Opening of new DRTs alone will not speed up bad loan recovery’

The banking sector was expecting a huge relief on the bad loans front from the Budget. But all it got was an earnest acknowledgement of the growing bad loan menace and the setting up of six new Debt Recovery Tribunals (DRTs).

But the opening of new DRTs alone cannot help speed up the recovery of bad loans, given the existing issues and delays in the functioning of the DRTs.

Judicial interventions that cause delays in the recovery process of Asset Reconstruction Companies (ARCs) must be addressed first.

“At present, there are 33 DRTs in the country. While the opening of an additional six is a welcome move, this alone will not help,” says P Rudran, Managing Director and CEO, Asset Reconstruction Company of India (ARCIL), the first ARC set up to buy distressed assets from banks.

ARCs were set up under the SARFAESI Act to enable faster recovery without the intervention of the court, as the Debt Tribunal or civil courts present earlier were not very effective and fast. But in reality, judicial interventions and the inefficacy of DRTs have prevented a speedy recovery.

ARCs, when set up, had the right to send a 60-day notice to the borrower asking him to pay the dues, failing which ARCs could take possession of the mortgaged assets. If the borrower had an objection he could go to the DRT or the High Court. The DRT was then supposed to adjudicate the matter within 180 days.

“But currently these cases take a long time and sometimes even years to decide, says Rudran. The court decisions too are unpredictable which causes the delay in the recovery process.”

Most of the times instead of adjudicating the matter, courts issue a stay order which delays the process further.

“Many of the smaller courts are also issuing stay orders against SARFAESI action. If they must issue a stay order, the least they can do is to ask borrowers to pay minimum 75 per cent of the dues as deposit. At present, some DRTs ask for a deposit of a modest 10-15 per cent and in some cases even ex parte stay is granted without any deposit being insisted upon,” Rudran adds.

The opening of new DRTs is secondary. First, the existing ones need to be adequately staffed. Many of the DRTs do not have a presiding officer or recovery officer. “In Mumbai’s Debt Recovery Appellate Tribunal (DRAT), for instance, there was no presiding officer. The officer who presides over the Calcutta DRAT was looking after the Mumbai DRAT. Only recently a presiding officer was appointed in Mumbai DRAT,” he adds.

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