Loan Recovery Bill Tabled

Finance minister Jaswant Singh today introduced the Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interest Bill in the Lok Sabha without yielding to the industry demand for diluting the stringent provisions to hasten recovery of non-performing assets.

The Bill also provides for the setting up of asset reconstruction companies that will take over the sticky assets of banks to either sell them or recover the loans as a service company. This is expected to clear the huge non-performing assets of the banking system, estimated at over Rs 75,000 crore on March 31, 2002.

The Bill, when passed, will replace the Ordinance issued by the government on June 21 that aims to change the legal system for securitisation and empowers banks and financial institutions to take possession of securities in the event of default and apply foreclosure provisions.

Introducing the Bill Singh said the slow pace of recovery of defaulting loans has led to mounting non-performing assets. The Bill will bring domestic banks and financial institutions at par with international banks, which have the power to take possession of securities and sell them.

In the statement of objects and reasons with the Bill, the government says banks do not have a level playing field because the legal framework has not kept pace with the changing commercial practices and financial sector reforms.

As per the Bill, banks and financial institutions have been given the right to take over the management of companies in the event of default.

The Bill makes no distinction between willful and non-willful default, a distinction sought by industry associations.

It also allows the Centre to extend the provisions to non-banking financial companies and other entities. But it will not be applicable to security in agricultural land, loans not exceeding Rs 1 lakh and cases where 80 per cent of the loan has been repaid.

There is also a provision to set up a central registry for registration of transactions relating to securitisation, asset reconstruction and creation of security interest. This will enable the development of a market for securitised assets.

The legislation provides for appeal against the action of any bank or financial institution with debt recovery tribunals and a second appeal with the appellate debt recovery tribunal.

The government also introduced the Negotiable Instruments (Amendment and Miscellaneous Provisions) Bill to enhance the penalty for bounced cheques. It has also provided discretion to courts to waive the waiting period of before taking cognizance of the offence. Besides, the Bill also makes offences under the Act compoundable but exempts nominee directors.