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Govt planning to amend SARFAESI and DRT laws for easing Loan Recovery process


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To expedite the process of recovering debts, the Ministry of Finance has established a committee to propose amendments to the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) and DRT (Debt Recovery Tribunals) Acts. One of the suggested amendments includes granting legal validity to electronic notices sent to debtors. According to sources, the committee, led by an Additional Secretary, has held multiple meetings, and discussions are currently in an advanced stage.

In the previous month, the Ministry of Finance engaged in extensive discussions with senior officials from banks and Debt Recovery Tribunals (DRTs) to enhance the effectiveness of DRTs in promptly recovering debts.

The objective of forming the committee, headed by the Additional Secretary, is to determine relevant amendments that would simplify and improve the debt recovery process. The plan also involves introducing a provision to establish legal validity for electronic notices, such as SMS and emails sent by banks, so that they can be considered official notices. This measure is expected to expedite the debt recovery process.

The DRTs Act was enacted in 1993 to establish a legal framework for the swift adjudication and recovery of debts owed to banks and financial institutions. However, the effectiveness of this legislation in expediting debt recovery was found to be limited. As a result, the SARFAESI Act of 2002 was enacted to address these shortcomings and provide a more robust framework for debt recovery.

Over the years, the government has made several amendments to the DRT Act and the SARFAESI Act. The most recent changes were made in 2016 when the government proposed amendments to the SARFAESI Act and the DRT Act in Parliament, aiming to make debt recovery more effective. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 amended the SARFAESI Act of 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Indian Stamp Act, 1899, and the Depositories Act, 1996.

These amendments were intended to establish a faster and more transparent system to address bad debts in the banking sector by expediting the recovery process for banks and other financial institutions.

In addition to these measures, the government has implemented various initiatives to control non-performing assets (NPAs). As a result, the net NPAs of Scheduled Commercial Banks (SCBs) have decreased from Rs 2.31 lakh crore (3.13 percent) in March 2015 to Rs 1.36 lakh crore (0.95 percent) in March 2023.

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