Banks told to Fast-Track Bad Loan Recovery

The finance ministry is pushing capital-strapped public sector banks to hasten recovery of bad loans to improve health, and has promised to fill vacancies at debt recovery tribunals (DRT) across the nation, partly responsible for inordinate delays in ending disputes. 

"Needless to say that . 2 lakh crore (of bad loans) are a drag on the capital of banks," a finance ministry official wrote to bank chairmen recently. "All cases should be reviewed and... ensured that all cases pending above two years should be cleared by March 2012." 
Banks last year wrote off almost 10% of their gross bad loans. Recovery through DRTs fell to 28% of the total referred cases in 2011, from 32% a year earlier, data from the Reserve Bank of India (RBI) shows. Under the SARFAESI Act, it was a little better at 38%, compared with 30% in the same period previous year. Bankers had complained to the finance ministry that the DRT mechanism was not functioning efficiently, which in turn was making it difficult for them to recover dues. They had said the tribunals lacked presiding officers and recovery officers. Gross NPAs may Increase to 2.3-2.7% of Total Loans 
Also, judges are taking longer than six months to dispose of cases even as the DRT Act stipulated them to do so within six months. 
Further complicating matters for banks is that DRTs are entertaining objections from borrowers even before the assets are taken into possession by lenders. 
A tribunal should intervene only after assets are attached and not at the time the lender gives notice to the borrower, the DRT Act says. 
Responding to these complaints, the finance ministry had committed to banks that they would fill the vacancies shortly and also urged all banks to depute their officers to DRTs — a move that will be mutually beneficial. The Reserve Bank of India, in its pre-policy half-yearly monetary policy review in October, had expressed concern over rising bad loans of public sector banks. "The asset quality of the Indian banking sector, the risk exposure and challenge of public sector bank recapitalisation in the face of fiscal pressures are issues which require attention." Similarly, rating agency Icra in its report, too, has cautioned that the gross non-performing assets could increase to 2.3-2.7% of total loans by March 31, 2012, from 2.3% in the previous year.