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Govt approves law on NPA recovery

The government on Friday approved re-promulgation of the securitisation ordinance to enable banks and financial institutions to take possession of securities of defaulters and sell them, in a bid to tackle the problem of non-performing assets estimated at over Rs one lakh crores (Rs 1000 billion or Rs 1 trillion).

The decision, taken at a Cabinet meeting, would also permit banks and FIs to create a market for the securitised assets and help improve their asset-liability management.

The re-promulgation of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance 2002 would enable banks and FIs to set up asset reconstruction companies, which would buy NPAs from banks and securitise them in exchange for debenture units.

"This step is necessary to tackle the problem of non-performing assets with the bank and will mark major reforms in the financial sector", an official spokesperson told reporters after the meeting.

The ordinance would, however, not cover agricultural loan and small loans.

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