Major Banks Float Idea Of Setting Up ‘Bad Bank’ For Farm Loans

Leading banks have proposed setting up an asset reconstruction company (ARC) to deal with collections and recovery of farm loans, Indian Express reports.

In cases when agricultural land is provided as collateral, the loan recovery law differs from state to state as agriculture is a state subject.

Hence, the idea to establish an ARC for farm loans was pondered upon during a meeting of the Indian Banks’ Association (IBA) back in September.

According to a source in the know of developments, the recovery cost can be optimised through such a mechanism.

Moreover, the suggestion also has acceptability amongst banks, given that a government-backed ARC has been laid out recently to deal with the non-performing assets (NPAs) of banks.

“Enforcement of provisions on mortgaged farm land is generally done through the Revenue Recovery Act of states, Recovery of Debt and Bankruptcy Act, 1993, among other state-specific regulations. These are often time consuming and in some states revenue recovery laws covering bank loans have not been enacted,” a source was quoted by the publication.

Hence, sources stressed the importance of conducting discussions with the central government to introduce agricultural land legislation similar to the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).