Banks are letting off big debtors under the ruse of restructuring instead of using the securitisation law against them.
The size of debts rescheduled by banks and financial institutions in the country tells its own story. Our industrialists are indulged by secured creditors, led by state-owned banks. This points to successful influence-peddling being at the back of the creditors’ reluctance to read the riot act to them.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act), was a godsend for the harried secured creditors saddled with non-performing assets (NPAs), an American euphemism for bad debts.
It empowers them to seize the assets mortgaged by the recalcitrant borrowers, with the help of the magistrate, and go on to realise the best price for the seized assets, all without the sanction of the court.
To be sure, seizures under this law do happen but, more often than not, the borrowers turn out to be small-timers, sometimes retail loan-takers — which is like using a sledgehammer to swat a fly. It is, however, pretty apparent that the might of the new law has not been used to recover the dues owed by Kingfisher Airlines and other big-ticket defaulters to the banking system.
Section 35 of the Sarfaesi Act gives its provisions an overriding effect over anything to the contrary contained in any other law that obviously includes the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
It is another matter that the the Odisha High Court has ruled otherwise in the Noble Aqua case, against which State Bank of India, the lender, has appealed to the Supreme Court. What perhaps has queered the pitch for the secured creditors is Section 37 of the Sarfaesi Act that goes on to say that the Act is in addition to, and not in derogation of, any other law in force.