SARFAESI ACT 2002
Introduction
It stands for Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their
non-performing assets without the intervention of the Court
Objective of SARFAESI act 2002
The banks and financial institutions (FIs) were facing numerous problems in recovery of
defaulted loans on account of delays in disposal of recovery proceedings. The
Government, therefore, enacted the RDBF Act in 1993 and SARFAESI Act in 2002 for the
purpose of expeditious recovery of non-performing assets (NPAs) of the banks and FIs.
Alternative mechanisms to recover Non – Performing Assets [NPA]
The Act provides three alternative methods for recovery of non-performing assets, namely: 1. Securitisation
2. Asset Reconstruction
3. Enforcement of Security without the intervention of the Court
What the act says
The Act empowers the Bank
1. To issue demand notice to the defaulting borrower and guarantor, calling upon them to
discharge their dues in full within 60 days from the date of the notice
2. To give notice to any person who has acquired any of the secured assets from the
borrower to surrender the same to the Bank
3. To ask any debtor of the borrower to pay any sum due or becoming due to the borrower.
4. Any Security Interest created over Agricultural Land cannot be proceeded with.
Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011
The Bill seeks to amend the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act and Recovery of Debts due to Banks &
Financial Institutions (RDBF) Act so as to strengthen the regulatory and institutional
framework related to recovery of debts due to banks and financial institutions
The suggested amendments would strengthen the ability of banks to recover debts due
from the borrowers, enhance the ability of the banks to extend credit to both corporate
and retail borrowers, reduce the cost of funds for banks and their customers and reduce
the level of non-performing assets
What is Non – performing Asset
A loan or lease that is not meeting its
stated principal and interest payments. Banks usually classify asnonperforming assets an
y commercial loans which are more than 90 days overdue and any consumer loans which
are more than 180 days overdue..
Why recently in news
Kotak Mahindra Bank has served a possession notice under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 on
Deccan Chronicle Holdings Ltd, publisher of English daily Deccan Chronicle, seeking
payment of dues.