Bad loans: To speed up recovery process, govt plans SARFAESI, DRT amendments

The Joint Committee on ‘Insolvency and Bankruptcy Code, 2015’ in its report tabled in Parliament on Thursday suggested reducing the time period in case of liquidation of companies. It also suggested setting up an insolvency and bankruptcy board to regulate agencies involved in this area.

The changes in the DRT and SARFAESI (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act will ensure that these legislations are also in tune with the bankruptcy code. These changes are expected to be introduced in the current Budget session, finance ministry sources said.

Finance minister Arun Jaitley on Wednesday said that the SARFAESI Act and DRT Act are being amended to make the recovery process more efficient and expedient.

Changes in the SARFAESI law will also enable non-institutional investors to invest in security receipts issued by asset reconstruction companies (ARC), which purchase bad loans from banks at a discount. In case of corporate bond defaults, the changes will allow bond and debenture trustees to use provisions of SARFAESI Act as well. So far only banks and financial institutions can use these rules in bond default cases.

In the Budget 2016-17, Jaitley had said the government will strengthen the DRTs for speedier resolution of stressed assets and amend SARFAESI Act, 2002.

Widening the scope

# Sources said amendments are being planned in the DRT Act and SARFAESI Act, in line with the proposed Bankruptcy Code, which has been cleared by the parliamentary joint committee

# The priority for recovery given to creditors in case of loans default will be synchronised in these recovery laws

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