History of SARFAESI Act, 2002

-In 1991, Narasimham Committee – I (Committee on the Financial System) observed that borrowers obtain stay orders from ordinary courts, so banks and financial institutions face difficulty while recovering Non-Performing Assets(NPAs). Hence, to strengthen this process, Debt Recovery Tribunals were set up in 1993, and the loan recovery process was made beyond the jurisdiction of ordinary courts.
– In 1998, Narasimham Committee – II (Committee on Banking Sector Reforms) observed that Debt Recovery Tribunals (DRTs) need to be strengthened with a law, So, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act enacted in the 2002.

The SARFAESI Act allows banks and other financial institutions for auctioning commercial or residential properties to recover a loan when a borrower fails to repay the loan amount. Thus, the SARFAESI Act, 2002 enables banks to reduce their Non-Performing Assets (NPAs) through recovery methods and reconstruction.
SARFAESI Act 2002 is a milestone in the recovery of NPAs.

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