Financial independency is equally important and plays a critical role towards development of economy of our country. Banks and financial institutions benefit from SARFAESI Act 2002's ability to tackle different problematic asset situations. On December 17th, 2002, the SARFAESI Act 2002 was established in order to assist Indian lenders in quickly collecting their past-due debts. Financial institutions in India have the authority to identify and address issues linked to NPAs thanks to the SARFAESI Act of 2002 (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act). This act also allows the bank to selling of any property assets to recover the loan.
The objective of SARFAESI Act, 2002 is very straightforward which means to fast recovery of loan and maintaining the flow of all financial activities without any obstacles. It also gives financial institutions the authority to seize real estate that has been pledged as security or charged with a debt collection.
What is the Procedure of Sarfaesi Act, 2002?
There are some steps to do the work for banks or any other financial institution under this act.
The borrower in default may receive written notice from the banks stating that they expect them to pay up their debts within 60 days.
The Bank may use one or more of the following actions if the borrower disregards the notification - The loan collateral may be taken and owned by the bank. Moreover, they offer the right to the security for sale, lease, or assignment. It may address the same or name any individual to address the same.
In order to acquire assets from banks and financial institutions, the SARFAESI Act also allows for the creation of Asset Reconstruction Companies that are under RBI regulation.
Banks and other financial institutions may sell financial assets to asset reconstruction firms under the provisions of the Act. In order to sell financial assets to asset reconstruction companies, banks must follow specific procedures that the RBI has laid out for them.
Scope of Sarfaesi Act, 2002
The Sarfaesi Act, 2002 has given a strong enforcement of security to the financial Institutions. In accordance with the Act, secured creditors are responsible for enforcing security interests on their own. The statute permits a bank or other financial institution to notify a borrower of a default and requires that the borrower pay off the debts within 60 days of receiving the notification.
The main goal of the securitization legislation is to facilitate the implementation of security interests, such as the ability to seize the property pledged as collateral for a loan.
The SARFAESI Act of 2002 oversees the secured assets provided by financial institutions and makes sure that payments are made on schedule.
Limitations of Sarfaesi Act, 2002
Notwithstanding its many benefits, the SARFAESI Act has certain drawbacks. The fact that unsecured creditors are not covered by the Act is one of its major shortcomings.
The outcome of the asset when it is put up for auction is completely independent of the bank.
In 2011, the Government of India inserted a new provision that stated the bank may purchase the asset if no higher offer was received.
Bank misuses this act and create many chaos which creates a very critical situation.
The bank cannot continue in accordance with the aforementioned terms if there are no bidders for the asset at the auction.
Conclusion
The SARFAESI Act of 2002 gives banks a method to drastically lower their NPAs. It not only allows debt-stressed borrowers a break from their obligations but also gives real estate aficionados the chance to purchase property at a big discount off the going market rate. The sale of an underlying asset is prohibited by Rule 9(1) of the SARFAESI Act until 30 days have passed after the day when either a public notice of the sale was issued in the newspapers, or the borrower was served with a notice of sale.
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