Challenges Faced By Nationalized Banks In Initiating Sarfaesi Action

“Non-performing assets (NPAs)” are viewed as a significant hurdle of the Finance Sector. In order to empower the Banksin debt recovery,“Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002” was established. However, significant challenges are beingexperienced byFinance Sector in India at the time of enforcement of SARFAESI action against defaulter debtors. This research paper examines the legal, procedural and operational barriers faced by Banks in initiating “SARFAESI” action. The key challenge in the recovery process under “SARFAESI” is prolonged litigation. Often, to save their skin, borrowers file miscellaneous cases in “Debt Recovery Tribunals (DRTs)”, “Debt Recovery Appellate Tribunals (DRATs)”. Such propaganda delays the process of recovery. Further, contrary judicial interpretation also produces ambiguities, which reduces confidence of the banker to initiate “SARFAESI” action with full zeal. Sometimes, lack of co-operation from the local authorities at the time of taking possession, failure of enforcement agencies and district administration to provide support in enforcement of security under “SARFAESI”, political interference, social obstruction especially in agricultural borrowers and borrowers of small and medium enterprises reduces the efficacy of the Act. Such factors make it difficult for the nationalized banks to take conclusive measures. Another major hurdle in the “SARFAESI” action is disposal of secured assets through banks. Proper asset valuation is required for sale of secured property of mortgagor; however, Banks often struggle with the issue of undervaluation which leads to litigation. Further, deficiency of prospective bidders and auction failure aid to the distress of the secured assets. This research paper emphasizes the challenges faced by nationalized banks in initiating“SARFAESI” action and suggest recommendations for the application of the Act in a better practical way.