Which of the following Acts was specifically enacted in India to facilitate banks in the recovery of bad loans and non performing assets?

Introduction / Context:
This question tests understanding of specialised financial sector legislation in India. In order to strengthen the ability of banks and financial institutions to recover bad loans, the government enacted a law that allows them to enforce security interests and manage non performing assets more effectively. Identifying this law is essential for candidates studying banking awareness, Indian economy and regulatory framework related to credit and recovery mechanisms.

Given Data / Assumptions:

• The focus is on recovery of bad loans by banks.
• The question asks which Act was specially launched for this purpose.
• Options include the Reserve Bank of India Act, the Companies Act, the Income Tax Act and one long named Act related to securitisation and enforcement of security interest.
• Only one of these is directly aimed at facilitating recovery of stressed assets.

Concept / Approach:
The key law in this domain is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, commonly known as the SARFAESI Act. It empowers banks and financial institutions to seize and sell secured assets of borrowers who default, without the need for lengthy court procedures, subject to safeguards. The other Acts listed in the options have broader domains, such as monetary authority, corporate regulation or taxation, and are not primarily designed for bad loan recovery. Therefore, the long name Act dealing with securitisation and enforcement of security interests is the correct choice.

Step-by-Step Solution:
Step 1: Focus on the phrase specially launched to facilitate banks in recovery of bad loans. Step 2: Recall that SARFAESI Act was introduced to deal with non performing assets and to allow quicker enforcement of collateral. Step 3: Look through the options to find the one that clearly corresponds to the SARFAESI law. Step 4: Observe that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act matches this description exactly. Step 5: Select this option and reject the more general Acts that do not directly address loan recovery mechanisms.

Verification / Alternative check:
Another way to verify is to recall abbreviations. Students often learn that SARFAESI stands for Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest and that it gives powers like taking possession of secured assets, taking over management and appointing managers. None of the other listed Acts carry such associations. The Reserve Bank of India Act focuses on creating and empowering the central bank. The Companies Act governs incorporation and regulation of companies. The Income Tax Act deals with direct tax collection. Only SARFAESI directly targets non performing asset recovery.

Why Other Options Are Wrong:
The Reserve Bank of India Act provides the legal basis for the central bank but does not by itself provide operational tools for banks to seize collateral from defaulting borrowers. The Companies Act lays down rules for corporate governance, share capital and winding up of companies, which is a different area. The Income Tax Act empowers authorities to collect taxes and deal with evasion, not to recover bank loans. These Acts may indirectly affect financial stability but they are not specific instruments for bad loan recovery.

Common Pitfalls:
Some candidates may pick the Reserve Bank of India Act simply because they associate any banking related question with the central bank. Others may be unsure due to the long and complex name of the SARFAESI law and avoid it, thinking it is a trap. To overcome this, aspirants should memorise a few key sectoral laws along with their short forms and main purposes, such as SARFAESI for loan recovery, RDB Act for debt recovery tribunals and Insolvency and Bankruptcy Code for comprehensive insolvency resolution.

Final Answer:
The Act specially enacted to help banks in recovering bad loans and non performing assets is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, commonly called the SARFAESI Act.