Sarfaesi Act- Easing Bad Debts of Banks in Banking System?

Abstract

The functions of commercial banks have expanded tremendously with the advent of technology. Apart from the primary functions of receiving of money on deposits for lending of funds, investment of funds on securities, modern banks perform miscellaneous, subsidiary, special and para-banking services in addition to its main functions. Lending of funds constitute the main business of commercial banks and they lend funds to the public by way of (i) loan s (ii) overdraft (iii) cash credits (iv) discounting of bills etc., While receiving deposits involves no risk , on the other hand, lending always involves much risk as there is no certainty of repayment. With the increasing Non Performing Assets (NP As) or bad debts, The Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI Act) was enacted in 1993 for the expeditious adjudication and regulation of debts due to banks and financial institutions. However, after the enactment of RDDBFI Act, it was realised that for the recovery of loans and reducing the level of NPAs, additional measures were required to be introduced and it was this purpose , with a view to speed up the recoveries of the Banks and Financial In stitutions (Fls) outstanding by realisation of security interest without the intervention of the court and in order to provide legal framework for securitisation of the assets, Securitisation Act was enacted by the Parliament. However, the Act itself was subject to number of amendments including the latest Amendment Bill of 2016. Still the question remains unanswered whether the banks can recover their bad debts at an easy pace?