While bad debt clean-up of the banking sector has been in full swing, another crucial segment of the financial sector – non-banking finance companies (NBFCs) – has been waiting for over 15 months for Finance Ministry’s nod to bring them under the SARFAESI Act, which allows lenders to stringent measure to recover debt, including auctioning of properties of defaulters.
Finance Minister Arun Jaitley in his February 28, 2015 speech for Budget 2015-16 had announced that NBFCs with asset base of Rs 500 crore and above will be covered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
Raman Aggarwal, chairman, Finance Industry Development Council (FIDC), the apex self-regulating body for all asset financing NBFCs registered with the Reserve Bank of India, told FE Online that their request for implementing the Finance Minister’s budget announcement has been falling on deaf ears.
“We have made several requests since Budget 2015-16 to get the Finance Minister’s announcement implemented but to no avail. There has been no word from the ministry as to why the notification is pending. Bringing NBFCs under the SARFAESI Act would give us major relief in dealing with bad debts. This is one of the only announcements of the Finance Minister in that Budget which has not been implemented even after the lapse of 15 months,” Aggarwal said.
He pointed out that the operationalisation of the measure requires only a notification to be placed before Parliament for 30 days. The SARFAESI Act allows the central government to issue notificaiton making any provisions of the legislation applicable to a ‘class or classes of banks or financial instiution’ which shall be laid before the Parliament for a period of 30 days.
Aggarwal pointed out that though on the regulatory front there is near parity between banks and NBFCs, the latter have been denied recovery powers under the legislation which the banking sector enjoys. “It is important for NBFCs to have parity with banks. We should possess the same recovery tools as available to banks. Even non-bank entities like Housing Finance Companies can use the SARFAESI Act,” Agarwal pointed out.
He felt that without the recovery tools, NBFCs would find it difficult to comply to with the non-performing asset (NPA) norms.
Aggarwal pointed out that the new bill introduced in Parliament to amend the SARFAESI Act, which has been referred to the Joint Parliamentary Committee has no connection with the pending notificaiton on NBFCs.