Calcutta, March 8: Non-bank finance companies (NBFCs) have welcomed the Centre's decision to allow access to the Sarfaesi Act, which facilitates the recovery of non-performing assets without court intervention.
Sarfaesi, or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, enables banks to expedite recovery and improve credit behaviour.
The NBFCs registered with the RBI and having an asset size of Rs 500 crore and above (considered as systemically important) will be eligible to access the provisions of the act.
According to industry players, the move will create a level-playing field with banks. It will not only help to improve the pace of recovery of bad assets but also keep a check on non-performing asset (NPA) levels.
CARE ratings has estimated the gross NPA level of the NBFCs to be in the range of 5.8-6.1 per cent of advances by 2018 from around 3.4 per cent in 2014.
The government's decision comes after the RBI last year announced tougher provisioning and liquidity norms for the NBFCs to bring them on a par with banks.
The RBI, however, did not allow the NBFCs access to the Sarfaesi Act in its revised framework.
The NBFCs as well as industry associations had, therefore, asked the finance ministry to consider their demand for access to the act.
"Allowing NBFCs access to the Sarfaesi Act is a big plus for players like us. All this while, NBFCs lacked a level-playing field vis-à-vis banks," said Hemant Kanoria, chairman and managing director of Seri Infrastructure Finance.
He said the asset quality of the sector had been under stress over the last few years because of a weak operating environment and recovery remained a challenge.
The NBFCs so far had to depend on civil courts where litigation went on for years.
Under the Sarfaesi Act, the total time taken to recover the loan will come down to a few weeks or months, depending on the cases, he said.
Laxmi Narsimham, chief financial officer of Magma Fincorp, said the decision would benefit NBFCs engaged in immovable properties such as mortgage, infrastructure finance and small and medium enterprises more than those that finance movable assets such as commercial vehicles and construction equipment.
"The recovery time will certainly come down to a great extent," he said.