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The country’s largest lender has approached the Debt Recovery Tribunal to help it recover loans given to Vijay Mallya-promoted Kingfisher Airlines, as well as to seek a stay on the disbursement of $72 million to Mallya as part of a deal he has struck with Diageo Inc.
Debt Recovery Tribunals (DRT) were initially set up for speedy adjudication and recovery of debts due to banks and financial institutions. DRTs deal with two different Acts: the Recovery of Debts Due to Banks and Financial Institutions Act, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act. While the aim of the both the Acts is one and the same, but their route is different.
Initially DRTs did perform well and helped lenders recover substantial parts of bad debt, but their progress stumbled when it came to large and powerful borrowers, who were able to stall proceedings on various grounds, including that claims against the borrowers were pending in civil courts. If the DRT were to adjudicate the matter and auction their properties irreparable damage would occur to them while cases were still pending elsewhere in the judicial system.
While the DRT has issued orders in Mallya’s case, other cases continue to languish. Overall, the number of cases pending with 33 DRTs stands at 69, 659 at the end of December 2015, up from 42, 819 at the end of FY2013, according to Finance Ministry data.
Pushed by the Reserve Bank of India, Indian banks are on an overdrive to recognise and provide for stressed loans. While this will undoubtedly clean up the books, bankers are worried about how they will recover the bad debts, fraught as the process is with inordinate delays and hurdles.
So what are the major problems that the DRTs face?
1. There is no mechanism in place to ensure that the tribunal disposes the case in a timely manner. There is a strong need to bring in more accountability for the DRT.
2. Inadequate infrastructure - the small number of DRTs and Debt Recovery Appellate Tribunals, where judgments of DRTs can be appealed.
3. Delaying tactics by large borrowers.
A prime example is the debt racked up by Vijay Mallya-promoted Kingfisher Airlines. A consortium of banks, led by India’s largest lender State Bank of India, is fighting 20 cases across various courts, including the DRT, since June 2013. So far, more than 500 hearings have been held with over 180 adjournments.
|Steps underway to improve DRTs’ performance|
1. Six more DRTs to be set up in places like Chandhigarh and Siliguri
2. Scanning and digitisation of legacy data
3. Collection of MIS data
4. Implementation of e-filing in DRTs
5. Delegation of administrative and financial powers to DRTs.