Financial Daily from THE HINDU group of publications
Wednesday, Nov 12, 2003
Money & Banking - Housing Finance
ADB, 23 housing finance cos get to use Securitisation Act
New Delhi , Nov. 11
THE Centre has sparked off fresh action under the Securitisation Act by allowing the Asian Development Bank (ADB) and housing finance companies (HFCs) to exercise powers provided under the legislation.
In separate notifications issued on Monday, the Ministry of Finance said that the ADB and 23 HFCs would be allowed to tackle their loan defaulters under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SAFRAESI), commonly referred to as the Securitisation Act.
The move to broaden the ambit of legislation comes even as a petition challenging the very legality of the Act is pending before the Supreme Court involving Mardia Chemicals and ICICI Bank. It has been argued before the apex court that the law is heavily biased in favour of lenders.
The Securitisation Act provides enormous powers to lenders to take possession and subsequently dispose of assets of chronic defaulters without the need of going through the cumbersome and time-consuming legal process under the civil laws.
"ADB can now act under the law to deal with defaulters of its loans as any other bank or financial institution can do," a senior official of the Finance Ministry said while confirming the issuance of the notifications.
On the housing finance front, the Government has stipulated that only those HFCs which are registered with the National Housing Bank (NHB) and having a minimum Tier-I capital of Rs 10 crore would be eligible for exercising the powers under the Act. The eligibility norm allows only 23 of the larger HFCs to be included under the Act.
NHB officials said that though the net non-performing assets (NPAs) on housing loans would be in the region of 2-3 per cent of outstanding loans, the new powers accorded to the HFCs would further the bolster lending for housing purposes by the entities.
"Till now we were able to take possession of property only through the court process by obtaining the necessary decree. Now we would be able to act outside the court process. This would act as a further deterrent and allow lenders to provide loans more freely for housing purposes," a senior NHB official said.
This is the second time that new entities have been allowed under the Act after cooperative banks being allowed to exercise the powers.
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