The financial sector has been one of the key handlers in India’s efforts to achieve success in rapidly developing its economy. The legal framework relating to commercial transactions was not in pace with the changing commercial practices and financial sector reforms. It slowed down the pace of recovery of defaulting loans and escalated levels of nonperforming assets of banks and financial institutions.
Narasimham Committee I and II and Andhyarujina Committee was constituted by the Central Government for the purpose of examining banking sector reforms and considering the need for changes in the legal system in respect of these areas.
Amongst the other committees, these Committees made suggestions to form new legislation for securitization and empowering banks and financial institutions to gain possession of the securities and to sell them without any intervention from the court.
What is SARFAESI Act, 2002?
The SARFAESI Act full form is – “Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act”. The SARFAESI Act allows banks and other financial institutions for auctioning commercial or residential properties to recover a loan when a borrower fails to repay the loan amount. Thus, the SARFAESI Act, 2002 enables banks to reduce their non-performing assets through recovery methods and reconstruction.
The SARFAESI Act provides that banks can seize the property of a borrower without going to court except for agricultural land. SARFAESI Act, 2002 is applicable only in the cases of secured loans where banks can enforce underlying securities such as hypothecation, mortgage, pledge etc. An order from the court is not required unless the security is invalid or fraudulent. In the case of unsecured assets, the bank would have to go to court and file a civil case against the defaulters.
Applicability Of SARFAESI Act, 2002
The Act deals with the following:
Registration and regulation of Asset Reconstruction Companies (ARCs) by the Reserve Bank of India.
Facilitating securitization of financial assets of banks and financial institutions with or without the benefit of underlying securities.
Promotion of seamless transferability of financial assets by the ARC to acquire financial assets of banks and financial institutions through the issuance of debentures or bonds or any other security as a debenture.
Entrusting the Asset Reconstruction Companies to raise funds by issue of security receipts to qualified buyers.
Facilitating the reconstruction of financial assets which are acquired while exercising powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the banks and financial institutions.
Presentation of any securitization company or asset reconstruction company registered with the Reserve Bank of India as a public financial institution.
Defining ‘security interest’ to be any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution.
Classification of the borrower’s account as a non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time.
The officers authorized will exercise the rights of a secured creditor in this behalf in accordance with the rules made by the Central Government.
An appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal.
The Central Government may set up or cause to be set up a Central Registry for the purpose of registration of transactions relating to securitization, asset reconstruction and creation of the security interest.
Application of the proposed legislation initially to banks and financial institutions and empowerment of the Central Government to extend the application of the proposed legislation to non-banking financial companies and other entities.
Non-application of the proposed legislation to security interests in agricultural lands, loans less than rupees one lakh and cases where eighty per cent, of the loans, is repaid by the borrower
Role of SARFAESI Act, 2002
Objectives of SARFAESI Act, 2002
Efficient or rapid recovery of non-performing assets (NPAs) of the banks and FIs.
Allows banks and financial institutions to auction properties (say, commercial/residential) when the borrower fails to repay their loans.
How SARFAESI Act, 2002 works?
SARFAESI Act, 2002 provides power to a bank or financial institution to seize the property of a defaulting borrower. As per the SARFAESI Act procedure, the banks issue notices to the defaulting borrowers to discharge their liabilities within 60 days period. When the defaulting borrower fails to comply with the bank notice, then the SARFAESI Act gives for the following recourse to a bank:
Take possession of the loan security
Lease, sell or assign the right to the security
Manage the same or appoint any person to manage the same.
Formation of SARFAESI Act, 2002
SARFAESI Act, 2002 was circulated:
To regulate securitization and reconstruction of financial assets.
Enforcement of the security interest for.
Matters connected therewith or incidental thereto.
It extended to the whole of India. Amendment in the (SARFAESI) Act, 2002 vide the enforcement of the Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. It is an Act to further amend four laws:
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).
Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI).
Indian Stamp Act, 1899.
Depositories Act, 1996, and for matters connected therewith or incidental thereto.
