With unsettled cases in debt recovery tribunals mounting to nearly ₹4 lakh crore at the end of FY15, the Economic Survey 2015-16 on Friday cautioned that delay in debt recovery prevents the cleaning up of balance sheets of banks and the corporate sector.
The accumulated backlog of unsettled cases in debt recovery tribunals (DRTs) amounted to ₹3.35 lakh crore at the end of FY14. The Survey said examples of weak institutions are legal procedures that increase the costs – both time and financial – of exit.
“One example is the DRTs. As the name suggests, they perform the role of helping financial institutions recover bad debt quickly and efficiently. In principle, both banks and borrowers can approach DRTs to settle outstanding debt repayment problems,” it said.
The Survey noted that with rising non-performing assets, recourse to DRTs has increased dramatically. But the share of settled cases is small and declining.
DRTs were established consequent to the passing of ‘Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ to assist banks in the speedy adjudication of matters relating to recovery of non-performing assets of ₹10 lakh and above. Appeals against orders passed by DRTs lie before the Debts Recovery Appellate Tribunal.
With regard to the functioning of DRTs, a senior banker observed that whereas there is no time/no urgency to dispose off cases pending for ages, stay orders are issued within no time.
There are a huge number of cases languishing, so the number of cases is only likely to swell manifold.
In a speech last year, R Gandhi, Deputy Governor of the Reserve Bank of India, had said, “Despite various corrective measures, if upgradation does not prove to be possible due to the unviable nature of the borrowers’ business, the bank should take steps to recover the loans through any of the recovery options available to them.
“… However, the present legal system is unable to cope with the mammoth task, considering the ever-increasing number of suits, and the limited infrastructure available at DRTs/courts.”
The Survey observed that a market economy requires unrestricted entry of new firms, new ideas, and new technologies so that the forces of competition can guide capital and labour resources to their most productive and dynamic uses.
But it also requires exit (of firms that fail), so that resources are forced or enticed away from inefficient and unsustainable uses.
The lack of exit creates at least three types of costs: fiscal, economic (or opportunity), and political.