Banks aiming at soft targets to initiate recoveries

Banks are zeroing in on 'soft targets' when it comes to initiating recovery action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

The litigious big fish, however, are stalling recovery proceedings by getting stay orders from various high courts.

Capitalising on the fact that small borrowers (those from the small scale industry, traders, etc) do not normally have the wherewithal to approach the courts to stop the recovery process, banks are serving recovery notices, which gives borrowers 60-days notice period to pay-up or lose all, with unusual alacrity.

Bankers admit that small borrowers are relatively 'soft targets' as they are not in a position to drag the creditors to the court due to the exorbitant court fees. In sharp contrast, the big borrowers have no problems in taking the banks head-on in the court.

"The innumerable repossession notices served indicate that the banks are effectively targeting small borrowers. Banks are taking possession of flats of small borrowers in far-flung suburbs. However, when it comes to the big borrowers, who have taken loans running into crores of rupees, action is not forthcoming because of stay orders," an industry observer clued in to the developments said.

Taking a cue from the Mardia Chemicals case, big borrowers have approached various high courts challenging attachment notices and the courts have been routinely granting stay orders against operation of the Act.

This despite the fact that the Sarfaesi Act provides a framework whereby banks and financial institutions can seek to realise the security given to them by borrowers without intervention of courts.

Bankers point out that a clause pertaining to adjudication of debt could be introduced in the Sarfaesi so that borrowers can make a counter-point relating to loan documents, deed of guarantee, statement of accounts etc.

Public sector banks had managed to recover only Rs 440 crore from 7,656 sticky accounts between June 21, 2002 "" when the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) was passed "" and March 31, 2003.

Twenty-seven public sector banks (PSBs) had sent notices to 28,866 entities for recovering Rs 10,171 crore under the Sarfaesi Act during the period.

Recovery process under the Sarfaesi has been bogged down as the Supreme Court has stayed the sale of security under the Act in the case of Mardia Chemicals vs ICICI Bank.