Banks free to transfer NPAs to peers: SC

ALL CLEAR

THE Supreme Court has ruled that the banks are free to transfer their debts including non-performing assets (NPA) to other lenders. The apex court set aside a Gujarat High Court order which had prohibited such transfers.
    A two-judge bench comprising chief justice SH Kapadia and justice Swatanter Kumar on Thursday held that the assignments of the debts and NPAs from one bank to the other is legal as per the provisions of the Banking Services Regulation Act.
    "There is nothing to prohibit under the banking regulation Act... We set aside the judgment of the high court," said the apex court.
    It passed the verdict on a bunch of appeals filed by some private banks such as ICICI Bank, Kotak Mahindra Bank and StanChart Bank, challenging the order of the high court.
    The case relates to the transfer of a basket of NPAs by ICICI Bank to Kotak Mahindra Bank along with underlying security interest. One of the borrowers, APS Star Industries, objected to the transfer and the matter landed in court. A division bench of the Gujarat HC held that the Banking Regulation Act did not allow for trading in debt.
    Advocate Mahesha Agrawal said, "it is a major relief to the banks. They can now transfer their debts to the other willing lenders and facilitate their business transactions". "The Supreme Court ruling clears the air on securitisation and loan sale deals in India. This should come as a relief to banks. Currently, in securitisation transactions, the parties incorporate a clause which says that the concerned bank will take back the loan if such transactions are found illegal by the court...This would stop," said MR Umarji, IBA chief legal advisor and architect of the security enforcement act, SARFAESI.