Private banks are looking to provide a fresh lease of life to the corporate sector, in the wake of the domestic slowdown and liquidity crunch.
Even as worries over increasing default rates loom large, banks have indicated that they would not invoke the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act that empowers lenders to seize assets of defaulters. Banks are instead favouring restructuring repayments, lest these loans show up as non-performing assets in the banks' books.
The Sarfaesi Act enables banks and financial institutions to recover their non-performing assets without the intervention of the court.
The Act was put in place for speedy recoveries, banks are unwilling to impose it on defaulters who may be unable to pay due to the current economic situation. "This time, it is a different situation which has arisen out of the global and domestic economic crisis and it cannot be equated with any other previous cases," legal expert Manoj Kumar told Hindustan Times.
A senior official at a private sector bank confirmed the banking industry is looking at an option to increase the repayment timeframe in order to be able to classify assets as "good assets." "Banks are doing this to refrain from adding NPAs into their books," the official said. Though there has been no major default as yet, banks are taking precautions in a bid to show cleaner books.
Until now, most defaults have occurred in the case of small and medium enterprises, where the loan amounts have been relatively small.