Non Performing Assets free essay sample

After going into the rationale for declaring a loan as an NPA, the Court went on to hold that the guidelines were issued as a restructuring measure in order to avoid setbacks in the banking system. The sale of NPA s is indeed profitable given that it is economically viable for the banking system and works positively in the interest of monetary stability or economic growth, keeping in mind the interest of the depositors and optimum employment of their deposits. The Supreme Court, after analyzing the provisions of the Banking Regulation Act, 1949, held that the issue in question in this regard appeared to be whether trading in NPAs has the characteristics of a bona fide banking business. In case, trading in NPA s fell within the scope of bona-fide banking business, there is no provision of law barring the same. Sections 21 and 35A of the Banking Regulation Act, 1949 empower the RBI to issue various guidelines determining the policy in relation to advances to be followed by banking companies. We will write a custom essay sample on Non Performing Assets or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The guidelines issued by RBI authorizing banks to deal inter se in NPAs have a statutory force of law. They have allowed banks to engage in trading in NPAs with the purpose of clearing the balance sheets and raising the capital adequacy ratio. These activities comes within the ambit of Section 21 of the Banking Regulation Act, 1949 which enables the RBI to frame the policy in relation to Advances to be followed by the banking companies and which empowers RBI to give directions to banking companies under Section 21(2) of the Act. When a delegate is empowered by the Parliament to enact a Policy and to issue directions which have a statutory force and such delegate, being the RBI in this case, issues such guidelines having statutory force, such guidelines have to be read as supplemental to the provisions of the Banking Regulation Act, 1949. Such banking policy as enunciated by RBI cannot be said to be ultra vires the Act. The Supreme Court held that Section 6(1) of the Banking Regulation Act, 1949 is a general provision and enumerates the fields in which banks can carry on their business, being core banking business. However, RBI, being the regulator, under Section 21 and 35A can issue directions having statutory force, laying down parameters enabling banks to expand their business. Such parameters define `banking business. According to the judgment of the Apex Court, Section 6 of the Banking Regulation Act, 1949 describes what activities banks can take part in. The 1949 Act allows banking companies to undertake activities and businesses as long as they do not attract prohibitions and restrictions like those contained in Sections 8 and 9 of the Banking Regulation Act, 1949. The Court further went on to state that RBI is empowered to enact a policy which would enable banking companies to engage in activities in addition to core banking process it defines as to what constitutes banking business. Assignment of Debts and the SARFAESI Act, 2002 In respect of the assignment of debts to banks, the Court further held that the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) are not applicable to the case.