Non Performing Assets (NPA) Current Affairs - 2020

SC places Cooperative banks under SARFAESI Act

The Supreme Court of India recently pronounced its judgement that cooperative banks shall be placed under SARFAESI Act.

Highlights

The Supreme court has upheld the GoI notification dated January 28, 2003 under which the cooperative societies have come under SARFAESI Act. The Apex court has also ruled that the Cooperative Banks have also come under the definition of banks under Banking Regulation Act, 1949.

The Court has also ruled that under Sarfaesi Act, the Parliament has powers to provide procedures for recovery of loans under the act.

Sarfaesi Act

Sarfaesi Act is Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. The banks utilize the act as tool to reciver bad loans, especially the non-performing assets.

The act provides procedures to transfer Non-Performing Assets for reconstruction of assets. It also enforces security interests of the banks without intervention of the court. In order to recover a debt, the act empowers the financial institutions in India to take over immovable property.

Cabinet Approval: Mega Consolidation of Public Sector Banks

On March 4, 2020, the Union Cabinet chaired by Narendra Modi had approved mega consolidation of 10 Public Sector Banks.

Highlights

The mega merger is to come into effect from April 1, 2020. It includes amalgamation of United Bank of India and Oriental Bank of India into Punjab National Bank. Also, amalgamation of Syndicate Bank into Canara Bank. The Cabinet also approved amalgamation of Corporation Bank and Andhra Bank into Union Bank of India. It also approved amalgamation of Allahabad Bank into Indian Bank

Benefits

The Amalgamation will help these under performing banks get cost benefits. Also, each amalgamated bank will hold business of 8 lakh crore rupees. This will help the banks compete with other banks in India and also globally. It will also increase competitive spirit of the banks boosting Indian Banking System.

How is Amalgamation different from Merger?

A Merger is where two or more business entities combine to form a new entity. On the other hand, in amalgamation one business entity acquires one or more business entities.