Parliament today passed a bill which empowers banks to confiscate security in the case of loan default, a development that assumes significance in view of the episode surrounding industrialist Vijay Mallya.
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, will not, however, apply to loans for agricultural land as well as student loans.
The bill, approved by Lok Sabha last week and cleared by Rajya Sabha today, amends four laws -- Sarfaesi Act, DRT Act, Indian Stamp Act and Depositories Act.
Replying to a debate on the bill, Finance Minister Arun Jaitley emphasised the need for "firmness coupled with fairness" in recovering bad loans.
He said the banks must be empowered to take effective legal action against defaulters and the insolvency law, securitisation law and DRT law are steps in that direction.
"So far the laws were in favour of the defaulters. We tried to correct the balance. There should be firmness, coupled with fairness in recovery of loans," he said.
He said banks should take a "compassionate view" on education loan defaults but there will be no waiver and somebody will have to pay.
The Minister further said that fears regarding farm and education loans are "exaggerated".
Jaitley said banks are supposed to give loans and "if banks start squeezing loans", there will be no economic growth.
"The cause of worry is when loan becomes either NPA or stressed asset or the activity in which the loans are invested is not generating money," he said adding in some cases there will be willful default.
The development assumes significance as it comes against the backdrop of the episode involving Mallya, who owes Rs 9,000 crore to banks, but has left the country to take refuge in England.
Jaitley said if loan has been taken it must be repaid.
The Minister said stressed assets were mostly in sectors such as steel, power and textile.
The law simplifies the procedure which ensures quick disposal of pending cases of banks and financial institutions by Debt Recovery Tribunal (DRT).
DRTs will have to dispose a case in 180 days and the affected party will have to deposit 25 per cent of the amount if he or she chooses to appeal against the order. There are around 70,000 loan related cases pending in the DRTs.
To further stress his point, he said 20 people sitting on bank money prevent the lender from giving credit to another 20,000 people.
It should not happen that a bank manager has to keep awake all night after he clears a loan, he said.
In an apparent reference to Mallya, the Finance Minister
wondered why the Supreme Court permitted the defaulter to be represented by his lawyer.
"The most controversial case going on is of the person who has not paid and has now moved on to London...And the kind of unusual facilities which were given even by the apex court when they said even in a hearing for a willful defaulter.
"Don't take it as a precedent but for this particular person allow his lawyers to represent. The banks never allow lawyers to come up in a hearing for willful defaulter but what was so special about him," Jaitley said.
The Finance Minister further said there cannot be situation where "the bank manager has to keep awake and you sleep well. This principle needs to be reversed in India".
DRT amendments, he said, are intended to create this new procedure so that recoveries in DRTs become easier.
"It's only when business people who are willful defaulters, when they are asked to vacate their house that they pay," Jaitley said.
With regard to concerns expressed about education loans, the Minister said some compassion has to be shown, but the loan cannot be written off.
Jaitley said education and farm lands have been kept out of the purview of the securitisation.
The law aims at faster recovery of debt by PSU banks, which are grappling with Rs 4 lakh crore of NPAs and Rs 8 lakh of stressed assets. The bill was then referred to the Joint Parliamentary committee.
On education loans, the Finance Minister said there are higher NPAs as far as student loans are concerned, but then these are all areas where banks are supporting students to get educated.
"It's a responsibility of the students that when they start earning to repay back and I think in case some more time is granted an element of compassion will have to be seen in the context of this factor. But you can't waive-off the loan. Somebody has to pay for that loan...," he added.
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Earlier, Ravi Prakash Verma (SP) referred to the Mallya case and said there is a tendency developing that big companies avail of loans against their brand value.
He called for proper evaluation of financial assets to recover loans.
"We require such laws where financial market is regulated and debt recovery is facilitated," Verma said.
Harivansh of the JD(U) said corporates houses and "big fish" should be dealt with and "put in the net".
Referring to Kingfisher Airlines, he said Mallya was involved but not the sole offender. He noted that 10,000 employees belonging to the airline had got affected.
T Subbarami Reddy of Congress said he was "very happy" to support the bill as he noted that banks are in a bad shape and in dire need of capital infusion by the government.
He said the amendments will enable non-institutional investors to invest in security receipts by asset reconstruction companies (ARCs).
"The bill aims to strengthen hands of financial authorities to recover money from debtors whom they have given loans making banks strong," Reddy said.
He expressed appreciation that RBI has been empowered to regulate asset reconstruction companies (ARCs).
The government should have a mechanism to see that banks, financial institutions are properly guided to give a helping hand to temporarily sick institutions, he added.
Bhupender Yadav (BJP) termed it as another step of economic reforms by the government to facilitate ease of doing business.
He said the legislation will bring transparency and create an atmosphere of accountability.
A Navaneethakrishnan (AIADMK) said the Bill has very good provisions to recover debt.
However, referring to the case of a student named Lenin belonging to Tamil Nadu who committed suicide, he alleged ARCs were taking coercive steps to recover loans.
Navaneetha Krishnan said that depending upon the quantum of loan amount defaulted, there should be applicability of SARFAESI, pointing out that the harsh provisions under the legislation cannot be applicable to loans below Rs 1 crore, or loans extended to the education and SME sector.
"Central Government must bring an amendment that SARFAESI Act will not be made applicable to education and SME loans," he said, arguing that small borrowers must be kept out of the purview of the Act.
Vivek Gupta of Trinamool Congress said the government should think how much power is given to the banks, alleging that lenders directly go to guarantors leaving the loanees out.
He said the Debt Recovery Tribunals (DRTs) should be increased and their vacancies filled.
