How SC ruling on the Sarfaesi Act may benefit depositors of co-operative banks
Until recently, there was no clarity on whether co-operative banks could initiate action against borrowers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act). The apex court has ruled that the Act will apply to co-operative banks as it does to commercial banks.
The Sarfaesi Act helps lenders to recover their dues faster. It is applicable only to secured loans and allows lenders to auction the property that is mortgaged with them to recover dues from borrowers who have turned in non-performing assets (NPA), said Satyam Kumar, CEO, and co-founder of Loantap, an online loan platform, which also has a non-banking financial company (NBFC) license.
Kumar points out that Sarfaesi is applicable to home loans, loans against property, and loans against collateral that micro small and medium enterprises (MSME) avail.
Under this Act, a lender can take possession of the property or mortgaged assets after giving the borrower a 60day notice. Lenders can take over the physical possession or control the mortgaged asset and can sell or transfer them to a buyer without the intervention of any court or a third party. Once the property is auctioned, the lender deducts its dues and pays the rest of the funds, if any, to the property owner.
Before taking physical possession, some lenders take symbolic possession of the property. It means that a bank or a financial institution does not have the key to the property. The borrower or the defaulter continues to occupy the property.
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