Letters: Banking on the Sarfaesi Act

This refers to M J Antony’s column “Creditors in a domineering role” (Out of Court, August 15) that portrays the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act as a harsh and draconian legislation. It alleges that banks don’t distinguish between wilful defaulters and marginal people who are defaulters and that banks don’t adopt alternate remedies before resorting to the provisions of the Sarfaesi Act. The most derogatory remark the piece makes is that during the auctions of secured assets, there are manipulations in prices and banks adopt dubious stratagems through private treaty.

The Sarfaesi Act was a remedy brought out by the government of India to sort the menace of non-performing assets (NPAs). Its constitutional validity was upheld by the Supreme Court. The Act can be invoked when an account becomes an NPA according to the norms set by the Reserve Bank of India (RBI). Banks only endeavour to recover NPAs (bad loans) and there can’t be any discrimination among their borrowers. However, if borrowers are wilful defaulters, banks ensure that their names are included in RBI’s wilful-defaulters list to ensure that such borrowers are not able to avail of further credit facilities from banks.

Banks auction the property after due notice and publication in two newspapers. The upset price (floor price) is fixed after obtaining the valuation from an approved valuer and the sale is carried out in a transparent manner through auction. Sale through private treaty is done only in exceptional cases in which the owner of the asset (property) has given consent for such a sale. Moreover, whenever objections are received from borrowers, they are considered by an authority in the bank by way of grievance redressal. Thus, there is a well-instituted mechanism for the enforcement of the Act. The allegations made in the column are far-fetched and the cases quoted are only exceptions.

The recovery of a bank’s money is for a public cause. The Supreme Court has time and again emphasised that public cause should be given preference over individual grievances. I re-emphasise that in the State Bank of India, the Act is enforced in letter and spirit and no discriminations are made by bank authorities.

R Mohan Deputy General Manager 
(Law Department) State Bank of India Chennai

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