With Non-Performing Assets (NPAs) rising up to Rs 52,725 crore and crossing a benchmark during 2007-08, as a result of the sharp lending rates of Scheduled Commercial Banks (SCBs) across various banking groups, the corporates have now pin their hopes on the central bank as the proposed RBI guidelines are believed to give a breathing space to the upside-down corporate world.

According to them the central bank should give relaxation this time as the banks will not be in a position to sell the company?s assets till five years, since defaults in the repayment to the bank would not have been intentional and would have been as a result of unforeseen circumstance and reason beyond the control of the borrower.

The NPAs in case of public sector banks increased to Rs 39, 602 crore for the year 2007-08 in comparison to Rs 38, 602 crores for 2006-07. The NPA trend showed an upward movement even in case of private banks from Rs 9,250 crore in 2006-07 to Rs 12, 976 crore for the year 2007-08. This shows that the total NPAs for the scheduled commercial banks for the year 2007-08 was Rs 52,725 crore, which is Rs 4, 884 crore higher than 2006-07 NPAs of Rs 47, 841 crore.

Many experts are of the view that after economic slowdown, there is bound to be a default in the repayment of the loan taken by the corporate entities from banks and financial institutions. If that happens then under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi Act), the banks would take over the assets and sell them to realise the money.

According to the proposed RBI norms this December, on realisation of its dues in full or within a period of five years from the date of acquisition of assets or such extension thereof as may be permitted by the RBI, whichever is earlier, the securitisation companies or reconstruction companies (SC/RC) should restore the management of the business to the borrower as provided in Section 15(4) of the Sarfaesi Act.

According to accounting experts like Ved Jain, president, Institute of Chartered Accountants of India, ?It?s a part of the revival practice by the RBI to ensure that the entities which have borrowed money continue to work and operate and because of the operation of this act, their management is not taken over by the bank.?

From the companies point of view he added, it will give them a comfort and breathing period of five years. Five years is important because the company in this time period would be able to re-work its strategy and planning. The companies need not worry till five years of their management being taken over, he added.

Vinod Dhall, ex-chairman of Competition Commission of India (CCI) and currently in private law practice in competition law and connected issues said in the current scenario where there is a credit squeeze, some stimulus is required for the growth of the industry and considering that, it seems to be a sensible move to provide a spur to all businesses.

According to Rajan Gupta, partner of India?s leading corporate law firm, the advantages that companies will have is that they will get to approach banks or financial institution for a moratorium on repayment of installment, restructuring of the loan facility. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act created a big wave in the banking sector when it was first introduced in the year 2002. Sarfaesi Act said, ?If the deter had defaulted then the banks can give 60 days notice and if the deter fails then the banks without the intervention of the court had the power to enter into the premises of the deter company.?

The main aim of the Surfaesi Act when it was introduced was to provide a power to the secured lenders to repossess their amount in the form of the assets of the company without the intervention of the court. But, keeping in view the ongoing financial slowdown, where companies are almost going bankrupt because of their inability to attract investments both from inside as well as outside, the regulator felt that there was a need to revive the system. While announcing the draft guidelines in the first week of December, RBI had said, ?The proposed guidelines would ensure fairness and transparency, and to build in a system of checks and balances in the whole exercise.?

At present, if the bank?s amount is Rs 1 crore and the defaulting company?s asset is worth Rs 4 crore then the bank would sell that asset of Rs 4 crore to take back its 1 crore. Of course, the bank would give the remaining amount to the defaulter. But as per the proposed guidelines, the company will get a period of five years to take back its assets.

In the proposed guidelines, comment on which have been sought within two months, the central bank said in case the borrower is financed by more than one creditor, those who have given at least 75% of the total loan should agree to such an action.