Proposed Amendments To The SARFAESI Act, 2002
The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2016 provided amendments for the SARFAESI Act, which are as follows:
The banks and Asset Reconstruction Companies (ARCs) should have the power to transfer any part of the debt of the defaulting company into equity. Such a translation would indicate that lenders or ARCs would become equity holders, instead of the creditor of the company.
Banks may request any immovable property set out for auction by themselves if they do not receive any request during the auction. In such a case, banks will be capable of adjusting the debt with the amount paid for this property. It allows the bank to secure the asset in partial fulfilment of the defaulted loan amount.
Banks can also sell this property to a new person by asking him/her to remit these debts entirely over a period of time.
Right of Borrwer Under SARFAESI Act, 2002
The borrowers have the following rights:
Borrowers can remit the dues and avoid losing their securities before the sale is concluded.
Borrowers will get compensation for the default of an officer.
SARFAESI Act Section 17 provides that borrowers can approach the Debt Recovery Tribunal to rectify their grievances against the creditor or authorised officer.
Methods of Recovery Under SARFAESI Act, 2002
The SARFAESI Act provides the following three methods of recovery of the Non-Performing Assets (NPAs):
Securitisation
Securitisation is the process of issuing marketable securities backed by a pool of existing assets such as home or auto loans. An asset can be sold after it is converted into a marketable security. A securitisation or asset reconstruction company can raise funds from only the Qualified Institutional Buyers (QIBs) by forming schemes for acquiring financial assets.
Asset Reconstruction
Asset reconstruction empowers asset reconstruction companies. It can be done by managing the borrower’s business by selling or acquiring it or by rescheduling payments of debt payable by the borrower as per the provisions of the Act.
Enforcement of security without the interruption of the court
The Act empowers banks and financial institutions to issue notices to individuals who have obtained a secured asset from the borrower for paying the due amount and claim to a borrower’s debtor to pay the sum due to the borrower.
Assets Not Covered Under SARFAESI Act, 2002
The SARFAESI Act does not cover the following assets:
Money or security issued under the Sale of Goods Act, 1930 or Indian Contract Act, 1872.
Any lease, hire-purchase, conditional sale, or any other contract where no security interest has been created.
Any rights of the unpaid seller under Section 47 of the Sale of Goods Act, 1930.
Any properties which are not liable for sale or attachment under Section 60 of the Code of Civil Procedure, 1908.
Frequently Asked Questions
What assets are covered under the SARFAESI Act?
Any asset, i.e. movable or immovable, given as security by way of hypothecation, mortgage, or creation of a security interest in any other form except those excluded under Section 31 of the Act are covered under the SARFAESI Act.
Is SARFAESI Act applicable to NBFCs (Non-Banking Financial Companies)?
The Ministry of Finance, vide its notification dated 24th February 2020, notified that the NBFCs with asset size of Rs.100 crores or more are eligible NBFCs that are covered under the SARFAESI Act to enforce security interest on debts amounting to at least Rs.50 lacs.
Which loans are not covered under SARFAESI Act?
The provisions of this Act apply to outstanding loans above Rs.1 lakh, which are classified as NPAs. The SARFAESI Act isn’t applicable for:
The NPA loan accounts amounting to less than 20% of the principal and interest.
Money or security issued under the Indian Contract Act or the Sale of Goods Act, 1930.
Any rights of the unpaid seller under Section 47 of the Sale of Goods Act, 1930.
Any conditional hire-purchase, sale, lease or any other contract in which no security interest has been created.
Any properties that are not liable to attachment or sale under Section 60 of the Code of Civil Procedure, 1908.
What are the modes of recovery under the SARFAESI Act?
The Act provides for three methods of recovery of the NPAs, which includes:
Securitisation
Asset reconstruction
Enforcement of security without the interruption of the court
Do cooperative banks come under the SARFAESI Act?
Yes. The Supreme Court held that cooperative banks established under State law or multi-State level societies come within the ambit of the SARFAESI Act, 2002.
The Top-up plan of health policy covers hospitalization expenses when a single hospitalization claim exceeds the base policy. You cannot make a subsequent claim under the top-up policy when the sum available under the base policy is exhausted. In other words, the Top-up plans work on a ‘per claim’ or ‘per single hospitalization’ basis, they are beneficial as long as the single claim amount is above the threshold limit.
