Bill on security interest by banks, FIs discriminatory: NBFCs forum

TMA Raman

Chennai, Aug 8: The Creation and Enforce ment of Security Interest by Banks and Financial Institutions Bill, 2001 initiated by the Reserve Bank of India may not be in the best interest of non-banking finance companies (NBFCs) although it aims to facilitate the recovery of outstandings, according to chairman of Association of Leasing & Financial Services Companies (ALFSC) Farouk Irani.

Mr Irani feels that the Bill is discriminatory in nature as far as the NBFCs are concerned and may affect the fortunes of hire purchase companies in particular. "The NBFCs have been discriminated against once again," he said while speaking to The Financial Express.

The Bill seeks to empower banks and financial institutions to secure their interests in case of default by possessing assets of defaulting companies/individuals without going to court.

While welcoming the broader provisions of the Bill which by definition includes NBFCs as part of the financial institutions (FIs), allowing them same rights of transactions as FIs, Mr Irani says NBFCs are being discriminated against as "what is sought to be given by one hand is being taken away with the other," a situation leading to making them work with their "hands tied behind their back". The ALFSC chairman points out that while leasing enjoys the same benefits as banks and FIs, the hire purchase activities, a part of NBFC’s leasing and financial services, have been denied the provision to repossess the assets without going to court.

In a hire purchase or a ‘conditional sale’ transaction, he says, an invoice is made in favour of the hirer or the purchaser in a deferred sale and purchase contract.