SC brings Co-operative Banks within the ambit of Sarfaesi Act
Part of: GS Prelims and GS-III – Banking Sector
In News:
Recently, the Supreme Court held that Co-operative banks and co-operative societies shall come within the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act of 2002.
Key takeaways from the verdict:
Co-operative banks come within the definition of “Banks” under the Banking Regulation Act, 1949 for the purposes of the Sarfaesi Act.
The recovery procedure under the Sarfaesi Act is also applicable to co-operative banks.
The Parliament has legislative competence to provide procedures for recovery of loans under the Sarfaesi Act with respect to cooperative banks.
Important value additions:
Sarfaesi Act
It allows banks and other financial institutions to auction residential or commercial properties to recover loans.
The first asset reconstruction company of India, ARCIL, was set up under this act.
Banks utilize Sarfaesi Act as an effective tool for bad loans (Non-Performing Asset) recovery.
It is effective only against secured loans.
It promotes the setting up of asset reconstruction companies (ARCs) and asset securitization companies (SCs) to deal with NPAs.
Objectives of the Act are:
To provide the legal framework for securitization activities in India.
To give the procedures for the transfer of NPAs to asset reconstruction companies.
To give powers to banks and financial institutions to take over the immovable property that is pledged to enforce the recovery of debt.
NPAs can be recovered through:
Securitisation: Practice of pooling together various types of debt instruments (assets) and selling them as bonds.
Asset Reconstruction: Activity of converting NPA into performing assets.
Enforcement of Security without the intervention of the Court.
