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Journalism of Courage
The last legislative step has been taken. And now banks and financial institutions are armed with a new law to help them proceed aggressively to recover Rs 70,904 crore worth of non-performing assets (NPAs) stuck with defaulting companies.
The Rajya Sabha today passed the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill 2002 which gives banks the power to seize and sell the defaulters’ assets without getting mired in the courts.
The Bill, passed by the Lok Sabha last week, was cleared after rejecting the statutory resolution moved by Kapil Sibal of Congress seeking disapproval of the Ordinance issued on August 21 this year.
Sibal, when he spoke in the Rajya Sabha yesterday, had opposed the Ordinance route in an ‘‘economic legislation of this magnitude and far reaching effect.’’
For the record, Sibal is also the counsel defending the case of Mardia Chemicals, the first company which challenged the NPA Ordinance in the Mumbai High Court when its assets were sought to be attached by its bankers.
Under the Act, banks can seize and sell assets of defaulters to recover their loans. Replying to the debate on the Bill in the House today, Finance Minister Jaswant Singh also announced one last chance to small defaulters with loans upto Rs 10 crore, to clear their NPAs. Singh said detailed guidelines for this would be issued by the RBI soon.
Such an offer was made last year, the Minister said, but met with ‘‘moderate success.’’ Of the Rs 18,500 crore defaults against public sector banks by 30 lakh borrowers, Rs 3,800 crore was recovered from 9 lakh borrowers who had defaults up to Rs 5 crore each.
The scheme was available till September 30, 2001 in its last leg. ‘‘These recoveries were made with no legislation to back the public sector banks,’’ Singh told the Rajya Sabha. ‘‘Now that we are on the cusp of a legislation, we hope recoveries will be better.’’
Singh said that the Bill had the provision of including the Unit Trust of India (UTI), financial institutions, cooperative banks and the non banking financial companies in its ambit ‘‘with just a government notification.’’
Singh also said that RBI has already put in place a number of yardsticks for formulating responsibility of lenders and the government is considering ‘‘another piece of legislation on lenders’ responsibility.’’
Singh said contrary to perception, 75 per cent of defaulters owe up to Rs one lakh while only 7,000 defaulters owe amounts from Rs one to Rs five crore. He also told the Rjaya Sabha that 66 borrowers fell in the category of borrowers with loans more than Rs 50 crore.
Assuring the House that declaration of default was not arbitrary, the Minister said the RBI has already issued guidelines clearly defining wilful default.
The Minister said that since the government had issued an Ordinance to tackle the problems of NPAs earlier this year, 25 public sector banks have issued notices for recovery of NPAs worth Rs 3,260 crore while financial institutions have also issued notices for recovering another Rs 3,600 crore.
While asserting that debt recovery tribunals (DRTs) could waive the condition of depositing 75 per cent of the amount due by borrowers under certain conditions, Singh said proceedings by the Board of Industrial and Financial Reconstruction (BIFR) will cease only when the 75 per cent deposit condition is met.
T Subbirami Reddy of the Congress wanted to know if it was justified to give sweeping powers to lenders. Earlier, members taking part in the discussion, though supporting the legislation, said in the process of loan recovery caution should be exercised to ensure that the country’s assets built over the years were not destroyed overnight.
Vidhutlai Virumbi (DMK) asked the government to go slow on privatisation of the banks, otherwise the priority sectors like agriculture would suffer. He wanted to know wether the UTI would also be covered by the new Bill.
