Monopoly corporates commissioned for recovering unpaid loans: Govt sitting mum

Kochi: Major banks have commissioned monopoly corporate firms for the task of recovering bad loans.   The step is taken under the cover of an amendment in Sarfaesi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act).

As per the schedule of 30 November 2017,  24 corporates have the approval to function in this manner as agents of banks. Paradoxically,   while most of the bad loans from major banks of the country are due for recovery from such monopolies,  their sister entitites have been assigned the task.

Those in the picture with authorization for recovery operations include Reliance Asset Reconstruction Company.

Although there have been proposals for legal action against the amendment to the Sarfaesi Act  which allow the role of such firms, who won the right through 'quotation',  the state government is alleged to be sitting quiet on the proposals. 

It is through the amendment to the Sarfaesi Act of 2016,  that the entities entrusted by the banks have been authorised to recover unrepaid loans.  This has given a free hand to the monopolies.  The 1993 Recovery of Debts and Bankruptcy Act was also amended to give more powers to the banks.

Through this amendment,  banks were allowed to pass the responsibilities to 'Assets Reconstruction Companies' (ARC) and sell the non-performaing assets, or bad loans at a price agreed with the ARC's through competitive quotations. 

Such ARCs in turn,  are authorised to sell the assets of the debtors and take the value of the assets after passing the banks' dues as per the agreement.

In fact the banks thereby enjoy the right to recover assets over and above what the government usually acquire through revenue recovery channels,  including arrears.

The biggest hurdle for any relief for the debtors is that as a result of the said amendment, the courts are barred from intervening in the steps for attachment of the property.  The banks do not require any permission from the courts to take any action on the assets under mortgage. 

However,  in practice,  the  debt recovery actions,  taken under cover of the amendment, are often taken in violation of RBI norms.   It is learned that the government had received  legal advice that if these points are brought before the court,  an order can be obtained to stop the unacceptable practice.

The only recourse to stop the malpractices of the recovery entities is to legally challenge the provisions of the amendment.  As of now,  the current unquestionable provisions in the law  prevent obtaining of orders  that can offer relief to the cornered borrowers.