Bank loan

Bank loan recovery in recent years mirrored Hindu growth rate -Governance Now

Initially, for those unfamiliar with the “Hindu growth rate” nomenclature, it refers to the low economic growth of post-independent India until the 1990s, when several economic liberalization measures were taken. Until the 1990s, the growth rate was around 4%, which accelerated later after the 1990s to 8-9%.

Banks have three main legal ways to collect loans. The much-discussed Bankruptcy Code (IBC), creditors direct the enforcement of collateral under a law called SARFAESI and collection through special courts called Debt Recovery Tribunals (DRT). Over the past three years, the percentage of recovery through this DRT mechanism has been as follows:

2017-18: 5%
2018-19: 4%
2019-20: 4%
(Data according to Trend and Progress of banking published by RBI. 2021 data is not available at this time)

The recovery of the DRT mechanism is very critical, as the amount involved is the highest. For example, for the year 2020, the amount involved in the different recovery channels is as follows:

DRT: ₹ 2.45 lakh crore
IBC: ₹ 2.32 lakh crores
SARFAESI: ₹ 1.96 lakh crore

In the meantime, based on the instructions given in response to a written request, the Ministry of Finance has sought comments and suggestions from stakeholders regarding the elimination of cases in the TRDs for an amount involving more than 100 crore.

The threshold for admission of a DRT case is ₹ 20 lakh. However, DRTs also handle high value cases of amounts greater than 100 crore. These high-value cases get mixed up with low-value loans and lose the attention, urgency, and criticality they deserve. My suggestion would be to have at least two high value dedicated courts, one in the commercial capital Mumbai and one in Delhi for the rest of India, to try high value cases over 100 crore.

Without going into the details of the processes and technical details involved, the fact remains that the 180-day deadline as prescribed must be respected. DRT files should be settled on time, and the reasons for the delay should be recorded and forwarded to the Financial Services Department which oversees the operation of the DRTs. Like IBC, this time frame can be subdivided into various activities like hearings, arguments, judgments, etc. In fact, it would be a good idea to separate the oversight of the DRTs to a separate body within the lines of the IBBI, instead of keeping it in the Department of Financial Services.

‘Tareekh pe Tareekh’ – This has been the bane of justice in general. DRTs are no exception. However, it must be remembered that the main underlying objective of summary conviction is to ensure a speedy hearing and settlement of cases where there is no such question of law and limited to questions of no. -payment of debts. This procedure is instituted to avoid unreasonable obstacles raised by defendants in ordinary cases. Thus, there should be an extremely limited number of adjournments in exceptional circumstances and the next hearing date should not exceed 15 days.

Needless to add that all the benches of the DRT and the courts of appeal called DRAT must be filled quickly. In the absence of manpower, cases go unheard for months and residents of one state have to move to another state, which additionally handles the affairs of that state due to the continued vacancy in another state. There are currently 39 DRTs and 5 DRATs in the country. Each DRT / DRAT is headed by a Chairman and a Chairman respectively. The office of president is equivalent to that of a district judge and the office of president is equivalent to that of a judge of the High Court.

An important aspect that should be highlighted is the improvement of the DRT / DRAT infrastructure and the complete computerization of systems and processes, including records, documents and judgments, etc. IT can play an important role in improving the functional efficiency of DRTs and in making it accessible and transparent to users.

My personal point of view is, as stated above, besides improving the processes, what we need is the creation of two high value dedicated benches in Mumbai and Delhi to handle cases involving ₹ 100 crore and more. Understand that even 1% improvement in recovery translates to approx. ₹ 2,450 crore, and therefore any additional expense for the creation of such dedicated benches can be justified only from a cost benefit analysis.

Mishra is a political analyst and commentator.