Indian Banks may tighten noose on defaulters; proposed changes will allow lenders to attach properties, once a case is filed

New Delhi, Manju AB: The great Indian bank loot may be coming to an end. It may soon be difficult for defaulters like Vijay Mallya, Zoom Developers and others to run for judicial when a bank comes calling for recovery.

Defaulters may soon see their properties attached the moment a bank files a suit with the Debt recovery Tribunal (DRT), and a stay from the court may not be coming, if the finance ministry agrees to a bunch of suggestions from the bankers.

The other major request by banks is to ease the regulation for legal heirs to take over in cases the borrower dies when the recovery process is on. Legal heir substitution is a major hurdle in many recovery cases. Easing the law will make it easier for legal heirs to take charge of both the properties company and also any liability that the company may have with the banks.

What’s happening now?
Right now, when a bank initiates recovery process, borrowers take shelter under various courts of law by getting a stay. A senior officer with a public sector bank said, “The legal process is such that cases never get resolved and banks are forced to clean up their balance-sheet by writing off loans. It will be a big drag on our profitability”.

So, what are banks planning?
Banks have asked the finance ministry to make necessary changes in legislation so that “stays” from courts or those granted by the tribunal are conditional or time-bound or both. Banks, under the aegis of the Indian Banks’ Association (IBA), have asked the finance ministry to make changes in the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002,and the Debt Recovery Tribunal.

What will the new law mean?
The new law will allow banks to attach a defaulter’s properties and other securities, once a lender files a case with the tribunal.

MV Tanksale, CEO, IBA, told DNA: “For a speedier recovery mechanism, we have asked the finance ministry to tighten the SARFAESI and the DRT laws, so that judicial interventions are limited and banks can undertake the recovery process without interruptions.”

How much loans have been written off?
Public sector banks have written off loans worth Rs 1,06,170 crore in the last five years, minister of state for finance Jayant Sinha told the Rajya Sabha on Tuesday. Sinha also said that 1,600 cases of wilful defaults have been filed with debt recovery tribunals in the last three years up to March 2014. There are 50,000 cases pending with DRTs and still counting. Thousands of crores are locked up in litigations.

How many defaulters are there?
All India Bank Employees Union, in June, released a list of 406 loan defaulters who together owed over Rs 70,000 crore to the banking system and are facing legal action. Banks are also grappling with bad loans of over Rs 2 lakh crore and stressed assets of almost an equal number.

Posted by on December 26, 2014. Filed under Economy, Nation. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.