The Hindu Business Line : Bank loans

I refer to the news item `Collateral free loan: Small units out of bank loop' (Business Line, January 1, 2004). The main reasons for the reluctance of banks to extend loans to small borrowers are the inefficient recovery procedure, long delay and huge costs involved in recovering the banks' dues from defaulter borrowers.

Suits filed in courts take anywhere between five and 10 years to come to an end. If the borrower goes on appeal against the judgment, the suit gets extended by another 4-5 years. By the time the bank wins the suits and proceeds to recover its dues by selling the property mortgaged to it, the property would have lost its value.

The debt recovery tribunals (DRTs) set up in 1993 have not proved any better. The recent Securitisation Act, which was expected to solve this problem, is also stuck in legal tangle.

The recovery procedure for bank loans have to be streamlined and simplified so that banks are able to recover their dues by disposing of industrial assets of defaulting borrowers within short periods of, say, one-two years (with/without the intervention of courts).

Only then banks will stop insisting on personal property and personal guarantee for sanction of loan and the problem of delayed or non-sanction of loans to needy borrowers will end. The sooner the Central and State governments rectify this anomaly the better it will be for the business community.

P. Ezhilarasu,

Coimbatore

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