Govt mulls ordinance for new loan recovery law

MUMBAI: The government is in talks with the banking regulator on whether to issue an ordinance to promulgate the modified version of the law on recovery of bad loans.

Finance minister P Chidambaram had announced in this year''s budget that the government would incorporate changes in the existing law to ensure speedier recovery of loans from defaulting corporates and clients.

Banks have been saying that without a strong mechanism for recovering bad loans, they would continue to bear the burden of making a financial provision for such loans in line with regulatory norms. Besides, in the absence of an effective legal mechanism for quick recovery of loans, banks have generally been reluctant to aggressively chase lending opportunities.

The finance ministry and the RBI are now working on amendments to the existing securitisation law, with an aim to striking a balance between protecting the interests of both lenders and borrowers. A meeting between the ministry and the RBI to finalise the changes is scheduled to be held shortly.

The Supreme Court judgement earlier this year struck down the requirement in the existing securitisation law — SARFESI — where it was incumbent on the defaulting client to deposit 75% of the outstanding amount to challenge the bank''s order to seize assets.

Banks that viewed this as a setback have seen several borrowers whose assets they had seized, hastening the debt recovery tribunals to stay proceedings on assets sale by banks.