The Centre has no plans or any proposal to repeal the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI law), the Lok Sabha was informed on Monday.

“There is no such proposal,” Bhagwat Karad, Minister of State for Finance, said in a written reply in the Lower House.

What is the law?

SARFAESI law  allows banks and financial institutions to recover their dues exceeding ₹1 lakh by proceeding under the provisions of the SARFAESI Act.  The SARFAESI law, enacted in 2002, empowers lenders to attach the pledged assets of the borrowers in the event of non-payment of dues. 

The RBI does not maintain State-wise details of proceedings initiated under the SARFAESI law. However, per Report on Trends and Progress of Banking, published by RBI for the year 2016-17, 2017-18, 2018-2019, 2019-20 and 2020-21, the number of cases referred by Scheduled Commercial Banks under SARFAESI Act, for the FY 2016-17, 2017-18, 2018- 19, 2019-20 and 2020-21 are 1,99,352, 91,330, 2,35,437, 1,05,523 and 57,331 (provisional), respectively.

Debt recovery

Last year, in mid February, the Finance Ministry had operationalised a Budget announcement that lowered the minimum loan size eligible for debt recovery by NBFCs under the SARFAESI law to ₹20 lakh from ₹50 lakh. The move came in handy for large non-banking finance companies with a minimum asset size of ₹100 crore for making loan recovery under SARFAESI. This meant that home loans to lower or middle income groups as well as loans extended as Loans against Property for small and medium businesses were also covered for recovery using this route in case of defaults. 

The Finance Ministry had, last year, allowed all housing finance companies with asset size of over ₹100 crore to use SARFAESI law to recover dues. Previously, HFCs with assets over ₹500 crore and notified by the Finance Ministry were allowed to use SARFAESI law to recover dues. 

Currently, there are nearly 100 HFCs that are registered with the National Housing Bank. The top 10 HFCs account for over 70 per cent of the assets of the housing finance industry.

India’s home finance sector has an outstanding of over ₹20 lakh crore, and the banking system accounts for 65 per cent of these assets while housing finance companies account for the rest.

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