The SARFAESI Act allows banks and financial institutions to recover non-performing assets without court intervention. It aims to expedite recovery of NPAs. The act empowers lenders to issue recovery notices giving 60 days to pay dues and take possession of secured assets if dues are not paid. It provides three methods for NPA recovery - securitization, asset reconstruction, and enforcement of security. The act applies to NPAs over Rs. 1 lakh and was expanded to include NBFCs.

1. SARFAESI ACT, 2002

2. Introduction
 It stands for Securitization and Reconstruction of
Financial Assets and Enforcement of Security
Interest Act, 2002
 The SARFAESI Act, 2002 empowers Banks /
Financial Institutions to recover their non-
performing assets without the intervention of the
Court

3. Objective of SARFAESI act 2002
 Expeditious recovery of non-performing assets
(NPAs) of the banks and FIs.
 To allow banks and financial institutions
to auction properties (residential and
commercial) when borrowers fail to repay their
loans.

4. When do properties fall under
this Act?
 When a loan is defaulted and certain conditions
are not met, banks declare the loan as NPA and
AUCTION it.
 The provisions of this Act are applicable only for
NPA loans with outstanding above Rs 1.00 lac. NPA
loan accounts where the amount is less than 20%
of the principal and interest are not eligible to be
dealt with under this Act.

5. What the act says:
 The Act empowers the Bank
 To issue demand notice to the defaulting borrower and
guarantor, calling upon them to discharge their dues in
full within 60 days from the date of the notice
 To give notice to any person who has acquired any of the
secured assets from the borrower to surrender the same
to the Bank
 To ask any debtor of the borrower to pay any sum due or
becoming due to the borrower.

6. Example
 Kotak Mahindra Bank has served a
possession notice under the Securitization
and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002
on Deccan Chronicle Holdings Ltd, publisher
of English daily Deccan Chronicle, seeking
payment of dues.

7. Alternative mechanisms to recover Non –
Performing Assets [NPA]
The Act provides three alternative methods for
recovery of non-performing assets, namely: -
 1. Securitization
 2. Asset Reconstruction
 3. Enforcement of Security without the
intervention of the Court

8. SARFAESI in the NEWS,….
 The budget proposal to include non-
financial companies (NBFCs) under the
SARFAESI is credit positive for the
lenders of loans against property, a
leading rating agency, Moody’s.

9. Securitization

10.  Acquisition of financial asset by securitization
company
 Process where non-liquidated financial assets are
converted into marketable securities and are sold
to investors
 Process of converting the receivables and other
assets into securities (placed in market for trading)
Meaning:

11. Scheme
 The company can raise funds from QIB by formulating
schemes.
 Scheme invites subscription to security receipts proposed
to be issued by such a company.
 Company needs to be registered under the companies act,
1956. Registration from RBI is also needed.
 A Qualified Institutional Buyer (QIB) is one that owns and
invests, on a discretionary basis, at least $100 million in
securities; for a broker-dealer the threshold is $10
million.