Set right debt recovery tribunals

Announcing the last credit policy review, the RBI mentioned that the rise in non-performing assets (NPAs) was ‘disturbing.’ The reference was to the steep rise in NPAs of the banking sector in the first quarter of the current fiscal, from 2.9 per cent in March to 3.25 per cent in June.

However, the recovery of NPAs has failed to keep pace commensurately. The rise in pendency of cases in Debt Recovery Tribunals (DRTs) is prolonging the decision on cases, keeping the banks, financial institutions (FIs) or asset reconstruction companies (ARCs), which buy out NPAs from banks and FIs, in waiting, even as the assets pledged with lenders are losing value.

The pace of NPA recoveries, including under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, may not pick up pace, unless some grey areas in functioning of DRTs are ironed out.

DILATORY TACTICS

The number of cases pending with DRTs is mounting day-by-day. With more and more lenders and ARCs started approaching DRTs, the pile of pending cases touched 67,524 in 33 DRTs and five Debt Recovery Appellate Tribunals (DRATs) by March 2012. That is a whopping 80 per cent jump in a span of 15 months, from 37,616 cases pending by the end of 2010.

It is expected in terms of sub-section 24 of Section 19 of the Recovery of Debts due to the Banks and Financial Institutions Act (RDDB Act) that the tribunal shall deal with the applications by it as expeditiously as possible and endeavour shall be made by it to dispose of the application finally within 180 days from the date of receipt of the application.

But it is observed in practice that this happens rarely. The presiding officers (PO) and appellate authorities (AA) are expected to record the reasons in compliance with the provisions of the legislation. However, that is not being done, perhaps thinking that the issue could be dragged to the higher courts. There is a need to adhere this process.

Though the delay in decision in DRTs mostly occurs due to dilatory tactics adopted by the defaulting borrowers, administrative issues like not filling the vacant positions of presiding officers and appellate authorities (AA) of DRTs and DRATs in time are also accentuating the problem. Many months have passed without an appellate authority at some DRATs.

Unless the AA disposes the cases, the applicants cannot go to any other forums for final resolution and enforcement of security interest by lenders/an ARC. Even the number of DRTs and DRATs in operation is not commensurate with the growth in number of cases filed, of late.

NPA RESOLUTION

Experience shows that resolution of cases pertaining to NPAs at an early stage enables banks and FIs to reap the benefit of ‘going concern’ value of the concern in default, through mergers and acquisitions or sale of business. With the passing of time, realisations from the same will keep falling, also affecting the possibility of putting the assets (or national resources) into use at the earliest. As such, early resolution of NPA cases would benefit all the stakeholders.

Even the Key Advisory Group on the ARCs, headed by Alok Nigam, has also suggested removal of bottlenecks for ensuring timely clearance of cases.

Secondly, some of the DRTs still continue to grant stay orders without proper distinction. Like any other court it becomes a routine, and an avoidable decision considering that NPA realisation calls for early decisions.

Finally, when the DRTs pass their decision, enforcement of security interest has to be done by the recovery officers (RO). But there are not many qualified ROs, even this is the case with many of the bank officials being appointed, who are lacking in knowledge about the due legal process.

The government has called for applications for the position of RO and in that they have encouraged officers from banks to apply, even though the position calls for a different mindset.

If bank officers were to be the best bet for recovery of dues as ROs, they would have done it so well when they were acting as authorised officers (AOs) or law officers of the banks. Both ROs and AOs have judicial powers in enforcing the recovery process.

Though ARCs are supposed not to miss an opportunity in realising the maximum possible revenue at the earliest out of the NPAs it has acquired, most of them are not exploiting the available opportunities like seeking declaration of the list of assets at the disposal of the defaulting borrower, once the former possesses the decree from a DRT.

There is no separate provision for resorting to this means in Sarfaesi Act, but it is available under the Civil Procedure Code. However, there are not many banks or ARCs resorting to take advantage of this opportunity and bringing such assets for verification by the recovery officer.

In a recent study, the industry body Assocham had found that the net NPAs of Indian banks may surge by 27 per cent to Rs 2,00,000 crore by March 2013. This would account for 3.75 per cent of the total loan assets of the banking sector then. If the above suggestions are taken care of, we could expect recoveries to bridge pace with rising bad loans to a greater extent.

(The author is Chief Advisor, PDS & Associates, and former CMD, Corporation Bank.)

COMMENT NOW