Page 35 - Banking Finance January 2018

ARTICLE

of financial institutions, thereby enabling them to ini- stressed assets would therefore never be enough, if it en-
tiate action under the RDDBFI Act. ables us to discern what led to this phenomenal build-up of
d) Empowering the Central Government to provide for uni- nonperforming assets (NPAs) in our system and determine
form procedural rules for the conduct of proceedings what should be done to solve them, and identify what could
in the Debts Recovery Tribunals and Appellate Tribunals, be done differently in future.If banks continue to remain
saddled with huge NPAs for a long time, it would make them
e) The RDDBFI Act established Debt Recovery Tribunals risk averse and choke the lending for economic activities in
and Debt Recovery Appellate Tribunals. The Bill in- general.The consequences of default in loans are aggravated
creases the retirement age of Presiding Officers of Debt by poor recovery.
Recovery Tribunals from 62 years to 65 years. Further,
it increases the retirement age of Chairpersons of Ap-
In particular,increasing trend of distressed assets and low
pellate Tribunals from 65 years to 67 years. It also makes rate of recovery through legal course is a concern for the
Presiding Officers and Chairpersons eligible for reap- banking sector and economy as a whole.No law which deals
pointment to their positions. with the recovery of the loan disbursed by the Banking and
f) The Act provides that banks and financial institutions Financial Institutions are complete in itself. Remedies are
will be required to file cases in tribunals having jurisdic- not complete in itself and dependent on others, which lead
tion over the defendant's area of residence or business. to the multiciplicity of the litigation and which directly or
The Bill allows banks to file cases in tribunals having indirectly responsible of the pendency of cases in the Court
jurisdiction over the area of bank branch where the debt of Law. With the Government having notified the amend-
is pending. ments to the DRT and SARFAESI Act, government hopes to
see improvement in the recovery process.
g) The Bill provides that certain procedures under the Act
will be undertaken in electronic form. These include
presentation of claims by parties and summons issued The changes are aimed at a faster and more transparent
by tribunals under the Act. system to tackle the bad debts in the banking system by fast-
tracking the recovery process for banks and other financial
h) The Bill provides further details of procedures that the
institutions. The Insolvency and Bankruptcy Code 2016 ,is
tribunals will follow in case of debt recovery proceed- yet another major step taken by Government in this direc-
ings. This includes the requirement of applicants to tion. While the Bankruptcy Code 2016 provides for collec-
specify the assets of the borrower, which have been tive action of creditors, the proposed amendments to the
collateralised. The Bill also prescribes time limits for SARFAESI and DRT Acts seek to streamline the processes of
the completion of some of these procedures.
creditors individually taking action against the defaulting
debtor. The impact of these changes on debt recovery sce-
Amendments to the Indian Stamp Act nario in the country, and the issue of rising NPAs will only
The Bill provides that stamp duty will not be charged on become clear in due course of time.
transactions undertaken for transfer of financial assets in
favour of asset reconstruction companies. Financial assets References
include loans and collaterals. 1) Problem Loan Management & MSME Financing dated Feb
02,2015
Amendments to the Depositories Act (Valedictory Speech delivered by Shri R. Gandhi, Deputy
The Depositories Act, 1996 is amended for facilitating the Governor on Jan 30, 2015 at a Workshop organized by
transfer of shares held in pledge or on conversion of debt CRISIL on "Credit Risk and Problem Loan Management"
into shares, in favour of ARCs by banks or FIs. at Goa)
2) ARCs - at the crossroads of making a paradigm shift -
Conclusion Ernst & Young LLP, India

The Indian banks in general, and the Public Sector Banks 3) The Enforcement of Security Interest and Recovery of
(PSBs) in particular, are grappling with the huge stock of Debts Laws and Miscellaneous Provisions (amendment)
stressed assets that has piled up in the system over the bill, 2016 -Bill no 144 of 2016
years. Any amount of discussion on the whys and what of 4) Press reports

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