Amidst rising non-performing loans, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) was the most potent tool in the hands of banks for recovering bad loans.
The Sarfaesi Act empowers banks and financial institutions to recover their non-performing assets without the intervention of courts.
The Act provides three alternative methods for recovery of non-performing assets — securitisation, asset reconstruction and enforcement of security — without the intervention of courts.
According to the RBI’s Report on Trend and Progress of Banking in India, 2012-13, banks have recovered Rs 18,500 crore through the Sarfaesi route. Also, in terms of efficiency, the Act has proved to be more effective than the debt recovery tribunals (DRTs) or mediation by Lok Adalats.
Pratip Chaudhuri, former SBI Chairman, in an interview to Business Line in September had said that stay orders by DRTs led to delay in recoveries.
“Under the Sarfaesi Act, notice is served and two-months’ time is given to the borrower to discharge his liabilities, but Debt Recovery Tribunals (despite clear instructions from the Supreme Court that they cannot give stay orders on Sarfaesi) are still giving stay orders. And not one (order) has been justified.
“Eventually, the stay order is lifted but in the process one to one-and-a-half years is lost, without any benefit to anybody,” he had said.
Also, the rising levels of stress across the banking system was reflected in the fact that the number of cases under all the three mechanisms saw a massive increase of 66 per cent to 10.45 lakh cases.