The President has promulgated
an Ordinance titled "The Securitization and Reconstruction
of Financial Assets and Enforcement of Security Interest Ordinance,
2002." This comes into force with immediate effect. This
follows approval of the Union Cabinet on June 18, 2002.
The Ordinance will deal with
three distinct actions in respect of financial assets held
by banks and financial institutions in the form of securitization
of financial assets, setting up of asset reconstruction companies
and enforcement of security interest.
The Ordinance is based on
the recommendations of the Narasimham Committee I and II and
Andhyarujina Committee reports for enacting a new law for
regulation of securitization and reconstruction of financial
assets, enforcement of security interest and formation of
asset reconstruction companies. This would enable the banks
and financial institutions to recover their debts expeditiously
from the defaulters .
Meanwhile, the Debt Recovery
Tribunals (DRTs), over a period, registered a substantial
improvement in the recovery of debts due to banks and financial
institutions. The amount recovered through DRTs increased
from Rs. 752 crores in 1999-2000 to Rs. 1185 crores in 2000-2001
and to Rs. 2153 crores during 2001-2002. The size of debts
for recovery before DRTs is of the order of Rs. 110,000 crores
as against the size of the Union Budget at Rs. 450,000 crores.
The Government of India and
the Reserve Bank of India have advised banks and financial
institutions to take several steps for recovery of dues by
evolving and implementation of recovery policy, compromise
settlements through Settlement Advisory Committee and Monitoring
and follow up of Non-Performing Assets (NPAs) at various levels
in the banks. The banks have also been advised to use the
forum of Lok Adalats for compromise settlement of their NPAs
and guidelines have been issued by the Reserve Bank of India
in May 2001 for making increased use of Lok Adalats to settle
disputes involving outstanding balance in NPA accounts upto
Rs. 5 lakhs. Besides, Credit Information Bureau (CIB) is being
set up to disseminate information on borrowers to the banks.
