Struggling debt recovery tribunals add to stress in banking sector

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Mumbai: At a time when India’s state-run banks are reeling under bad debt and trying hard to recover loans, the sorry state of debt recovery tribunals (DRTs)—a body set up for speedy adjudication and recovery of debts due to banks and financial institutions—is adding to the woes.

Nearly two years after finance minister Arun Jaitley promised to open six more DRTs in his maiden budget speech, nothing has changed.

There have been no fresh additions to the 33 DRTs in the country, said two lawyers who handle tribunal-related cases. The additions were supposed to reduce the burden of increasing number of bad debt cases and ensure speedy redressal.

The state of existing DRTs is also a cause of concern, according to the two lawyers.

“The current infrastructure is not sustainable and that needs to be fixed as soon as possible. Papers are still filed manually at these tribunals and many times, case papers disappear during important hearings and the court adjourns the matter, delaying it further,” said one of the two lawyers cited above, on condition of anonymity.

In September, Jaitley had asked the department of financial services under the finance ministry to computerize DRTs on a priority basis. But the proposal seems to have made no headway.

An email sent to the department on Thursday remained unanswered till the time of going to press.

Shortage of sufficiently qualified personnel to deal with complex legal issues of finance in DRTs too is hampering proper disbursal of debt-related cases.

“A lot of times, we have seen that presiding officers have trouble when a high-profile lawyer comes to DRT. The people appointed to these key positions sometimes lack the necessary experience and qualification to hear these cases,” said the second lawyer.

The lawyer, who runs an independent practice, spoke on condition of anonymity.

At the 33 DRTs across the country, 38 positions such as that of presiding officers, registrars, recovery officers and section officers are lying vacant, according to the DRT website.

Also, the appointment process too is not as robust as that for higher courts in India and pay is relatively meagre.

“Higher courts have examinations and interviews to appoint people to important positions and that’s why talented people come up and get jobs. But at tribunals, the process is voluntary, and frankly, the compensation is pretty small. This affects interest among those who are qualified, which is why they have to depend on some mid- or junior-level bankers who are deputed to these positions,” said the second lawyer cited above.

According to a vacancy circular dated 21 August last year posted on the DRT website, the average pay band for a section officer of the DRT ranged between Rs.9,300 and Rs.34,800 with a grade pay of Rs.4,600. It is less for more junior positions in the tribunals.

DRTs are one of the three major legal mechanisms available for banks to deal with errant borrowers. The two others are the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002, and the recently approved bankruptcy law.

DRTs were first set up under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, also known as the DRT Act. Under the existing norms, a DRT is supposed to dispose of a matter referred to it within 180 days of the receipt of an application and an appeal can be filed against a DRT order with the debt recovery appellate tribunals (DRATs).

However, the 180-day deadline is rarely followed by the tribunals and cases are heard for years.

As on 31 December, cases with a total worth of Rs.4.5 trillion were pending before various DRTs compared to Rs.3.75 trillion in the previous year, according to a 17 May report in The Financial Express.

Cases with loans worth Rs.31,215 crore were disposed of in the first nine months of financial year 2015-16.

Apart from staffing issues, some DRTs don’t even have permanent offices. In March, the Bombay high court took note of the issue and ordered the finance ministry to provide offices for DRTs in Mumbai after filling the vacancies.

The high court was hearing a petition which said that the chairperson of the Mumbai DRAT went on medical leave in April 2014, forcing the transfer of a case to the Chennai DRAT, thereby causing a lot of trouble for the litigants.

“The main issue is, of course, that there are no people to man the tribunals and secondly, there is a big appeal process in the DRT mechanism, which often leads to no decision. Moreover, the focus is too much on dispensing justice in such cases, while there is barely any commercial focus. Assets lose value over time and if there are delays due to too much focus on justice being delivered, then it impacts the amount of recovery. DRT is a recovery body and that should be its main focus, keeping commercial interests in the front,” said Abizer Diwanji, partner and head-financial services, EY.

With the rising burden of bad loans at banks, it would be crucial for the government to set up DRTs with all necessary infrastructure, while empowering them with qualified people.

As of March 2016, gross non-performing assets (NPAs) of 40 listed banks were at Rs.5.82 trillion, up 93% from Rs.3.02 trillion in the same period a year ago. Net NPA stood at Rs.3.39 trillion, more than double the Rs.1.68 trillion a year ago.