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Banking Theory and Practice

Notes 13.7.4 Credit Information Bureau (India) Ltd. (CIBIL)

Taking cognizance of the utility of an effective institutional mechanism for sharing of information
on borrowers/potential borrowers by banks, CIBIL was set up in 2001. Banks were advised to go
for parallel reporting of data on suit filed accounts to both the RBI and CIBIL up to March 31, 2003
and switch over such reporting to the CIBIL effective from April 1, 2003.

Banks have been urged to make persistent efforts in obtaining consent from all their borrowers
in order to establish an efficient credit information system, which would help in enhancing the
quality of credit decisions and improving the asset quality of banks, apart from facilitating
faster credit delivery. Further, with a view to strengthening the legal mechanism and facilitating
credit information on borrowers of bank/FIs, a draft credit information companies Regulation
Bill, 2004 covering registration, responsibilities of the bureaus, rights and obligations of the
credit institutions and safeguarding of privacy rights is under active consideration of the
government.

13.7.5 Securitization and Reconstruction of Financial Assets and
Enforcement of Security in Interest (SARFAESI) Act, 2002

Until the enactment of Securitization Act, Banks/financial institutions had to enforce their security
through court which was a very slow and time consuming process. There was also no provision
in any of the present law in respect of hypothecation, though hypothecation is one of the major
security interest taken by the Bank/financial institution. The Securitization Act was first enacted
with effect from 21-06-2002 to overcome the hardships faced by the Banking industry.
The salient features of the Securitization Act are:
1. In case of any borrower having defaulted in repayment of secured debt or any instalment
thereof and his account in respect of such debt is classified by the secured creditor as non-
performing asset, then the secured creditor may require the borrower to discharge his
liabilities within sixty days from the date of notice, failing which the secured creditor
shall be entitled to take recourse to one or more of the following measures to recover his
secured debt:
(i) Take possession of the secured assets of the borrower including the right to transfer
by way of lease, assignment or sale for realizing the secured assets;
(ii) Take over the management of the secured assets of the borrower including the right
to transfer by way of lease, assignment or sale and realize the secured asset;

(iii) Appoint any person (hereafter referred to as the manager) to manage the secured
assets the possession of which has been taken over by the secured creditor.
2. In the case of financing of a financial asset by more than one secured creditors or joint
financing of a financial asset by secured creditors, no secured creditor shall be entitled to
exercise any of the above powers unless exercise of such right is agreed upon by the
secured creditors representing not less than three-fourth in value of the amount outstanding
as on a record date and such action shall be binding on all the secured creditors.

3. No borrower shall, after receipt of the notice, transfer by way of sale, lease or otherwise
any of his secured assets referred to in the notice.
4. Where the possession of any secured asset is required to be taken by the secured creditor
or if any of the secured asset is required to be sold or transfer by the secured creditor under
the provisions of this Act, the secured creditor may, for the purpose of taking possession
or control of any such secured asset, request in writing the Chief Metropolitan Magistrate

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