The Bill to amend the existing Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest (SARFAESI) Act, & the Debt Recovery Tribunal (DRT) Act has been passed in both Lok Sabha & Rajya Sabha.
NECESSITY OF THE BILL:-
- The problem of rising Non-Performing Asset (NPA) is well known.
- Defects in the existing debt recovery process have further added to the problem of NPAs. For example, more than 70,000 cases are pending before Debt Recovery Tribunal (DRTs).
- SARFAESI and DRT were imagined to guarantee quick disposal of cases. However, they have not met the expectations.
- The Bill seeks to address this issue. It will modify following four Acts:
2) The Recovery of Debts due to Banks and Financial Institutions Act, 1993,
3) The Indian Stamp Act, 1899; &
4) The Depositories Act, 1996.
SALIENT FEATURES OF THE BILL:-
1) SARFAESI
- It allows banks to take possession of collateral security within 30days.
- Expansion of regulatory powers of RBI over Asset Reconstruction Companies (ARC).
- RBI will get more controls to audit & review any ARC as well as the freedom to remove the chairman or any director & appoint central bank official to its board.
- RBI will be allowed to levy penalties for non-compliance with its directives & control the fees charged by these companies to banks at the time of acquiring such assets.
- The bill recommends to broaden the scope of the registry that will house the central database of all loans against properties given by all lenders.
- Bill provides that secured creditors will not be able to take control over the collateral unless it is registered with the central registry. Further, these creditors, after registration of security interest, will have importance over others in repayment of dues.
- Enable secured creditors to take over a company and restore its business on acquisition of controlling interest in the borrower company.
2) DRT
- To move towards online DRTs- electronic filing of recovery applications, documents and written statements.
- Establishing a time bound process
- Taking account of interest of creditors- 50% of the debt has to be deposited with DRT for filing an appeal.
- The bill also suggests to amend the Indian Stamp Act so that stamp duty will not be charged on the transfer of financial assets in favour of ARCs.
- The bill will pave the way for the sponsor of an ARC to hold up to 100% stake. It will also permit non-institutional investors to invest in security receipts issued by ARCs and mandate a timeline for possession of secured assets.
- By fast-tracking the recovery procedure for banks and other financial institutions.
- Widens the space of the central registry that will house the central database of all loans against properties given by all lenders.
