Banks have to strengthen their due diligence, credit appraisal and post-sanction loan monitoring systems to minimise and mitigate the problem of increasing bad loans, according to the Reserve Bank of India.

In its Report on Trend and Progress of Banking in India , the RBI said that over and above this banks have to abide by the various measures put in place by it and the Government for the resolution and recovery of bad loans

During 2011-12, total amount of bad loans recovered through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) and Debt Recovery Tribunals (DRTs) declined compared with the previous year.

Of the total amount recovered through these channels, recoveries under the SARFAESI Act constituted almost 70 per cent. NPAs (non-performing assets) recovered through DRTs constituted almost 28 per cent of total NPAs recovered.

In FY2012, banks recovered Rs 10,100 crore (Rs 11,600 crore in FY2011) under the SARFAESI Act. They recovered Rs 41 crore (Rs 39 crore) via DRTs, and Rs 200 crore via Lok Adalats (they recovered a similar amount in the previous fiscal).

Banks approach the DRTs in case they fail to recover the total amount of their bad loans through the SARFAESI Act. At present, there are 33 DRTs and five Debt Recovery Appellate Tribunals across the country.

The slippage ratio of the banking system, which showed a declining trend during 2005-08, increased during 2008-12.

>Ramkumar.k@thehindu.co.in