Finance Ministry urges DRTs, banks to expedite loan recovery processes

The Union Finance Ministry has advised the Debt Recovery Tribunals (DRTs) and banks to engage with borrowers outside the tribunals to reduce the pendency of cases, according to a senior finance ministry official speaking to Business Standard on condition of anonymity.

“There are small-ticket cases that are numerous and are clogging DRTs, significantly contributing to the pendency. We have advised both banks and DRTs to engage with borrowers. For example, if a loan of Rs 30 lakh takes three to four years to recover, the time value of money becomes minimal. If a borrower shows interest in settling that amount, we can explore alternative dispute resolution mechanisms, such as Lok Adalats, where settlements occur.

These settlements still fall under the purview of DRTs, providing an official stamp of approval. This approach could help dispose of many cases and significantly declog DRTs by addressing small-value cases,” said the senior finance ministry official.

The official further noted that many low-value cases are clogging DRTs. “The jurisdiction of the DRT starts from Rs 20 lakh. If you examine the cases ranging from Rs 20 lakh to Rs 1 crore, you’ll find that approximately 75 per cent of the total pendency in DRTs falls within this range,” said the official.

The Secretary of the Department of Financial Services (DFS), M Nagaraju, chaired a conference of chairpersons of Debt Recovery Appellate Tribunals (DRATs) and presiding officers of DRTs in New Delhi on Saturday. The meeting was also attended by senior officers from public and private sector banks and the deputy chief executive officer (CEO) of the Indian Banks’ Association (IBA).

“Our strategy also focuses on maximising recovery. We have advised all banks and DRTs to prioritise high-value cases of Rs 100 crore and above. We have designated three DRTs—one in Delhi, one in Mumbai, and one in Chennai—exclusively to hear these cases. While the number of high-value cases may be minuscule, they represent a significant share of the total amount stuck in the system,” the official added.

Currently, 39 DRTs and five Debt Recovery Appellate Tribunals (DRATs) are functioning across the country. Each DRT and DRAT is headed by a presiding officer and a chairperson, respectively.

The official further stated that banks have been advised to reconsider traditional recovery methods. “In many cases, what happens in DRTs is that after the recovery officer has recovered some money, or banks have recovered funds through other means, there is hardly any asset left with the borrowers. When a balance remains due, cases linger for a long time as banks continue to contest them,” said the official.

The official added that this ultimately adds to pendency, and the chances of recovery become minimal. “As there are likely no assets left, in such situations, banks have been advised to consider withdrawing cases with the option to refile if they discover any new assets. Otherwise, these cases remain pending for an unduly long time with no real possibility of recovery,” the official continued.

According to government data presented in a parliamentary answer, as of January 24, 2024, the total number of cases pending for more than 180 days before the DRTs is 185,076. Out of these pending cases, 142,187 are Original Applications (OAs) and 42,889 are Securitisation Applications (SAs).

The parliamentary reply also noted that the total number of cases pending before Debt Recovery Tribunals (DRTs) is 215,431, out of which 162,317 are Original Applications (OAs) filed under Section 19 of the Recovery of Debts and Bankruptcy Act (RDB Act), 1993, and 53,114 are Securitisation Applications (SAs) filed under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002.

“DRTs must ensure that the principles of natural justice are upheld. We have directed them to follow a summary procedure to resolve cases quickly, which should improve efficiency. Additionally, the usual housekeeping measures, such as capacity building and training, are ongoing, and the ministry is committed to enhancing these efforts. Going forward, we will place greater emphasis on training to ensure that DRTs have the capacity they need to operate effectively,” the finance ministry official added.