Debt recovery tribunals: More pains than gains for banks-Business Standard-17.12.2014
Experts suggest that the law should be strengthened to ensure mandatory time bound disposal of cases
The functioning of debt recovery tribunals (DRTs), created to help financial institutions recover dues speedily without being subjected to the lengthy procedures of usual civil courts, appears to cause more pain than gain for banks.
Consider this: The amount recovered from cases decided in 2013-14 under DRTs was Rs 30,950 crore, while the outstanding value of debt sought to be recovered was Rs 2,36,600 crore. In other words, recovery was only 13 per cent of the amount at stake. Also, while the law indicates that cases before DRTs must be disposed off in six months, only about a fourth of the cases pending at the beginning of the year were disposed during the year.
“The functioning of DRTs needs to improve to ensure banks are able to recover their existing loans and offer fresh advances at cheaper rates... In the current scheme of things, there is no mechanism in place to ensure that the tribunal disposes the case in a timely manner. There is a strong need to bring in more accountability for the DRT,” said Shashwat Sharma, partner (management consulting), KPMG in India.
One problem is the small number of DRTs and Debt Recovery Appellate Tribunals, where judgments of DRTs can be appealed. While there are 33 DRTs, there are only five Debt Recovery Appellate Tribunals in the country. “There is certainly a need for more number of DRTs. The biggest challenge, it appears, is their ability to deal with a subject with speed. The system that was designed is clearly not working. Probably, there should be a feedback mechanism and people involved with DRTs should be encouraged to point out the areas of pain,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services.
Deepak Haria, senior director at Deloitte in India, echoed a similar view. “The challenge is that our judicial system is both clogged and inadequate in infrastructure, which slows down any redressal. Recovery can be speeded up only when there is a fixed time-frame for all disposals, and realisation of assets could be speeded up by having special courts to deal with such recoveries,” he said.
A consequence of this is credit cost increases even for borrowers who repay loans on time. For instance, banks now demand a credit-risk premium of close to six per cent from power companies to compensate for the risk of default. The average interest rate on loans to these companies is close to 14 per cent.
The functioning of DRTs is also keeping the Reserve Bank of India (RBI) worried. “If bankers cannot get their money back, they are not going to give you loans at cheap price. So, making sure debt recovery tribunals work better, making sure that you don’t have excess number of stays, excess number of appeals – that is what we need to focus on,” RBI governor Raghuram Rajan said earlier this month following the central bank's fifth bi-monthly monetary policy review.
Experts suggest that the law should be strengthened to ensure mandatory time-bound disposal of cases. Also, performance indicators of the adjudicating officer could be used to improve the efficiency of the system. A few recommended that stay petitions should be analysed before being accepted as there have been instances where advocates exploit the loopholes of the Act and plead for stays, leading to piling up of cases.
Consider this: The amount recovered from cases decided in 2013-14 under DRTs was Rs 30,950 crore, while the outstanding value of debt sought to be recovered was Rs 2,36,600 crore. In other words, recovery was only 13 per cent of the amount at stake. Also, while the law indicates that cases before DRTs must be disposed off in six months, only about a fourth of the cases pending at the beginning of the year were disposed during the year.
“The functioning of DRTs needs to improve to ensure banks are able to recover their existing loans and offer fresh advances at cheaper rates... In the current scheme of things, there is no mechanism in place to ensure that the tribunal disposes the case in a timely manner. There is a strong need to bring in more accountability for the DRT,” said Shashwat Sharma, partner (management consulting), KPMG in India.
One problem is the small number of DRTs and Debt Recovery Appellate Tribunals, where judgments of DRTs can be appealed. While there are 33 DRTs, there are only five Debt Recovery Appellate Tribunals in the country. “There is certainly a need for more number of DRTs. The biggest challenge, it appears, is their ability to deal with a subject with speed. The system that was designed is clearly not working. Probably, there should be a feedback mechanism and people involved with DRTs should be encouraged to point out the areas of pain,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services.
Deepak Haria, senior director at Deloitte in India, echoed a similar view. “The challenge is that our judicial system is both clogged and inadequate in infrastructure, which slows down any redressal. Recovery can be speeded up only when there is a fixed time-frame for all disposals, and realisation of assets could be speeded up by having special courts to deal with such recoveries,” he said.
A consequence of this is credit cost increases even for borrowers who repay loans on time. For instance, banks now demand a credit-risk premium of close to six per cent from power companies to compensate for the risk of default. The average interest rate on loans to these companies is close to 14 per cent.
The functioning of DRTs is also keeping the Reserve Bank of India (RBI) worried. “If bankers cannot get their money back, they are not going to give you loans at cheap price. So, making sure debt recovery tribunals work better, making sure that you don’t have excess number of stays, excess number of appeals – that is what we need to focus on,” RBI governor Raghuram Rajan said earlier this month following the central bank's fifth bi-monthly monetary policy review.
Experts suggest that the law should be strengthened to ensure mandatory time-bound disposal of cases. Also, performance indicators of the adjudicating officer could be used to improve the efficiency of the system. A few recommended that stay petitions should be analysed before being accepted as there have been instances where advocates exploit the loopholes of the Act and plead for stays, leading to piling up of cases.
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| Rs 30,950 crore Amount recovered in 2013-14 under DRTs Rs 2,36,600 crore Outstanding debt sought to be recovered in 2013-14 13 per cent Actual recovery for the period (2013-14)
Thursday, June 12, 2014Fast Track Court For Loan Defaults Above Rs.100cr
Government mulls roping fast-track courts to chase bad loans of Rs 100cr+ -Economic times 13th June 2014
NEW DELHI: The government is mulling fast-track courts to try loan default cases of over Rs 100 crore as part of a plan to reduce the pileup of bad loans at state-run banks. The finance ministry has set up a committee headed by VK Bhasin, former secretary in the law ministry's legal department, to suggest measures to deal with high-value willful defaulters. "The committee will also revisit recovery laws to make them more effective," a senior government official said on condition of anonymity. There are over 40,000 cases worth Rs 1.73 lakh crore pending before various debt recovery tribunals. "These (fast-track) courts will have the mandate to settle issues within a time frame," the official said, adding that they will be empowered to auction personal assets of promoters to recover money. The finance ministry is also looking at ways to make promoters accountable for the defaults. "Promoters often hide behind a corporate veil and take no responsibility for failed ventures. The committee will suggest legal routes to make such promoters accountable," the official said. The top 30 non-performing accounts of state-run banks account for 40.2 per cent of their gross bad loans. In 2013, bank unions had put out a list of top corporate defaulters, which included Kingfisher AirlinesBSE 3.31 %, Winsome Diamond, Zoom Developers and Electrotherm IndiaBSE 1.29 %. Gross NPAs of public sector bank rose to 4.44 per cent in March from 3.84 per cent in the year-ago month. "In the case of Kingfisher Airlines, the banks could not seize the promoter's personal assets because of the existing legal complications. We need to work out a mechanism where there should not be a rich promoter and an ailing company," said one of the committee members, which, besides banks, has representation from Indian Banks' Association. The government is also .. http://importantbankingnews.blogspot.in/2014/06/fast-track-court-for-loan-defaults.html |
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