The increasing pressure of NPAs and shrinking margins, the banks have resorted to the auctioning of the loan defaulter's asset. The banks are more increasingly using the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) 2002, which allows selling of asset to recover loan.
The above act is applicable to any loan above the amount of Rs.1 lakh. Banks these days have been auctioning assets for loans as low as Rs. 1.5 lakhs to Rs. 2 lakhs.
"This is because of the worrisome increase in the non-performing assets and the Reserve Bank of India's constant goading to keep NPAs under manageable limit," stated a Canara Bank executive.
Andhra Bank Chairman and MD, Mr. B.A. Prabhakar also called Sarfaesi as a "very effective instrument" for recovery.
Mr. Shiv Kumar, MD, State Bank of Bikaner and Jaipur stated deployment of Sarfaesi as the last resort, but the bank has an obligation to recover loans and borrowers should understand the same.