DISPOSAL OF NON-BANKING ASSETS

What are the Non-Banking Assets?

When a person takes a loan from a bank or any other financial institution, the borrower may be required to provide non-financial Assets (collateral) for securing the debts. Person borrowing is required to submit ownership documents for the assets before the loan is approved.

For instance, when a borrower provides his house as collateral (security for a loan), he is required to submit a house registration certificate to the lender. The lender retains the asset ownership documents until the borrower completes the monthly principal and interest payment for the loans.

Non- Banking Assets, therefore, are those Financial Assets acquired by the banks to settle their debts. When a borrower is unable to repay the amount of the loan in cash and in place of that offers an asset to the bank. This is known as a non-banking asset. This one is provided apart from the asset already given as collateral security to the bank to purchase to settle their dues. When the banks purchase these assets, they are known as non-banking assets.

What is there in the Banking Regulation Act, 1949?

Section 6 of the Banking Regulation Act, 1949 provides for forms of business in which banking companies may engage. 

According to section 6 In addition to the business of banking, a banking company may engage in—

• Acting as agents for any government or local authority, or any other individual or individuals  
• Effecting, insuring, guaranteeing, subscribing, engaging in the management and execution of any problems 
• The acquisition, design, maintenance and modification of any necessary or convenient building or function for the company

Section 9 of the Banking Regulation Act, 1949 provides for the Disposal of non-banking assets.

Under section 9 of the Act Notwithstanding anything found in section 6, no banking company shall possess, for any period exceeding seven years from the date of acquisition or commencement of that act, any immovable property of any kind obtained, except as necessary for its use, whichever is later or for an extension of the period provided for in this section. Such property shall, as the case may be, be disposed of during that period or an extended period:

Provided that the banking company can, within the previous seven years, deal or trade in any such property to facilitate its Disposal: 

Furthermore, provided that in any particular case, the Reserve Bank could extend the period mentioned above of seven years to a period not exceeding five years, if it is satisfied that such an extension would be in the interest of the banking company's depositors.

Observations of Section 9 of the Banking Regulation Act, 1949 by High court 

In Punjab National Bank Ltd. Vs. Commissioner of Income-tax, Delhi I, 1983 Delhi High Court observed that a reasonable construction of section 9 of the act would be that a banking company can acquire immovable property for its use. It can be used for its use after receiving such land, but if there is any other portion left, however, the section does not state that that portion can not be let out. And if a portion is let out to a tenant, it will be for use by the bank, and under this clause, there would be no question of selling the same.

The provision applies only in cases where a bank acquires a building otherwise than for its use. This cannot be the case when we are dealing with the head office of the bank, five-sixths of which is admittedly being used by the bank itself.

‍

CONCLUSION

The Banking Regulation Act, 1949 is Central legislation that regulates all banking firms based in India. The comprehensive piece of legislation aims at the thorough and balanced progress of banking firms in the country. 

As Indian companies Act 1913 was inadequate and unsatisfactory to regulate banking companies in India. The need for the Act provides comprehensive coverage of the banking business in India was required.  The Act prevents banks' failure by prescribing minimum capital requirements.

Despite multiple amendments over the years in the act. Under the purview of the Banking Control Act, the 1965 Amendment Act brought cooperative banks. The 1994 Amendment Act introduced the post of chairman. The 2004 amendment allowed RBI to abolish the cooperative banks' board of directors. The 2007 amendment made it necessary for scheduled banks to hold cash reserves, while the 2017 amendment concentrated on stressed assets.

The situation of the banking sector in India is still needful and suffering. The latest 13000 crore fraud case with PNB is the instance of how our banking system is truly needy and destitute. The strong and immediate action from the government is required to strengthen the banking system in India and to enable the Act to fulfil its objectives.