Rajan wants better functioning of debt recovery tribunals

Says RBI is working with government to deal with corporates committing frauds

The Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday said functioning of debt recovery tribunals need to improve to ensure that banks are able to recover their existing loans and offer fresh advances at cheaper rates.

"If we can speed up the judiciary process, especially things like debt recovery tribunals, I think it will help. I will argue that it will help in bring down some of the risk premium that we are subjecting new projects to. We have massive infrastructure investment needs and we don't want to scare away promoters from taking that," Rajan told reporters in Mumbai.

"If bankers cannot get their money back, they are not going to give you loans at cheap price. So making sure debt recovery tribunals work better, making sure that you don't have excess number of stays, excess number of appeals – that is what we need to focus on," he added.

Rajan said the Finance Ministry has already expressed its desire to increase the number and improve the functioning of these tribunals.

A similar view was echoed by bankers. "Debt recovery tribunals need to be more effective to collect loans from defaulters," Shikha Sharma, managing director and chief executive officer of Axis Bank, said at the Business Standard Banking Round Table today.

The RBI governor said the central bank was aware of certain corporate groups indulging in malpractices and was working with the government to deal with the issue.

"There is a category of promoters who are deliberately standing in the way of (loan recovery). Some are actual frauds – sometimes assets have been taken out of the business, sometimes money has been transferred abroad. There we have to send a strong message, that kind of action is intolerable in the Indian scenario and you will not get away with it. We are talking with the government, and trying to deal with it," Rajan said.

He, however, said that there are also promoters who have taken genuine risks but landed in trouble because the economy was not strong or their projections were over optimistic.

"Those situations we have to work through. Bankers have to recognise that mistakes have been made and work with those promoters...That is what we are working on through the CDR (corporate debt restricting) process, through the new joint lending forum that we put together. The important thing from the economy's point of view is how to put projects back on track. These are valuable resources and we don't want to lose them," Rajan said.

He added that while banks have to make some concessions in their recovery efforts, in some cases promoters will have to give up their control on the company or a project to ensure its revival.