Impact of Securitization Act 2002 on the Recovery of NPAs in Public Sector Banks

Abstract

The strength and soundness of the banking system primarily depend on the quality and performance of the loan portfolio, i.e. the fulfillment of obligations by borrowers promptly. The level of NPAs is an indicator of the efficiency of banker's credit risk management and efficiency of resource allocation to productive sectors. The alarming level of NPAs is recognized as one of the major explanations for implementing structural changes and reform measures in the banking sector during this period. The curative measures are reactionary in nature and focused on recovering from NPA accounts. It includes measures initiated by RBI such as setting up Asset Reconstruction Companies (ARCs), Debt Recovery Tribunals (DRTs), Securitization Act, Compromise Settlement Schemes, etc. For the first time Banks management were equipped with sharp result orienting tools of the Securitization Act to realize long term NPA's. Under the Act Banks were authorized to attach immovable properties of the defaulting borrowers and sale through auction of such property, the proceeds of which were directly receivable by the Bank for appropriation in borrowers NPA's account. In this present research paper an attempt to evaluate the impact of enactment of Securitization Act 2002 on the performance and recovery of the NPAs  in public sector Banks. Statistical techniques like arithmetic mean, standard deviation and ANOVA have been employed for the analyses of data. The result of the study found that NPAs significantly improved after the enactment of the Act and with the help of enforcement of security interest aspect of the Act Delays in recovery of loans are removed.