Definition
SARFAESI Act
The SARFAESI Act lets banks and certain NBFCs enforce security and seize a defaulting borrower's pledged assets without going through the courts.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, empowers secured lenders to take possession of and sell mortgaged property after a 60-day default notice, bypassing lengthy litigation. It applies to secured loans above a threshold.
SARFAESI is a key recovery tool for Indian lenders, especially for housing and secured retail loans. It also created the legal basis for Asset Reconstruction Companies to buy and resolve bad loans. Borrowers can challenge action before the Debt Recovery Tribunal.
Related terms
- Recovery (Loans)Loan recovery is the money a bank gets back from a defaulted or written-off borrower, through settlement, asset sale, legal action or insolvency proceedings.
- Debt Recovery Tribunal (DRT)A Debt Recovery Tribunal is a specialised forum that adjudicates banks' and financial institutions' claims for recovery of defaulted debts above a threshold.
- Insolvency and Bankruptcy Code (IBC)The Insolvency and Bankruptcy Code, 2016 is India's unified framework for time-bound resolution or liquidation of defaulting companies through the NCLT.
- Asset Reconstruction Company (ARC)An Asset Reconstruction Company buys bad loans from banks at a discount and works to recover or restructure them, helping clean up bank balance sheets.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.