Graphic: Mohsin Shaikh/Mint
Graphic: Mohsin Shaikh/Mint

Pending cases pile up at debt recovery tribunals

Assuming no further build-up of cases, it would take DRTs more than five years to clear the current backlog

Mumbai: The pile of pending cases at India’s debt recovery tribunals (DRTs) has more than doubled, staying in step with bad loans across the banking sector, underscording how arduous the process of recovering dues from loan defaulters will be.

At end of December, 59,645 cases involving 3.74 trillion of bank loans were pending before DRTs, according to data from the government’s department of financial services, up from 47,933 cases involving 1.78 trillion of loans at the end of 2013.

The data comes with a lag, but given the large amount of bad loans on the books of banks, and the pressure on banks to resolve stressed assets, it would be reasonable to expect that the numbers have only increased since.

These statistics serve as a reminder that while the government and the banking regulator are moving towards stronger debt recovery rules, including a proposed new bankruptcy law, the process of actual loan recovery remains a slow grind.

Bad loans in the banking system have ballooned as slower economic growth, and delays in securing statutory approvals and acquiring land, stalled many of the capital-intensive projects—crimping corporate cash flows and making it difficult for borrowers to repay debt.

“For the bankruptcy law to be implemented in full earnest, there needs to be a lot of maturity in the system. Having a law would be useless if you can’t implement it properly. So when there are courts, which are struggling with huge backlog of cases, they need to be cleared first," added Abizer Diwanji, partner and national leader (financial services) at EY, a professional services firm.

“We believe the bankruptcy law will give a lot of power to the lenders when dealing with problem borrowers. It will allow the lenders to manage the stress more efficiently," Diwanji added.

DRTs were first set up under the Recovery Of Debts Due to Banks and Financial Institutions Act, 1993, also known as the DRT Act.

DRTs function as quasi-judicial forums intended specifically for facilitating debt recovery by banks. Under the norms, a DRT is supposed to dispose of a matter referred to it within 180 days of the receipt of an application.

There are currently 33 such tribunals.

According to the four years of data available, in 2011, these courts had 54,061 cases pending before them, which involved 1.46 trillion in loans.

The number of cases and the amount fell in 2012, only to rise over the next two years—hitting a four-year high in 2014.

On an average, the DRTs have been clearing 11,000 to 12,000 cases a year. This means that even if there is no further build up of cases, it would take more than five years to clear the current backlog.

Bankers say the rapid addition of bad loans over the last three years and failures of big corporate debt restructuring exercises have led to an increase in the number of cases being referred to the DRTs.

“Over the last two financial years, we have also seen an increase in default cases in the 10-lakh-and-above segment. Since the volume is high, they could have added to pending cases," said the executive director of a large public-sector bank, on condition of anonymity.

At 39 listed banks, gross non- performing assets (NPAs) rose 27.69% to 3.21 trillion in the June quarter from 2.51 trillion in the year-ago quarter.

Overall stressed assets, which include restructured assets, rose to 11.1% of total advances as of March, compared with 10.7% in September 2014, according to the Reserve Bank of India (RBI).

According to a second public-sector banker, who also spoke on conditions of anonymity, DRTs have multiple administrative issues that slow bad loan resolution.

“There are a number of DRTs where presiding officers have retired, but new ones are yet to be appointed. At some places, the load of pending cases is so high, the tribunals are not able to cope with the pressure," said the banker.

In his budget speech in July 2014, finance minister Arun Jaitley said six new DRTs would be set up in Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri and Hyderabad.

This hasn’t been done yet.

While setting up more DRTs will help, lawyers believe there are other reasons for the slow resolution of cases.

Rajiv K. Luthra, founder and managing partner, Luthra & Luthra Law Offices, points to the repeated appeals that every case goes through as one reason for slow resolution. The best way to see quick movement, Luthra said, would be to set a ceiling on appeals, depending on the amount of money involved in each case. Similarly, there is a need to bring in more transparency and accountability in the way these cases are being dealt with, he said.

This, according to Luthra, will be critical in ensuring that new legislations being brought in make a real dent in the resolution of stressed assets.

One of these new legislations is the new bankruptcy code. A draft law that will allow for the faster closure of troubled businesses and give investors an easy exit is likely to be ready by mid-October, Mint reported on Thursday.

The government has also said that it is working on improving existing debt-recovery laws, such as the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, so as to give more powers to lenders in dealing with defaults.

Close