The Super top-up plans are similar to top-up plans, except that the top-up plan covers a single claim above the threshold limit, while the super top-up plan covers ‘multiple’ hospitalizations and looks at the aggregate claim. The claims under the super top–up policy can be made when the total claims exceed the threshold limit of the base policy.
Situation 1: Single bill in a year (Base policy for Rs.4 lakh)
Medical Bill
Settlement of Claim under Base policy
Settlement of Claim under Top-up plan
Settlement of Claim under Super-Top-up plan
Rs.4 lakh
Rs.4 lakh
Nil
Nil
In the above situation, the insurance company settles the entire claim amount of Rs.4 lakh from the base policy. A Top-up or super top-up plan does not pay.
Situation 2: (Base policy 4 lakh+ top-up or super-top up for Rs.5 lakh): Claim submitted in a Single bill of Rs.10 lakh
Medical Bill
Settlement of Claim under Base policy
Settlement of Claim under Top-up plan
Settlement of Claim under Super-Top-up plan
Rs.10 lakh
Rs.4 lakh
5 lakh
Rs.5 lakh
In the above situation, the insurance company settles the threshold limit of Rs.4 lac from the base policy and the remaining Rs.5 lakh from the Top-up or super top-up plan, as the case may be. The total settlement in both cases was Rs.9 lakh.
Situation 3: Multiple bills in a year (Base policy 4 lakh+ top-up or super-top up for Rs.5 lakh): Claim submitted through multiple bills as under)
Medical Bill
Settlement of Claim under Base policy
Settlement of Claim under Top-up plan
Settlement of Claim under Super-Top-up plan
First bill: Rs.2 lakh
Rs.2 lakh
nil
nil
Second bill: Rs.6 lakh
Rs.2 lakh
4 lakh
Rs.4 lakh
Third bill: Rs.10 lakh
Nil
Nil
Rs.1 lakh
TOTAL
Rs.4 lakh
Rs.4 lakh
Rs.5 lakh
In the case of the first bill of Rs.2 lakh, the insurance company settles the entire claim amount of Rs.2 lakh from the base policy. A Top-up or super top-up plan does not pay. In the case of the second bill of Rs.6 lakh the insurance company settles the claim amount of Rs.2 lakh from the base policy (together first and second bills Rs.4 lakh settled from the base policy). Top-up or the super top-up plan as the case may be, pay the remaining claim amount of Rs.4 lakh. In the case of the third bill, the insurance company settles Rs.1 lakh from the super top-up plan (Rs.4 lakh in the second claim and Rs.1 lakh in the third claim settled, the aggregate of Rs.5 lakh is covered under the Super top up). No claim from a basic or top-up plan is allowed as the threshold limit of Rs.4 lakh is already settled in the first and second claim and you cannot make subsequent claims under the top-up policy when the sum available under the base policy is exhausted.[ in other words, once the basic threshold of Rs.4 lakh is exhausted, you cannot claim a medical bill under the top-up policy (though the amount available under the policy) whereas you can claim the same bill under the super-top-up policy even though the basic threshold of Rs.4 lakh is already exhausted].
N.B: In both the cases of Top-up and Super Top Up plans, a policyholder cannot claim the amount disallowed in base policy due to sub-limit fixed or due to proportionate clause or for any reason like limit fixed for Doctors’ fees, surgery/operation charges, nursing expense, medicine cost, and room rent, etc. in the base policy.
CONCLUSION: If you do not anticipate getting admitted to a hospital not more than once in a year, a top-up plan would be suitable to your needs as the premium amount would pinch much less. However, if you foresee the risk of being hospitalized more than once a year from chronic diseases, it is best to pay for a super top-up plan.
Hospitals charges are not the same for the same services; they are different depending on the room type like General, Shared, Private, Deluxe, Super Deluxe, etc. Suppose, your eligible room rent per day is Rs.5000/- and in case you have opted for a room rent of Rs.10000/- per day as other types of rooms are not available at the time of admission to the hospital. Then not only additional room charges but all charges of the hospital except the cost of medicines with MRP would also be proportionately reduced when the claim is paid by the insurance company.
