Parate law reinstated: banks can now auction collateral for unpaid loans

The previously suspended "Parate Law" was reinstated on April 1, 2025, granting banks the authority to auction off collateral pledged by borrowers who fail to repay their loans. The law, which aims to safeguard financial institutions against bad debts, allows banks to sell assets pledged as collateral at public auctions and use the proceeds to cover outstanding loan amounts and accrued interest.

Under the reintroduced regulation, if an individual or business defaults on a loan, the bank may initiate the process of liquidating the pledged collateral. This step is expected to streamline the recovery process for banks, providing them with a legal mechanism to minimize their losses in cases of non-payment.

Legal experts suggest that the Parate Law is designed to create more accountability in the lending process, ensuring borrowers are fully aware of the consequences of failing to meet their financial obligations. However, concerns have been raised about the potential impact on individuals and small businesses who may face the loss of valuable assets.

While the law has been reinstated to aid in the stability of the banking sector, its enforcement is expected to prompt a shift in lending practices, with financial institutions possibly becoming more cautious in their lending approaches. Banks will be required to follow specific legal procedures during the auction process, and borrowers will have the right to challenge the sale if certain conditions are not met.

The Parate Law's return marks a new chapter in the country's financial regulation, as stakeholders anticipate a more aggressive approach to debt recovery in the months to come.