The document discusses the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002 in India. It provides a history of debt recovery laws in India prior to SARFAESI. SARFAESI allows banks and financial institutions to auction residential or commercial properties to recover loans in case of default. It enables banks to reduce non-performing assets by taking possession of secured assets without court intervention. The act established asset reconstruction companies and empowers banks to seize assets and sell them off in order to strengthen banks' ability to recover non-performing assets faster.

1. PRESENTED BY :DEEPAK KUMAR AND ABINASH
PADHY .
UNDER GUIDANCE
K.K. ACHARYA.

2. HISTORY OF SERFAESI ACT :
Before SARFAESI Act , recovery of debts due to
Banks and financial institutions Act of 1993, was
used for recovery of default loans .
However there were several loopholes , that
were misused by the borrowers as well as the
lawyers .
The committee recommended various new
legislations to empower Banks and other
financial institutions to take possession of the
NPA s .

3. WHAT IS SERFAESI ACT ?
The Securitization and Reconstruction of
Financial Assets and Enforcement of
Security Interest Act, 2002 (also known as the
SARFAESI Act) is an Indian law.
It allows banks and other financial institution to
auction residential or commercial properties to
recover loans .
The first asset reconstruction company (ARC) of
India, ARCIL, was set up under this act.
ARCIL : Asset Reconstruction Company (India) Ltd,,

4. It enables banks to reduce their non-
performing assets (NPAs) by adopting measures
for recovery or reconstruction .
Upon loan default , bank can seize the
securities (except agricultural land ) without
intervention of the court .
SERFAESI is effective only for secured loans
where bank can enforce the underlying security
(e.g. hypothecation pledge ,and mortgages .)

5. • .

6. HOW IT WORKS ?
THE SERFAESI Act , 2002 gives powers of “seize
and desist “ to banks .
Bank can give a Notice in writing to the
defaulting borrower requiring it to discharge its
liabilities within 60 days .
If the borrower fails to comply with the notice ,
the bank may take resources to one or more of
the following measures :
Take possession of the security for the loan .
Sale or lease or assign the right over the security .

7. RIGHT OF BORROWER :
The borrower can at any time before the sale is
concluded , remit the dues and avoid losing the
security .
In case any unhealthy / illegal act is done by the
Authorized officer , he will be liable for penal
consequences
The borrowers will be entitled to get compensation
for such acts.
For redressing the grievances , the borrowers can
approach firstly DRT and thereafter the DRAT in
appeal . The limitation period is 45 days and 30 days
respectively.

8. METHODSOFRECOVERY:
The act makes provisions for two main methods of
recovery of the NPAs as follows:
1) Securitization : It is a process of issuing marketable
securities , backed by a pool of existing assets such as auto
or home loans. After an asset is converted into a
marketable security , it is sold .
2) ASSET RECONSTRUCTION :
Enacting SERFAESI act has given birth to the asset
reconstruction company in India .
it can be done by either proper management of the business
of the borrower , by taking over it or by selling a part or
whole of the business or by rescheduling of payments of debt
payable by the borrower enforcement Of security interest in
accordance with the provision act .

9. • The law does not apply to unsecured loans, loans
below ₹100,000 or where remaining debt is below 20%
of the original principal. This law allowed the creation
of asset reconstruction companies (ARC) and allowed
banks to sell their non-performing assets to ARCs.
Banks are allowed to take possession of the collateral
property and sell it without the permission of a court.

10. • Conclusion :
 The high level of NPAs has led to lower interest
income and loan loss provisioning requirements
which reduced the profitability of banks .
The act is intended to strengthen banks to
recover NPAs faster
The act empowers banks to seize charged assets
without court’s intervention and sell them off.