However, the above clause of room rent linked to hospital bills is not applicable to IBA group insurance for bank staff and retirees. There shall be no capping under any head including room rent/ICU rent for IBA group insurance for bank staff and retirees subject to overall hospitalization claim restricted to the available sum insured under the Policy.
About 29 years passed since an agreement between Indian Bankers Association and the Employees organizations regarding the introduction of pension in the banking sector. For the sake of providing the benefit to the then top leader of the Bank Employees the Pension made effective from 1986 (the year in which the leader retired). The draft agreement produced before the staff clearly stated that the pension is going to be introduced in the banking sector, in the line of pension provided to the Central Government and Reserve Bank of India pension. Some staff signed in favour of pension forgoing the employers' contribution towards their Provident Fund account. A large number of staff were illusioned by the then prevalent Bank Deposit interest and the guidance of some vision less leaders.
After 15 years these leaders of different employees/officers organization brought most of the staff under the pension scheme after sacrificing a huge some of money from their arrear dues. Different Banks management had not only saved a healthy pay out (in the form of arrear) from their basket, but also they could introduce NPS in Banks for future joinees of these Banks. Thus the retreating of the bank leaders were not taken in good spirit by the common staff they started developing apathy about their leaders and the management started ignoring the leadership. They could feel that the leaders are no longer in confidence of the mass. Look at the different wage settlement, took place in Banks after 2010, all are worst, comparing to the settlement of other financial institutions, those were performed during this period. They have bowed down to the management/IBA.
Those leaders who ditched their members have now become pensioners. Some of them still holding important chairs of some employees union, without any credibility. They are neither be able to fetch benefits for the existing staff nor do they have the goodwill to pursue with pensioners issues. They are only busy in projecting the charities made by the management as their success stories.Management has taken the measurement of these leaders operating zone. So they are least bothered about any movement taken up by these leaders. Many Banks have siphoned funds from their pension fund account to meet other expenduture. Many Banks have not provied any farthing to the pension fund accounts. The leaders are silent. They basically disowned their members.
If at all any improvement in pension,takes place in future, it would be the outcome of the relentless struggle by the retirees. The numbers of pensioners are gradually diminishing. Many of the senior retirees and their family pension holders hace already left this world.
The only worker was an ant that used to come and go on time and did all the factory work alone
Tiger's business was running very organized.
One day Tiger thought this lone ant was doing such a beautiful job if I put it under an expert, it could work even better.
As soon as this thought came to mind, Tiger appointed a bee as a production manager.
Bee had great work experience and was also very smart at writing reports.
Bee told Tiger we have to make an ant work schedule first then I will need a secretary to keep all his record properly.
Tiger appointed the rabbit as secretary.
Tiger loved the bee work he said report all the ant work completed so far and show the progress with the graph.
Bee said ok but I'll need a computer, laser printer and projector for this
Tiger made a computer department for all this and gave the cat the head appointment
Now the ant started focusing on the work report instead, which led to his work backwards, finally reduced production.
Tiger thought he should hire a technical expert who could give opinion on bee advice, he appointed the monkey as a technical instructor.
Now the ant would do whatever work was given to it with its full capacity, but if the work was never completed, it would have come home leaving it incomplete.
Tiger started getting damage so he got impatient he appointed owl to find out the cause of the damage
After three months, the owl handed over the report to the Tiger in which he told that the number of workers in the factory is more, need to be sorted.
Now you think who will be expelled....?
Apparently the ant will be expelled, this is going on in every sector of the world, those who are working hard are disturbed, are persecuted and those who are away from hard work are just showing off are having fun.
The Reserve Bank of India (RBI) on Thursday directed Mahindra & Mahindra Services Ltd, Mumbai (MMFSL), to immediately cease carrying out any recovery or repossession activity through outsourcing arrangements, till further orders.
In other words, the company was directed not to use services of any outside agency for loan recovery purpose.
The RBI, however, said that MMFSL may continue to carry out recovery or repossession activities through its own employees.
