Chanakya IAS Academy Blog

Notice

Banks get green light to recover kingfisher dues

The debt recovery tribunal has allowed a consortium of banks to initiate debt recovery proceedings against kingfisher airlines ltd. The dues will be paidjointly by kingfisher airlines and its guarantors United breweries(Holdings) Ltd, Vijay Mallya and kingfisher Finvest(India)Ltd.

They also must pay interest on the amount till the amount is completely recovered. In the event of failure on part of kingfisher airlines and its guarantors to pay the due amount along with interest, applicant banks are at liberty to sell the mortgaged assets. If the consortium of banks fails to fully recover dues despite the sale of hypothecated assets, they are permitted to proceed as per law against individual persons and other non-mortgaged assets.

What prevents debt recovery tribunals from recovering bad debt?

In India, the legal and institutional machinery for dealing with debt recovery has not kept pace with global standards.This has impacted the ability of the lender to recover debt.

There is reduced credit availability in the market due to:

  • Corporate Bond market which is not fully developed yet.
  • Non-Performing Assets are on the rise due to Twin Balance Sheet Problem.

To deal with credit defaulters, Debt recovery tribunals were set up for speedy adjudication and recovery of debt. Their jurisdiction comes from two different Acts:

  • The Recovery of Debts Due to Banks and Financial Institutions Act
  • The SARFESI Act

While the aim of the both these Acts is the same, they follow different routes.

Initially DRTs did perform well and helped lenders recover substantial parts of bad debt, but large and powerful borrowers were able to stall the proceedings on various grounds.

So, what are the major problems that the DRTs face?

    There is no institutional mechanism in place that ensures that tribunals dispose their cases in a timely manner. There is a strong need to enhance accountability for the delays.
  • Lack of adequate infrastructure.
  • Delaying tactics that are used by large borrowers to prevent banks from recovering their debts.

Insolvency and bankruptcy code 2016:

Recently, the government enacted a new code to allow easier exit to loss-making firms.

Some of the important features of the same are:

  • It is considered as the biggest economic reform next only to GST.
  • The objective of the law is to promote entrepreneurship, ensure availability of credit, and balance the interests of all stakeholders by consolidating and amending various laws related to reorganization.
  • The vision of the new law is to encourage entrepreneurship and innovation. Some business ventures will fail, but they should be handled swiftly. This to ensure that entrepreneurs and lenders can move on, instead of bearing the burden of past decisions.

With SARFAESI Act, Insolvency and Bankruptcy Code, combined with banks’ toughening stance to recover their NPAs and increasing public pressure on the government, it is likely that banks’ health will improve in years to come.

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