Debt recovery process takes too long: Fitch

Source: Business LineBureau:Mumbai, Sept. 5,2010

Indian lenders are able to recover 30-50 per cent of the loan amount taking recourse to recovery-driven and business re-organisation forums. But the time taken to resolve the cases can be reduced, said Fitch Ratings, in a report titled, “India's Insolvency Regime.”

The study looked at both the time take and amount recovered using each of the forums.

According to the report, resolution of bad assets by business re-organisation or debt restructuring (such as Board of Industrial and Financial Reconstruction) has not been uccessful in terms of the amounts recovered and time taken, but legal measures such as Debt Recovery Tribunals (DRT) and use of provisions of SARFAESI Act have yielded better results.

The amounts recovered using SARFAESI Act have broadly been in the range of 30-50 per cent of the amount involved, which is more efficient than recoveries gained by using provisions of Board of Industrial and Financial Reconstruction (BIFR).

But conditions which stipulate that the lender must own 75 per cent of the debt in order to take recourse to the SARFAESI Act still pose a challenge, said Mr Sandeep Singh, Director-Structured Finance, Fitch Ratings.

There could be problems in case of multiple lenders. For instance, the banks may sell their loans to different Asset Recovery Companies, in which case the situation will move from five lenders to five ARCs. Or one bank may wish to take recourse to SARFAESI, but another bank may wish to negotiate with the borrower.

Online system

The time taken by DRTs to issue recovery certificates from the date of filing of the original application by the lender has come down from an average of seven years in the mid 1990s to two -three years, said the report.

 In spite of the reduction in the time taken, the final resolution is hampered by follow-up procedure to identify assets, valuation and the auction of the assets. Introducing an online system may improve the follow-up procedure, the report suggested.

It takes an average of two years for BIFR references to be dismissed. This could delay efforts to recover dues through other forums, the report said.