EFFECTIVENESS OF SARFAESI ACT AND DRT IN LOAN

RECOVERY PROCESS

INTRODUCTION:

OVER a period of time the issue of bad loans is becoming more and more
unmanageable.  Today the biggest ever challenge that the banking industry faces is recovery of
amount blocked in non-performing loan accounts. The magnitude of these NPAs have a direct
impact on banks profitability as legally they are not allowed to book income on such accounts
and at the same time banks are forced to make provision on such assets as per the RBI
guidelines. Notably, NPA is an important parameter in the analysis of financial performance of
banks.  The reduction of NPAs is necessary to improve profitability of the banks.

To solve the problems of existing NPAs, quality of appraisal supervision and follow up
should be improved.  The NPAs can be avoided at the initial stage of credit consideration by
putting rigorous and appropriate credit appraisal mechanism.  Here it is essential to enforce the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) 
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002 empowers Banks / Financial Institutions to recover their non-performing
assets without the intervention of the Court. The Act provides three alternative methods for
recovery of non-performing assets, namely, Securitisation, Asset Reconstruction and
Enforcement of Security without the intervention of the Court. As per the Act Bank has 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; to give notice to any person who has
acquired any of the secured assets from the borrower to surrender the same to the Bank; to ask
any debtor of the borrower to pay any sum due or becoming due to the borrower.  

This project gives an idea about the Debt Recovery Process and Collection Process. Debt
Recovery is inseparable from Recovery Agents and Agencies so keeping in mind their vital role,
this project highlights their duties and functions. For understanding the exact recovery methods
in banking industry, the modes of recovery and debt restructuring process has also been included.

IMPORTANCE OF STUDY:

As we all know, growing percentage of Non Performing Assets is a big concern for
modern as well as traditional financial institutions. If recovery measures are effective then
certainly it will reflect positively on reducing percentage of NPA’s. So, recovery management,
be of fresh loans or old loans, is central to NPA management. Thus, qualified the recovery
personnel are the prime need of the banking industry.

EXPECTED CONTRIBUTION:

This project will be helpful to the professionals from the banking industry, the policy
makers, the students of banking studies and people conducting research. Also banks can make
use of the available study for analyzing debt recovery policies.

CHAPTER SCHEME:

1) Introduction
2) Review of Literature
3) Special cases and RBI guidelines
4) Data Analysis and Interpretation
5) Conclusion and Suggestions

RAHUL NIGAM
4109043043
INDIAN INST. OF FINANCE