Page 33 - BANKING FINANCE OCTOBER 2021

ARTICLE

SIMPLIFYING

'SARFAESIA,

2002'

T o expedite recoveries by the Banks, the law Chapter III of the Act and "Enforcement of The Security

called as Securitisation and Reconstruction of
Interest (Enforcement) Rules, 2002" deals with the
procedure of Enforcement of Secured assets by the Secured
Financial Assets and Enforcement of Security
Interest, 2002, popularly called as SARFAESIA
has been enacted. A secured creditor Bank can enforce its Creditors.
securities without intervention of courts and by following Section 13(2) provides that to proceed under the Act, the
the procedure as prescribed under the said Act. Similar account should have been classified as Non-performing Asset
power was given earlier to the State Financial Corporations, (NPA). What is a non-performing asset is explained by the
under Section 29A of the State Financial Corporations Act, RBI prudential norms. As per the said guidelines, NPA is a
1953. loan or an advance where interest and/or installment of
principal remain overdue for a period of more than 90 days
"Without intervention of the courts" though appears to be in respect of term loans.
simple but in actual practice, it is a challenge. This article
discusses the practical difficulties of enforcement of Similarly the account remains out of order in respect of an
securities and the need for more simplification of the Act so overdraft/cash credit (OD/CC) if the outstanding balance
that Banks can find it easy to enforce the securities. remains continuously in excess of the sanctioned limit/
drawing power, there are no credits continuously for 90 days
About the author as on the date of Balance Sheet or credits are not enough
to cover the interest debited during the same period. Prior
Hareesh Kumar Kolichala to 31.03.2004, more particularly from the year ending
Chief Manager (Law), 31.03.1995 onwards a loan would be treated as NPA if
Union Bank of India, interest remains 'past due' for two quarters. With a view of
Hyderabad
moving towards globally adopted best practices in the

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