State working on its SARFEASI Act equivalent

SRINAGAR: The state is in process of enacting a separate Act for recovery of unpaid loans from defaulters, as an equivalent of the SARFEASI Act passed by the Indian parliament.
“The SARFAESI Act cannot be implemented in the state due to its special position, so we are drafting states own equivalent Act that will suffice the need of banks operating in the state,” the Finance Minister, Dr Haseeb Drabu, said during the special State Level Bankers Committee (SLBC) meeting convened by J&K Bank at SK International Conference Centre here.
The RBI Governor Dr Raghuram Rajan, who is on a visit to Srinagar, was chief guest on the occasion.
The Commissioner/Secretary Finance, who was also present in the meeting, said the government has “formed a committee to draw legislation for separate Act to enable recovery of defaulted loans”.
As per the high court ruling, SARFEASI Act, introduced by the Indian parliament, cannot be extended to Jammu and Kashmir. The Act allows enforcement of security interests by a secured creditor without the intervention of a court or tribunal.
If any borrower fails to discharge his liability in repayment of any secured debt within 60 days of notice from the secured creditor, the latter is conferred with powers to, among other things, take possession of the secured assets of the borrower, and take over management of the business of the borrower including the right to transfer by way of lease. The state government may present the Act-equivalent in the Assembly’s upcoming session for legislative nod, they said. On the proposal of Finance Minister, the RBI has agreed to examine extending the moratorium on all outstanding advances by one more year.
“To prevent distress in the market, I propose RBI to extend the moratorium on all outstanding advances by one more year,” Drabu said. The Finance Minister also announced to form an Asset Reconstruction Company (ARC) that will buy bad loans of state subjects from the outside banks.
“The company will be a state subject and it will give outside banks a way out to offload their bad loans,” the minister said.
“We have a State Financial Corporation (SFC) and we will be looking into converting it into ARC.”
The minister also accepted Punjab National Bank’s proposal to establish a Farmers Training Institute in the state with “full cooperation” of the government. He asked the RBI to establish a Bankers Training Institute in the state. The State Bank of India agreed to buy season portfolio from J&K Bank to improve their credit ratio.
The RBI Governor extended his full support for the sustainable economic development of the state.
“We have lots of ideas on table and now it is time to implement the same on ground” he said, adding that a group of major bankers and government representatives will be formed to ensure implementation.
He said there “is tremendous opportunity” in the field of investment in sectors such as power, horticulture, and tourism.
Chairman and CEO of JK Bank, Mushtaq Ahmad, presented the agenda of the meeting and gave a brief overview of the progress made in various initiatives taken in the state.
“I am happy that with the concerted efforts taken by all the stakeholders we have succeeded to a great extent. Yet the challenge remains to realise the true potential of state economy,” he said. He said the credit dispensation in the state, as of now, is “much below the national level due to many reasons”.
“Coupled with topographical disadvantage of the state, the major reason is the non-availability of basic infrastructure like better road connectivity, power besides other support structures. These are huge impediments in realising the optimum potential of the state economy in sectors like horticulture, MSME’s, handicrafts and tourism,” he said.
He said a group comprising of major commercial bankers and senior government functionaries has been constituted to see implementation of the study made by RBI in the State Credit Plan.
Meanwhile, the Chief Minister Mufti Mohammad Sayeed raised with RBI Governor the issue of recapitalisation of the cooperative banks in Jammu, Anantnag, and Baramulla.
The banks are facing a threat of getting de-licensed by the RBI. Sayeed made the appeal during his luncheon meeting with Rajan, and heads of India’s premier banks including HDFC, ICICI, PNB, and Canara Bank.
The state has proposed approaching NABARD to advance the state share of Rs 139 crore as loan, paving way for capital infusion to the three cooperative banks from RBI.
Sayeed appealed the premier banking institutions of India to lend more to enterprises, especially in agriculture sector, craft and Small and Medium Enterprises (SME) in view the state’s low Credit Deposit (CD) ratio of 46 per cent.
He stressed on improvement in the CD ratio to RBI’s benchmark of 60 per cent. He asked the banks to increase their credit flow in housing and education sectors, while highlighting the need to lend for restructuring of orchards for high-density farming, setting up agriculture infrastructure such as Cold Atmosphere stores, van chains, and packing and grading lines.
The Chief Minister also appealed the financial institutions to recruit local youth in the branches operating within the state, and broaden the scope of their CSR operations.