Legal Question in Banking Law in India

Re: Securitisation - NPA

Banks have interest only on interest. Accrual of interest never ceases whether or not the account is classified as NPA. In life death and interest are inevitable. Hence Bank was in order claiming the accrued interest. But if the DRT reduces post application for recovery rate of interest, then the borrower's liability will be limited to that amount only.

Hence the borrower can contest the proceedings under the SARFAESI Act on the post suit/application rate of interest.

Re: Securitisation - NPA

No, the bank may not be entitled to charge interest after filing of suit. However, the bank may keep adding interest in its books which is known as not interest but "Memoranda".

In a pending case, the rate of interest is to be decided by the court.

Re: Securitisation - NPA

The risk of non-payment of principal and/or interest to investors can be at two levels: SPV and the underlying assets. Since the SPV is normally structured to have no other activity apart from the asset pool sold by the originator, the credit risk principally lies with the underlying asset pool. A careful analysis of the underlying credit quality of the obligors and the correlation between the obligors needs to be carried out to ascertain the probability of default of the asset pool. A well diversified asset portfolio can significantly reduce the simultaneous occurrence of default. So the thing is clear that bank can charge interest after 1999 also.