Indian Banks Get New Power Over Defaulters

India’s government has given banks the power to take over the management of companies that default on loans, part of a drive to clean up bad debts.

The government said Wednesday that it had issued a decree amending the Securitization Act passed in November 2002. The previous version did not allow management control, but only the takeover and disposal of secured assets.

“Banks will have to decide on commercial grounds, based on the nature of the business, when it comes to taking over the management,” said Nita Gaglani, partner at the law firm Manilal Kher Ambalal. “There’s no point in them taking over a business, such as a chemical plant, they have no technical know-how to manage.”

India is pushing to clean up bad loans totaling at least 983 billion rupees, or $22 billion, in face value at Indian lenders, which have been counting on the 2002 law to recover bad assets. The law allowed lenders to seize and sell the assets of defaulters, such as land and machinery. Borrowers argued that it was biased in favor of creditors.

Creditors will be allowed to take possession of secured assets after they communicate in writing their reasons for not accepting objections put forward by defaulters. After the assets are taken over, borrowers can apply to a debt recovery tribunal to get them back, the government said Wednesday.

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