In India, after Nationalization, the banks, most of them in the public sector, became an important tool for the socioeconomic revolution in the society, resulting in substantial changes to the commercial banking industry. As innovation supported by technology is constantly changing the face of the world of finance, it is today more a world of transactions than a world of relations. Most relations have been transactionalized. The overdue advances of banks in India were found to be mounting and in consequence the Non-Performing Assets (NPAs) in their portfolio are on the rise affecting badly on the banks viability. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) has been enacted with an intention to strengthen the creditors’ rights through foreclosure and enforcement of securities by the banks and financial institutions without substantial involvement of the courts of law. This paper is an attempt to analyze the legal framework for securitization of financial assets and suggests some recommendations for improving the financial sector.

Today, it is more a world of transactions than a world of relations. Most relations have been transactionalized. Given that, the legislation on security interests has been a very significant one. This significance has only increased over the years with increasing preponderance of credit and security. The Indian growth story is now a global theme. In this new era of resurgence, Non-Performing Assets (NPAs) have come down sharply—how much of that is due to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is by itself a question. But there is no doubt that this enactment has undone the borrowers’ general belief that bank funds are like the Indian bride who enters the husband’s courtyard never to go back.

This enactment has created a new seriousness about security interests. However, in the course of implementation of this law, several significant issues pertaining to security interest regime will come up. First of all, the very tricky question of choosing between enforcement of security interests, workouts, and winding up will have to be reviewed at a policy level. If banks were invariably to choose to enforce security interest and not look at the workout option, it would lead to demolition of a corporate enterprise which is a huge cost. Besides, enforcement of security interest is not an equitable remedy—the secured lender is entitled to look at his own interests ignoring the interests of the other lenders, workmen and the shareholders of the borrower.

Law Review Journal, Securitization, Non-Performing Assets (NPAs), The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), Financial Assets, Boon or Bane, SARFAESI Act, 2002?.