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Crack down on defaulters now, govt tells banks

Tamal Bandyopadhyay

Barely a week after the promulgation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002, the finance ministry has sent a note to banks urging them to act fast.

The government wants the banks to take on corporate defaulters on a war footing.

The Ordinance gives banks sweeping powers to tackle defaulters. The banks can now change or take over the management; supersede the board of the company; sell or lease out the business of the defaulting borrowers; and take possession of all the secured assets.

Any borrower who has not been able to pay interest on a loan or the principal for two consecutive quarters is defined as a defaulter.

"Yes, we have received the communication from the ministry. We have started working on the Ordinance. The bank's legal department is looking at the list of defaulters and exploring the possibilities of taking appropriate action. The Ordinance is a great moral booster for the industry," said the chairman of a large public sector bank.

"We want banks to act fast. The Ordinance will be of no use unless the banks are serious about their task," said a North Block official.

Sources close to the ministry said the government wanted the banks to take on the defaulters and set examples without losing time as otherwise it may get flak in Parliament because the Ordinance was promulgated in a hurry.

Bank of Baroda chairman PS Shenoy said his bank had already started scanning stressed accounts. "It will take a few weeks to chalk out the plan of action. We are serious about taking the right measures to recover bad loans," Shenoy said.

Another bank chairman said banks would hold discussions to follow a common approach.

"Most of the big loans were disbursed by a consortium. We need to jointly tackle them. Moreover, three-fourths of the lenders are required to take a uniform approach if the banks want to recall companies from the Board for Industrial and Financial Reconstruction," he pointed out.

The ordinance deals with four aspects. They are asset reconstruction; securitisation of assets; enforcement of security; and setting up of a central registry for registration of all transactions relating to securitisation and reconstruction of financial assets.

Banks now can clean their books of stressed assets by selling them to asset reconstruction companies or take over the assets of a defaulter and sell them to recover bad money without having to resort to long-winding legal procedures.

The ordinance supersedes Section 69A of the Transfer of Property Act, 1882, and empowers lenders to take over immovable properties. The lenders can also claim the future receivables of the defaulting company to clear dues.

They can also supersede the board of the company by publishing a notice in a newspaper circulated in the city where the corporate office of the borrower is located. No court can entertain any appeal against these rules.

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