ANALYSING THE IMPACT OF THE SARFAESI ACT ON THE RECOVERY RATES OF NPAs IN INDIAN BANKS

The SARFAESI ACT 2002, a shift to corporate governance was one of the major structural reforms introduced to control non-performing assets (NPAs) in Indian banking. The SARFAESI Act commenced in 2002 and was a significant shift to the management of NPAs since it empowered banks and financial institutions to recover secured loans without undergoing the conventional legal formalities required to undertake it through legal procedures. In this research, the effect of the SARFAESI Act on NPA management from 2002 up to 2022 has been evaluated through the analysis of data derived from official financial reports and through a set of non-numerical data derived from members of the banking industry. In the same period, the NPAs’ recovery rate by the SARFAESI Act was higher due to the speedy disposal of bad assets eliminating the legal proceedings largely. Nevertheless, some problems like unclear legislation, an excessive amount of applicable legislation that can take months to study and recognize what can be applied in practice, and borrowers’ resistance have often hindered the efficiency of the recovery procedure. The study also analyzes the SARFAESI Act with other NPA resolution mechanisms such as the Debt Recovery Tribunals and Lok Adalat which depicts the efficiency of each and thereby opines that integrating SARFAESI with the mechanism as mentioned earlier could fill some of the said gaps. The study proves that there is a need to make continual amendments to the provisions of the SARFAESI Act to meet changing financial milieu and challenges thereby addressing any gaps that may be created. The following are the effective implementation strategies that are central to the enhancement of the benefits of the Act with relevance to adequate functionality: On balance, despite the substantial enhancement of the recovery rates of NPAs in Indian banks, there is a continuous need for the process of SARRFAESI Act’s assessment and improvement. The study benefits the existing literature on financial sector reforms and could serve as a reference to policymakers and banking organizations that are aiming to enhance how NPAs are managed and enhance the efficiency of the banking sector.