The Lok Sabha today passed a law empowering banks to take possession of collateral in the case of loan default, except for farm land, while Finance Minister Arun Jaitley promised a compassionate view on education loans.
He ruled out any waiver in the event of education loan defaults, saying "some compassion" has to be shown if someone is unemployed and till he gets a job, but the loan cannot be written off.
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, which was passed by voice vote, seeks to amend four laws -- the Sarfaesi Act, the DRT Act, the Indian Stamp Act and the Depositories Act.
The changes in the Sarfaesi Act allow secured creditors to take over a collateral against which a loan had been provided, upon default in repayment. It also provides that the process will have to be completed within 30 days by the district magistrate.
Jaitley said the banks must be empowered to take effective legal action against defaulters, and the insolvency, securitisation and DRT laws are steps in that direction.
"The present law simplifies the procedure by which there will be quick disposal of pending cases of banks and financial institutions by the debt recovery tribunal," Jaitley said.
Jaitley said farm land has been kept out of the purview of the Act.
On concerns expressed with regard to education loans, the minister said "some compassion" has to be shown if someone is unemployed and till he gets a job, but the loan cannot be written off.
Pitching for speedier recovery of debt, he said, "We cannot have a banking system where people take loans and do not repay."
The Bill, which was introduced in the Lok Sabha in May, aims at faster recovery of debt by PSU banks, which are grappling with Rs 4 lakh crore of NPAs and Rs 8 lakh crore of stressed assets. The Bill was then referred to the Joint Parliamentary committee.
The move assumes significance as it comes against the backdrop of the case involving liquor baron Vijay Mallya, who owes Rs 9,000 crore to banks, but has left the country to take refuge in England.
Jaitley said if loans taken are not repaid, the Centre or state budget will have to provide for the waiver.
"If loans are to be waived off, someone has to step in. We should not create a culture that I have taken a loan and I can sleep well and banks should be answerable... Write-off will put banking structure into a position where banks are not able to extend loans," he said.
The Bill also empowers the district magistrate to assist banks in taking over the management of a company in case the company is unable to repay loans. This will be done in case the banks convert their outstanding debt into equity shares and consequently hold 51 per cent or more in the company.
Jaitley said the changes in the law are aimed at simplifying the procedure for quick disposal of pending cases.
The finance minister said loans given by banks induce economic activity and support growth, but what is important is that the loans must be serviced.
When the loans are not serviced for 90 days, they become NPAs, he said, adding that "the banks are often faced with Hobson's choice".
He saw economic downturn, wrong decision on part of the banks and siphoning off of funds as contributory factors for NPAs.
Jaitley also referred to the loans rightly given but which may turn bad because the business cycle takes an adverse turn.
He spoke about sectors like steel, power, infrastructure, highways and sugar turning bad in the past and the government as well as RBI have been taking steps to improve the situation.
A very large part of Rs 8 lakh crore of stressed assets is because of discoms, which is now being addressed through the UDAY scheme, the finance minister said.
Observing that it is important to keep units facing debt problems running and preserve jobs, Jaitley said RBI has taken measures through corporate debt restructuring scheme.
To a member's demand of extending Sarfaesi to systemically important NBFCs, Jaitley said the draft notification has already been issued and the government is waiting for stakeholder comments and will then issue the final guidelines.
