NBFC Debt Recovery Advisory

Under the SARFAESI Act, 2002, the amount of debt is defined as any liability claimed by a secured creditor from any person or individual, which is legally recoverable on the date of the application. This amount of debt includes:

• Principal amount of the debt
• Applicable interest
• Penalties
• Other costs or charges paid by the borrower as agreed in the agreement

The SARFAESI Act does not apply to the following types of loans:

• Loan accounts where the amount in default is less than 20% of the principal and accumulated interest.
• Money or security obligations governed under the Indian Contract Act or the Sale of Goods Act, 1930.
• Any rights of an unpaid seller as provided under Section 47 of the Sale of Goods Act, 1930.

No, not all NBFCs are mandatorily required to file particulars of creation, modification, or satisfaction of any security interest with the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI). As per Section 26B of the SARFAESI Act, 2002, only certain authorities are obliged to file such particulars. Secured creditors, including eligible NBFCs, are not compulsorily required to file particulars of the creation of a security interest with CERSAI under the SARFAESI Act. This includes:

• Authorities or officers of the Central Government
• Authorities or officers of any State Government
• Local authorities responsible for recovering taxes or other government dues

A loan is considered a secured loan under RBI prudential norms for NBFCs only if it is backed by tangible property, such as a mortgage on immovable property or any other tangible asset, while loans backed by unsecured receivables are not treated as secured.

The alternative recovery mechanism is the establishment of a fair practices code, periodic reviews, and debt restructuring by providing flexible repayment options for borrowers facing genuine difficulties in compliance with Board-approved restructuring policies.

The consequences of business loan default are a lower credit score, an increased rate of interest, foreclosure or legal action.

The list of things to keep in mind to avoid missing loan repayment is to use remainders or autopay, set aside funds for loan repayment, wrap up, etc.

Yes, an NBFC can take legal action against a loan defaulter by initiating a civil suit for secured loans above a certain threshold limit or by provisions under the SARFAESI Act to seize and sell collateral without court intervention.