NPA recovery: Cases rise sharply, but recovery drops

Only 18% of total debt recovered; Govt should move to make laws tougher at the earliest

Banks have taken the legal recourse to recover Rs 1.74 lakh-crore in FY14, compared with Rs 1.05 lakh-crore in the previous financial year — an increase of 64 per cent

Pointing to a lack of tough laws to deal with bad loans, the latest data from the Reserve Bank of India (RBI) showed while loan recovery cases registered with Lok Adalats, debt recovery tribunals and under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act doubled in FY14 vis-a-vis FY13, the percentage of amounts recovered dropped.

According to data, the number of cases referred to agencies increased by a whopping 78 per cent to 1.86 million. However, only 18 per cent of the amount in question was recovered in FY14, compared with 22 per cent in the previous financial year.

Banks have taken the legal recourse to recover Rs 1.74 lakh-crore in FY14, compared with Rs 1.05 lakh-crore in the previous financial year — an increase of 64 per cent.

 
Reserve Bank of India Governor Raghuram Rajan had earlier pointed out the difficulty banks face while recovering through the debt recovery agencies.  “The consequences of the delays in obtaining judgments because of repeated protracted appeals imply that when recovery actually takes place, the enterprise has usually been stripped clean of value. The present value of what the bank can hope to recover is a pittance,” Rajan had said in a speech last month.

Debt recovery tribunals (DRTs) were set up under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, to help banks, financial institutions recover their dues speedily, without being subject to lengthy procedures of usual civil courts. Sarfaesi Act of 2002 went a step further by enabling banks and some financial institutions to enforce their security interest and recover dues even without approaching the DRTs.

Last week, the central bank had released new norms to identify a defaulter as non-cooperative and banks were disincentivised to lend to such borrowers, as fresh loan will attract higher provision. The new laws allow banks to identity not only the promoter of a company but also directors (except those appointed by government or independent directors), as non-cooperative.

The government is planning to make laws more stringent by amending the Sarfaesi Act and DRT laws to effectively deal with the issue of bad loans, especially those created by suspected wilful defaults. It had planned to amend the laws during the recently-concluded winter session of Parliament, but it could not.

It is time that the government should move swiftly to bring about the changes which will bring some relief to the banks that are faced with continuous rise in non-performing assets.