IBA appeals against HC order on debt

The Indian Banks Association (IBA) today joined three major private banks in appealing against the Gujarat High Court ruling in the case of assigning of debt.

The Supreme Court bench, headed by Justice S H Kapadia, asked all parties not to take any step in realising debts until it hears the appeals in detail next Monday.

The banks claim that the assigning of debts by banks is an accepted practice internationally. However, the High Court had ruled last month that the practice was not permissible under the Banking Regulation Act, 1949. It held that the contracts of assigning debts were illegal and the assignee banks could not be substituted for original lenders (assignor bank) in proceedings related to sick companies pending before courts.

Three private banks, ICICI Bank, Kotak Mahindra Bank and Standard Chartered Bank, contended that the High Court order went against the efforts of the Reserve Bank of India in enabling the banking sector to deal with the increasing non-performing assets (NPAs) by opening a regulated secondary market for NPAs under the guidelines issued by the central bank in 2005.

Private banks identify non-performing assets and assign them for realisation. It is permitted by the RBI to sell debts.

The high court’s interpretation is likely to render the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 redundant and has created serious financial, accounting and commercial complications in the banking sector, they claim.