Change in Sarfeasi Act.

A change has been brought out in the Sarfaesi Act, brining therein a priority to the Secured Creditors.  Here are the more details.

1. The Debt owed to a Secured Creditor will get priority over all other claims which includes other debt and all revenue, taxes, cesses and dues payable to the Central and State Governments and also local authorities which is an amendment brought out in the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (Sarfaesi) Act.
2. This move is said to be a great positive move for creditors who pursue Sarfaesi and thus their claims over secured assets getting priority over other claimants brings back the basic principles of bank lending against charged securities.
3. It was last year, when recovery through major resolution mechanisms declined, more so through the Sarfaesi Act. More than 2,48,000 cases were referred for recovery through the Sarfaesi Act in 2018-19 which involved an amount of Rs. 2.89 lakh crore.
4. Here, banks recovered Rs. 41,876 crore or say 14.5% of the amount involved which was less than the recovery rate of 32.3% in 2017-18.
5. It may be noted that the Sarfaesi Act permits banks and financial institutions to auction residential or commercial properties of a defaulter to recover loans.
6. Under the Insolvency and Bankruptcy Code, the amount recovered in 2018-19 was Rs. 70,819 crore or 42.4% of the amount of Rs. 1.66 lakh crore involved, according to Reserve Bank of India data.
7. Bad loans of banks declined in 2018-19 which rose for seven consecutive years after non-performing assets’ recognition neared completion and the slippage ratio improved therey.
8. A part of write-offs was due to aging of loans and the recovery efforts received a boost from the IBC.
9. The restructured standard advances to gross advances ratio began declining after the asset quality review in 2015 and reached 0.55% at the end of March 2019.
10. Further, cases referred for recovery under various mechanisms grew over 27% in volume and tripled in value to over Rs 8.15 lakh crore in FY19 which led to a largely increased bankruptcy proceedings.