Govt tables Amendment Bill to deal with recovery of bad loans

The government on Monday introduced an Amendment Bill in Parliament to enable banks and financial firms to effectively deal with the problem of bad loans.

The move could help bring down lending rates for home and corporate loans, experts said. Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, which was introduced by minister of state for finance Namo Narain Meena in the Lok Sabha, seeks to strengthen recovery process of secured loans.

It seeks to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act 1993.

The amendment in SARFAESI Act will "provide for conversion of any part of the debt into shares of a borrower company and such conversion shall be deemed always to have been valid as if the provisions of said conversion were in force at all material times."

Besides, it seeks to bring multi-State cooperative banks under the category of the bank.

At the same time, it will enable to increase the period of response to be sent by the banks or financial institutions to the representation of the borrowers to 15 days from 7 days.

It will also empower banks or financial institutions to accept the immovable property in full or partial satisfaction of the claims of the bank against the defaulting borrower.

The amendment will allow district magistrate or the chief metropolitan magistrate to authorise any subordinate officer to take possession of assets or forward assets to the secured creditors.

The Bill has also proposed to amend the RDBF Act 1993 that among other things would "enable the banks and financial institutions to enter into settlement or compromise with the borrowers and also to empower
Debts Recovery Tribunals to pass an order acknowledging such settlement or compromise."

It also seeks "to permit the multi State Cooperative banks, with respect to debts due before or after the commencement of the proposed legislation, to opt either to initiate proceedings under the the Multi-State Co-operative Societies Act 2002 or to initiate proceedings before the Debt Recovery Tribunal."

To ensure expeditious adjudication and recovery of dues of banks and financial institutions, remove legal anomalies and strengthen the Recovery Tribunal, the RDBF Act was amended in the years 1995, 2000 and 2004, the Bill said.

"Once the Bill is cleared, procedural changes in loan recovery is expected to lower the cost of funds for borrowers," Ernst & Young partner Ashvin Parekh said, adding that risk premium on secured loans will soften.