovable property to settle claims

The Hindu - Business Line  New Delhi, Dec 12: 

Banks and financial institutions may soon be allowed to accept immovable property in full or partial satisfaction of claims against defaulting borrowers. A proposal to this effect has been made in a new Bill introduced in Lok Sabha on Monday to amend the existing Sarfaesi law.

Currently, banks are not empowered to accept immovable property in full or partial satisfaction of the claim against the defaulting borrower, if no bidder comes to bid or banks are unable to find a buyer for such assets. Banks, as secured creditors, are, however, permitted to sell the securities to realise the defaulted loans.

This Bill — The Enforcement of Security Interest and Recovery of Debt Laws (Amendment) Bill 2011 — was introduced by Mr Namo Narain Meena, Minister of State for Finance.

It provides for mandatory registration of all securitisation, reconstruction and creation of security interest transactions in the Central registry. All such transactions that are subsisting on or before the establishment of the Central registry will also have to be registered, the Bill has said.

The Bill would also enable securitisation firms to convert any part of debt into shares of the borrowing company. At present, reconstruction or securitisation firms cannot convert their debt into equity in cases of business reconstruction, rehabilitation or revival.

Another significant proposal relates to allowing multi-state co-operative banks to initiate proceedings through debt recovery tribunals (DRTs). Also, banks or any person will soon be empowered to file a caveat so that before granting any stay, they are heard by the DRT.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (Sarfaesi) was enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest.