Govt to amend SARFAESI & DRT Acts to help banks recover bad loans

Mumbai: As the banking system faces witnesses rising bad loans, the Finance Ministry today said it is planning to amend the relevant laws to help banks recover money in case a promoter becomes wilful defaulter.

Financial Services Secretary G S Sandhu said changes are needed in Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act (SARFAESI) and debt recovery tribunal (DRT) laws to effectively deal with the issue of bad loans, especially those being created by suspected wilful defaults.

The proposed amendments to these Acts will empower banks to forcefully bring in a new management where a promoter has defaulted wilfully. The new laws may be in place as early as in the winter session of Parliament, he said here.

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“We have taken an exercise to amend SARFAESI and DRT Acts. There are several lacunae in these laws which we need to address because due to those lacunae borrowers often resort to long-drawn litigation and the money doesn’t come back to the bank,” Sandhu said on sidelines of IBA annual general meeting. He said it is very difficult and arduous to undertake management change in defaulting companies as the tendency of the promoters is not to leave even if they cannot run the company or provide additional funding to revive it.

“So, we have to provide a legal provision to force them (wilful defaulters) to move out and bring in somebody else who can provide additional capital, run the unit and pay the money to the banks. That is the provision we are going to add,” Sandhu said, adding the amendments will be hopefully completed by the winter session of Parliament.

“We are advising the banks that any bonafide action they take, they will be protected. We cannot penalise the person otherwise no one will take decisions,” he added.

Two of the biggest defaulters currently hogging the limelight are UB Group Chairman Vijay Mallya, whose groundedairline Kingfisher Airlines owes over Rs 4,000 crore to 17 banks, and Winsome Jewellery promoter Jatin Mehta, who owes Rs 6,581 crore to 15 government lenders.

Lenders are now on course to declare both of them as wilful defaulters. The Kolkata-based United Bank of India hasalready tagged Mallya a wilful defaulter. Sandhu said rising NPAs is a cause of worry and banks have to gear up their recovery mechanism and strengthen risk management practices.

PTI