Banks seek amendment to debt recovery act of 1993

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Mumbai, Jan 10: Banks are seeking changes in the Recovery of Debts Due to Banks and Financial Institutions Act 1993, so that they can initiate recovery proceedings under the Sarfaesi Act 2002, by taking permission from the Debt Recovery Tribunal (DRT), before which recovery proceedings may be pending.

The Indian Banks’ Association (IBA) has written to the finance ministry, requesting the changes. As per the recent amendment to Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act 1993, banks, which have proceeded against defaulters in the DRT, have to first withdraw the case before the tribunal in order to initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act.

According to MR Umarji, chief legal adviser, IBA, the issue of the recovery cases getting time barred, has the banks worried. Banks initiate recovery measures once a borrowal account is classified as sub-standard. The time within which banks have to make good their recovery is three years, else the case gets time barred.

“The latest amendment to the Recovery of Debts Due to Banks and Financial Institutions Act is proving to be a constraint for all banks. Borrowers are trying their level best to ensure that the three year limitation period is behind their back by adopting delaying tactics, so that banks are not able to make recoveries,” said a senior banker.

Banks face this problem especially when there is only six months to one year to go for a recovery case to get time barred. They are compelled to make good their recoveries within this period.

In such a case, the banker pointed out that a bank should be allowed to initiate proceedings under the Sarfaesi (with the permission of the DRT) and shortfall (in the recovery amount), if any, could be pursued before the DRT.

“Moreover, banks pay fees amounting to 1% of the loan amount (subject to a maximum of Rs 1.5 lakhs) for pursuing a recovery case before the DRT. Hence, they would like to keep this remedial measure before the DRT open,” he said.

Mr Umarji pointed out that banks would do well to take acknowledgment of debt and securities from borrowers, so that the problem of default cases getting time barred are minimised.