The government Thursday approved the introduction of a bill in the winter session of parliament, which will help banks improve their debt recovery process and enhance credit to both corporate and retail customers.
The enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill 2011, will also reduce the cost of funds for banks and their customers and reduce the level of non-performing assets, said an official note.
"The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, etc. without fearing for recovery, thus bringing about equity," said the note.
"Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information," it added.
According to the Indian arm of global ratings major Standard and Poor's, Crisil, slowing economic growth and increases in equated monthly installments because of subsequent rate hikes by the Reserve Bank of India (RBI) would increase banks' non- performing assets (NPAs).
The RBI has asked banks to focus on recovery and follow a stringent credit appraisal procedure.
Although laws exist to help banks recover dues from defaulters, banks and financial institutions have been facing numerous problems in recovery of loans because of delays in disposal of recovery proceedings.
India had enforced a Banks and Financial Institutions act in 1993 and followed it up with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest act in 2002 to help banks reduce NPAs.
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