'Moves on to cut recovery time in Securitisation Act'

Moves are afoot to bring in an amendment in the Securitisation Act stipulating that banks should complete the process of recovery of dues under the Act within a year, M R Umarji, chief legal advisor of the Indian Banks Association (IBA) and an architect of the Act, said.

"At present, banks are allowed to complete the process of recovery of dues within three years, but eventually it will have to be done in one year," Umarji said while delivering a talk on the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

The Act, which allows banks and financial institutions to recover dues without going through lengthy legal procedures, should be viewed as a tool to boost credit activity that will help the consumers in the long run, he said.

Umarji said the Securitisation Act gives lenders the comfort of easy recovery, which in turn will boost credit activity in the country.

He said more lending will lead to lesser rates of interest and this will mean that borrowers will get credit at lesser interest rates.

"Although there have been contentions against certain provisions in the Act, which came into force in June 2003, the fact remains that the money advanced by banks is the money of depositors and it has to be recovered," he said.

Unlike some South Asian countries, where legislations like the Securitisation Bill were introduced to save the banking system from collapsing because of high non-performing assets, the Securitisation Act in India is meant to strengthen the banking system and was necessary in the new era of globalisation, he said.

He said under the Act, the borrower can appeal only after possession is taken over by a bank or a financial institution. "The fear of losing possession is the actual cause of the high recovery of NPAs observed across the banking sector," he said.

Umarji, however, said the part of the Act that deals with auctioning or selling off part of the properties and clearing debts using the amount recovered is yet to become operational in the way it should.

"This part will take a bit longer to stabilise although the notices and attachment part has become truly operational," he said.

He said while public sector undertakings, private and co-operative banks can use the Securitisation Act, regional rural banks have been kept out of its purview. Recently, Asian Development Bank sought to be included in the list of banks that can use the Act and this request has been granted, he said.

Umarji said provisions of the Act cannot be used if 80 per cent of the loan, including principal and interest, had been repaid and that banks could initiate proceedings under the Act only after a 90-day default period, in which a study must be done whether any other method can be used to recover dues.

Earlier, RBI regional director Vani Sharma said the NPA levels in the Indian banking industry are far higher than the global standards and a tool like the Securitisation Act will go a long way in correcting the situation.

She said the Securitisation Act has become all the more crucial because the debt recovery tribunals have not been able to cut down delays in recovering dues from defaulters.

"The Act has paved the way for out-of-court settlement of cases and borrowers are drawn to the negotiating table much faster. More importantly, the constitutional validity of the Act has been upheld by the Supreme Court although it was challenged by several persons," said Sharma.