Kerala’s Single Dwelling Place Protection Bill: A humane step that needs careful balancing

The Kerala Legislative Assembly’s recent passage of the Kerala Single Dwelling Place Protection Bill, 2025 marks one of the most ambitious and empathetic state interventions in India’s debt recovery framework.

The Bill seeks to protect families from losing their only home due to small loan defaults, and in doing so, it has brought the long-debated question of how to balance compassion with credit discipline back to the forefront of legal and policy discourse.

At its moral core, the Bill embodies a humane instinct - that no family should be rendered homeless for want of a few lakhs. In recent years, several tragic incidents in Kerala have exposed the human cost of mechanical enforcement under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, where poor families lost their homes for defaulting on modest borrowings. By seeking to shield the vulnerable, the State has attempted to infuse empathy into financial enforcement, reminding us that recovery laws, however necessary, must operate within the boundaries of human dignity guaranteed under Article 21 of the Constitution.

However, when viewed from the standpoint of financial stability and debt recovery, the Bill’s implications demand careful scrutiny. Working in the debt recovery ecosystem offers a simple truth - not every default is born of helplessness. A significant portion of non-performing accounts today arise not from destitution, but from willful default or strategic neglect. If applied loosely, a protective framework of this nature could inadvertently reward non-compliance, weaken repayment culture and undermine the integrity of the credit system that ultimately fuels inclusive growth.

To its credit, the legislation demonstrates a degree of restraint. The protection is available only where the loan amount does not exceed ₹5 lakh. The total liability, including interest and penalties, is capped at ₹10 lakh. The borrower’s annual family income must be below ₹3 lakh and the mortgaged property must be the family’s only dwelling - limited to five cents in urban or ten cents in rural areas. Relief can be claimed only once. These guardrails are commendable - they ensure that the law remains targeted towards genuine economic distress, not blanket amnesty.

The Bill’s structure - particularly the two-tier mechanism of District Level Committees (DLDPCs) and a State Level Committee (SSPC) - adds procedural depth. By mandating conciliation as a first step and enabling case-specific inquiry, it recognises that debt recovery is not merely a financial transaction, but a social process. The provision allowing the State to take over liability, fully or partially, or even provide alternate housing, displays an understanding of rehabilitation rather than simple exemption. Equally notable is the clause enabling the government to recover dues from a principal borrower if a surety loses their home - a thoughtful balance between compassion and accountability.

Yet, the challenges lie in execution. The true success of this legislation will rest not on its intent, but on its verification, scrutiny and integrity of implementation. The DLDPCs must be empowered with competent staff, access to property and income databases, and authority to detect concealment of assets. Without rigorous due diligence, the system risks manipulation - where borrowers understate income or transfer assets to qualify as “vulnerable”. Moreover, the Bill’s financial memorandum estimates a modest annual outlay of ₹10 crore. Given Kerala’s fiscal position, the sustainability of this commitment warrants examination.

Constitutionally, the Bill walks a fine federal line. The SARFAESI Act is a Central legislation enacted under Entry 45 of the Union List. Any State law that impairs its operation risks being declared repugnant under Article 254 unless it receives Presidential assent. Though the Bill claims to be “supplementary and not derogatory” to other laws, its protective effect could, in practice, delay or complicate enforcement actions by banks and financial institutions, inviting judicial scrutiny on legislative competence.

Still, this initiative should not be dismissed as populist or anti-banking. Instead, it must be read as an attempt to trigger a national conversation on humane enforcement - one that recognises the difference between insolvency and indifference. What India needs is not the dilution of recovery laws but their humanisation: procedural reforms that mandate pre-recovery counselling, structured settlement windows and calibrated relief mechanisms for borrowers facing verified hardship.

The Kerala Single Dwelling Place Protection Bill thus stands as a morally upright but operationally delicate experiment. Its success will depend on how sincerely it distinguishes the deserving from the defiant. Compassion is a virtue, but in the realm of finance, it must travel hand in hand with responsibility. For, a recovery system without empathy is unjust - but empathy without accountability is unsustainable.

Shubham Saxena and Pradhyumn Parashar are Legal Managers at HDFC Bank.

Views are personal.