After facing intense criticism from all quarters of the society for not taking stringent actions to recover loan amount, Indian banks now seem to have woken up finally. According to a recently published report by RBI, it is revealed that in the fiscal ended in March 2018, Indian banks have recovered approximately 40,400 crore worth of bad loan from the defaulters.
Many are giving credit to the recent financial reforms that have taken place in the India. The power of much talked Insolvency and Bankruptcy (IBC) and amendments in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act have finally helped lenders to act against wilful defaulters. Moreover, the prompt responses of Debt Recovery Tribunals (DRTs) and Lok Adalats further boosted the recovery process which ultimately led in significant improvement in recovery of stressed assets to Rs. 40,400 crore as against of Rs. 38,500 crore recovered in FY17.
While the IBC helped banks to recover Rs. 4,900 crore out of bad loans it was SARFAESI which turned to be a game changer and assisted banks to collect Rs. 26,500 crore in FY18, the RBI report said.
“The robust measures taken by the banks for faster recovery, along with the amendment to the SARFAESI Act to bring in strict provision of three months of imprisonment in case of improper coordination (if the borrower does not provide asset details in time) and the power to lender to get possession of the mortgaged property within 30 days, may have helped in better recovery,” the report underlined.
The note further added that during the year, the clout of IBC has grown to a significant level for resolving stressed assets. “Strengthening the eco-system of the insolvency resolution procedure, including the anticipated upsurge in the number of benches of the National Company Law Tribunals (NCLTs), should help decrease the overall time currently being taken for resolution under the IBC,” the RBI report stated.
There are other mechanisms also which banks have utilized to manage their finances better. Many lenders are cleaning up their balance sheets through the sale of doubtful assets to assets reconstruction companies (ARCs) and other NBFCs/Banks/financial institution by taking haircuts, the RBI said.