"The RBI in exercise of its powers under section 45L(1)(b) of the Reserve Bank of India Act, 1934, has directed Mahindra & Mahindra Financial Services Ltd. (MMFSL), Mumbai, to immediately cease carrying out any recovery or repossession activity through outsourcing arrangements, till further orders. However, the said NBFC may continue to carry out recovery or repossession activities, through its own employees," it said.
"This action is based on certain material supervisory concerns observed in the said NBFC, with regard to the management of its outsourcing activities," it said further.
The direction from the central bank came after a pregnant woman in Jharkhand died after she was allegedly mowed down under the wheels of a tractor by a recovery agent of the finance company in the state's Hazaribagh district, according to media reports.
As per reports, Hazaribagh police told media persons that the officials of the finance company did not inform the local police station before going to the residence of the victim for the recovery of the tractor.
Mahindra Group, in a statement quoting its Managing Director and CEO Anish Shah, said that it will investigate the incident from all aspects.
It further said that the company will also examine the practise of using third-party collection agencies.
The company said that it stands with the deceased person's family in this moment of grief.
The Indian Banks’ Association (IBA) communicated to all member banks informing them that National Insurance Company has been allotted the Group Medical Insurance Policy 2022-23 for the bank retirees. According to the communication received by banks, the National Insurance Company has sent their revised rates for Flexible Option coverage of Sum Insured for the year 2022-23. There is also an option to choose self + Spouse or Self alone (in the case of single-person coverage). However, if the retired employee and his/her spouse both are alive then in such case family floater premium has to be paid and they cannot buy single-person coverage. The group policy for a period of 12 months which commences from 1st November 2022 and ends on 31st October 2023 has a flexible coverage scheme. According to the circular, the Officer Retirees can also opt for the base insurance coverage of Rs.1,2,3 or 4 lacs and Super Top-up coverage of Rs.2,3,4, and 5 lacs. Workmen Retirees can also opt for the base insurance coverage of Rs.1,2,or3 lacs and Super Top-up coverage of Rs.2,3, and 4, lacs. The details are as under
BASE POLICY WITHOUT DOMICILIARY – PREMIUM
OFFICER RETIREES
Sum Insured (Rs)
Self + Spouce
Self
1 lakh
15308
10333
2 lakhs
27557
18600
3 lakhs
41334
27901
4 lakhs
57808
39020
AWARD -STAFF
BASE POLICY WITHOUT DOMICILIARY – PREMIUM
For WORKMEN RETIREES
Sum Insured (Rs)
Self + Spouce
Self
1 lakh
15308
10333
2 lakhs
27557
18600
3 lakhs
41334
27901
II- BASE POLICY WITH DOMICILIARY – PREMIUM
(A) OFFICER Retirees
Sum Insured (Rs)
Self + Spouce
Self
1 lakh
25520
17226
2 lakhs
51047
34457
3 lakhs
77920
52596
4 lakhs
97776
65999
(B) AWARD -STAFF
BASE POLICY WITH DOMICILIARY – PREMIUM
FOR WORKMEN RETIREES
Sum Insured (Rs)
Self + Spouce
Self
1 lakh
25520
17226
2 lakhs
51047
34457
3 lakhs
77920
52596
III – SUPER TOP UP POLICY-PREMIUM-OFFICER RETIREES
Sum Insured (Rs)
Self + Spouce
Self
1 lakh
3730
2518
2 lakhs
6291
4246
3 lakhs
9639
6507
4 lakhs
12475
8420
5 lakhs
15180
10246
SUPER TOP UP POLICY-PREMIUM-AWARD -STAFF RETIREES
Sum Insured (Rs)
Self + Spouce
Self
1 lakh
3730
2518
2 lakhs
6291
4246
3 lakhs
9639
6507
4 lakhs
12475
8420
Reimbursement for the domiciliary claim is a maximum of 10% of the base policy. Domiciliary claims not available on Super-Top up cover Retirees who are not covered under Super-Top up policy may opt for Super-Top up policy for 2022-23. Retirees can opt for with or without domiciliary treatment for 2022-2023, irrespective of the cover they have availed for 2021-22 Source: Bank of India circular dated 23.09.2022
