SARFAESI Act: A Game Changer or a Splash in the Pan

Abstract

Non-Performing Assets (NPAs) have remained a major challenge in the Indian banking industry and have had a substantial effect on financial stability and economic growth. The Finance Minister of India reported in Parliament that 1,009,511 crores worth of bad loans had been written off between 201718 and 202122, leading to huge losses of investible resources. This capital crowding out is a negative factor to the economy as it lessens the amount of money that can be invested productively. Various recovery mechanisms have been established over the years to deal with this issue, such as the Debt Recovery Tribunals (DRTs), Lok Adalat’s and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. The SARFAESI Act was introduced in 2002 based on the recommendations of the Narasimham Committee II, which was to facilitate the process of loan recovery by authorizing financial institutions to repossess and sell the collateral without the involvement of the court. It was projected as a revolutionary measure to quicken the process of recovery of debts and enhance the financial status of banks. This paper aims at comparing the efficiency of the SARFAESI Act with other legal recovery tools. The study uses a mixed-methods research design whereby it first conducts a quantitative study that compares the efficiency of the SARFAESI Act to DRTs and Lok Adalat’s. The aim is to determine whether the Act has achieved its desired purpose of speeding up the recovery process and thus fortifying the economic base of Indian banks.