RBI disagree with the plan to give Sarfaesi powers to HFCs
The Reserve Bank of India (RBI) disagrees with finance ministry’s plan to give Sarfaesi Act-powers automatically to all housing finance companies (HFCs) registered with the National Housing Bank (NHB).
An official says that the ‘stringent’ Sarfaesi powers should not be given to institutions without proper due diligence of their management, track-record, borrower profile and default levels.
The official also says that the RBI does not want that the powers should be misused by the HFCs and trouble the borrowers. The banking regulator concluded that the Sarfaesi Act considers borrowers below a low threshold of Rs 1 lakh as ‘small borrowers’ and exempts them from its purview, the definition of ‘small borrower’ needs to be changed to utilize the higher level of borrowing to ensure that it fits in the conditions of housing loans.
As per the Sarfaesi Act, only listed commercial banks, public financial institutions (FI) and those lenders notified by the government as ‘FIs’ on a case-by-case basis have authority to apply the security interest by taking charge of the assets from the defaulting borrower, after the expiry of a 60 days since a notice is issued classifying the loan as NPA, without court intervention.
Recently 20 out of 58 HFCs are registered with NHB have been notified as FIs under this act.
According to the NHB bill 2012, it was suggested that all NHB registered HFCs should be automatically allotted the Sarfaesi powers“to provide them a level playing field.”
The bill was introduced to ensure uniform control over non-banking financial companies, including HFCs, for which it needs the registration and regulation-related powers over HFCs to be transferred from NHB to the RBI. The NHB, as per the bill, will focus only on supervision and financing of such institutions.
The bill was tabled before the last session of Parliament and it could not be taken up. Getting it passed in Parliament would be time consuming process, that’s why the finance ministry wanted this specific provision — of giving Sarfaesi powers to all HFCs — to be sanctioned through an executive notification.
Source: The Financial Express
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