With the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Securitisation Act) having become law, a moot question being asked is whether our bankers have the courage to enforce it? The Securitisation Act (SA) gives to the bankers an instrument to recover their bad loans running into a whopping Rs. 110,000 crore. Observes say that the exact amount could be twice this figure due to the lax (old) banking practice in India of writing off bad debts.

Most of these bad debts had been taken by industrialists through clever manipulation and political bribery time and again. They seem to have epitomised this rule of borrowing: "If you borrow Rs. 1,000 and can’t return it, the bank gets you. If you borrow Rs 1,000 crore and won’t return it, you get the bank". These bad loan sharks are well-known figures in the country. The names of some of them are figuring in the press these days: Mardia, Patheja, Parasrampuria, Lloyds, Core and Mesco among others. These companies used all the tricks of the trade to take loans for public reasons to set up new industries and businesses. But the money was eventually pumped into unrelated enterprises as well as private activities, like building mansions, buying luxury cars, throwing lavish parties, wooing politicians in power, etc. Till now, the bankers and financial institutions could not do anything to recover their loans from them. There were scores of strategies by which the loan defaulter could embroil the bankers in long drawn litigation running into several years or even decades. And they did all this by hiring expensive lawyers specialising in sundry delaying tactics.

It is solely due to these bad loans that the entire banking system virtually collapsed some time back. To prop it up, the Government had to inject Rs. 23,000 crore of the taxpayers’ money just to keep it afloat. Needless to say, the public at large had to suffer as a consequence. For instance, the lending rates had to be upped for genuine borrowers. In short, the loan defaulters went on enjoying life at the cost of honest citizens (taxpayers) and honest entrepreneurs. Thanks to the efforts of the Government, the SA or NPA (Non Performing Assets) Act gives the bankers and the financial institutions the power to seize the property of loan defaulters straightaWay. Even the courts cannot interfere in this. While some bankers have just made a start in this direction, others are gathering the courage to follow in due course. India’s top five bad load holders are: IFCI, State Bank of India, IDBI, ICICI Bank and Bank of Baroda. India’s five top loan defaulters are: Mardia (Rs. 979 crore), Modern (Rs. 831 crore), ICCL (Rs. 794 crore), J. K. Group (Rs. 682 crore) and Core Healthcare (Rs. 605 crore).

The SA gives the banks the following tools to recover their loans—to the extent possible—from the defaulters. To begin with, the bank has to issue the defaulter a notice of 60 days to pay his loan or else face consequences under the SA. If the defaulter does not respond favourably within the stipulated period, the bankers can proceed to take possession of his secured assets for realising their value, take over management of the assets; appoint an administrator to manage the taken over secured assets and instruct debtors of the borrower to pay their dues to the secured creditors instead of to the defaulting company. But there are many problems the bankers will face when taking recourse to the SA, one of the biggest being that they do not have the expertise to manage or sell the seized assets. This is understandable, as processes do not fall within the normal functioning of a bank or financial institution.

After seizing the assets, it is important to ensure that they are sold as soon as possible and the money recovered. The reason: the value of assets (factories, stock, etc.) goes down with time. Therefore, finding buyers to dispose of these assets at the speediest, or at a time when it can fetch the highest price, is a specialised job. As such, the banks will have to take the help of specialised companies or agencies already engaged in this type of work. All in all, since the banks now have the weapon to take over the assets of chronic defaulters, they should go about their business quickly and with precision. The defaulters and their political friends are bound to attempt to derail their efforts by finding loopholes. With the loaned money (from banks) at their disposal, they could hire top lawyers to gain time or defeat the asset sell-off proceedings. However, whatever they may do, the bankers can overcome these with intelligence and persistence. In the past, corrupt politicians in league with these defaulters helped them in every way. They may try to do the same again. Therefore, the bankers and financial institutions should remain alert on this score, too.