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The Indian Securitization Act

The Indian Securitization Act aims to simplify the process of recovering bad loans from willful defaulters. It provides the first legal framework recognizing securitization, asset recovery, and reconstruction in India. The Act gives a formal statutory framework for these transactions. It also promotes the set up of asset reconstruction and securitization companies to take over non-performing assets accumulated with banks and public financial institutions. Additionally, the Act provides special powers to lenders and these companies to take over borrowers' assets without first going to court.

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Tisha Gugliani
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37 views1 page

The Indian Securitization Act

The Indian Securitization Act aims to simplify the process of recovering bad loans from willful defaulters. It provides the first legal framework recognizing securitization, asset recovery, and reconstruction in India. The Act gives a formal statutory framework for these transactions. It also promotes the set up of asset reconstruction and securitization companies to take over non-performing assets accumulated with banks and public financial institutions. Additionally, the Act provides special powers to lenders and these companies to take over borrowers' assets without first going to court.

Uploaded by

Tisha Gugliani
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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The Indian Securitization Act

For years, Indian banking and institutional lenders have had a major complaint – they
were criticized for their inability to control their burgeoning non-performing
assets (‘NPAs’) (bad debt lump), but when it came to recovery and reducing bad debts,
they had little power. When a loan goes into default, it has been operationally difficult for
lenders to take control of the collateral, or to utilize recovery procedures designed for a
company that goes into bankruptcy. The existing environment of weak creditor rights has
been a major cause of NPAs building up in the banking system.

The Civil Courts were found ineffective, hence came the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (‘RDDBFI Act’). The RDDBFI Act envisages
a summary procedure for ascertainment of dues, but it fails to execute court orders or
decrees in an effective way.

The Government in June 2002 introduced a new law entitled The Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘the
Act’) that aims to simplify the process of recovery of bad loans from willful defaulters.
The Act provides the first legal framework that recognizes securitization, asset recovery
and reconstruction.

Salient provisions of the law

– The Act gives a formal statutory framework for transactions relating to securitization
and asset reconstruction in India.
– The Act promotes setting up of asset reconstruction and securitization companies to
take over the NPAs accumulated with banks and public financial institutions. It provides
special powers to lenders and securitization/asset reconstruction companies to enable
them to take over the assets of borrowers without first resorting to courts.
– The banks and financial institutions (‘FIs’) have now been given powers to enforce
their security without filing suits or cases before the courts and hence they can now
realize their loans speedily.

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