Securitization of Financial Assets: A Boon or Bane Under SARFAESI Act, 2002?

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.