NEW DELHI: Banks will be allowed to take property seized from defaulting borrowers onto their own books, or in effect 'buy' the asset they sequester, thus reducing their non-performing loans, according to a revised securitisation law awaiting parliamentary sanction.
In effect, this would allow banks to clean up their books but at the risk of being saddled with an asset worth far less than what the bank paid for it.
This change, which forms a part of the proposed amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi), introduced last week, comes at a time when banks face the risk of rising non-performing loans, and of being saddled with property seized from borrowers unable to pay back their loans.
Worse, a weak property market means that banks may be unable to find buyers for the property they have seized — at least at the price they want.
The same set of amendments also propose to give the finance ministry wide-ranging powers to notify certain types of banks to whom the provisions of Sarfaesi will not apply, or apply only with certain 'exceptions, modifications and adaptations'.
It also brings multi-state co-operative banks within the ambit of Sarfaesi and allows asset reconstruction companies (ARCs) to convert debt into equity as part of a restructuring. At present, Sarfaesi allows banks and ARCs to seize assets from loan defaulters, which in many cases include immoveable property. Banks then typically hold an auction to sell the property.
However, if a bank is unable to find buyers willing to bid above the reserve price, or the minimum bid amount, it currently has little option but to postpone the auction to a future date, and hope for a better bid.
Under the proposed changes, in case of a failed auction, the bank can depute one of its own officers to bid for the property at the reserve price at any future auction. If there are no other bidders yet again, or the bank's own bid is the highest, the property stands 'sold' to the bank. Under current law, a bank is not allowed to bid for property it puts up for auction.
"This is allowed under the Civil Procedure Code and the incometax recovery laws," said MR Umarji, chief advisor-legal, Indian Banks' Association. The changes also apply to ARCs.
No comments:
Post a Comment