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Govt moves to avoid Vijay Mallya-like embarrassment, LS passes Bill to fast track debt recovery

India TV Business Desk New Delhi 02 Aug 2016, 16:15:41 PM IST
India TV Business Desk

In a move that could prevent the government landing in a sticky situation in the case of loan defaults, the Lok Sabha on Monday passed a Bill that seeks to provide for more stringent provisions to recover dues. The Bill passed in Lok Sabha on Monday amends four different Acts to empower banks to take possession of collateral in the case of loan default. 

The new law will not apply to farm lands and Finance Minister Arun Jaitley also promised a compassionate view on education loans. 

“One of the big challenges that we face is with regard to the enforcement of securities and the recovery of debt by financial institutions," Finance Minister Arun Jaitley said while moving the Bill in the Lok Sabha.

To avoid repetition of Vijay Mallya-like loan default matter, the government in May introduced the bill to amend existing law to provide for expeditious disposal of debt recovery applications pending before tribunals.  

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, which was passed by voice vote in the Lok Sabha, seeks to amend four laws — the Sarfaesi Act, the DRT Act, the Indian Stamp Act and the Depositories Act.

The changes in the Sarfaesi Act allow secured creditors to take over a collateral against which a loan had been provided, upon default in repayment. It also provides that the process will have to be completed within 30 days by the district magistrate.

Jaitley said the banks must be empowered to take effective legal action against defaulters, and the insolvency, securitisation and DRT laws are steps in that direction.

“The present law simplifies the procedure by which there will be quick disposal of pending cases of banks and financial institutions by the debt recovery tribunal,” Jaitley said.

Jaitley said farm land has been kept out of the purview of the Act. On concerns expressed with regard to education loans, the minister ruled out any waiver but said that “some compassion” has to be shown if someone is unemployed and till he gets a job, but the loan cannot be written off.

Pitching for speedier recovery of debt, he said, “We cannot have a banking system where people take loans and do not repay.”

The Bill, which was introduced in the Lok Sabha in May, aims at faster recovery of debt by PSU banks, which are grappling with Rs 4 lakh crore of NPAs and Rs 8 lakh crore of stressed assets. The Bill was then referred to the Joint Parliamentary committee. 

“This Bill is an offshoot of the Insolvency and Bankruptcy Code,” Jaitley had said at that time. 

The move assumes significance as it comes against the backdrop of the case involving liquor baron Vijay Mallya, who owes nearly Rs 9,400 crore to banks, but has left the country to take refuge in England.

Around 70,000 cases are pending in Debt Recovery Tribunals and the proposed amendments are being aimed to "facilitate expeditious disposal of recovery applications", as per the Bill's Statement of Objects and Reasons.