An Analytical Study of Statutory Strategic Provisions Regarding Bank Loan Recovery in India

Abstract

The Banking Industry has been operating in India since the early stage of civilisation. Modern banking in India begins from mid of 18th Century. Bona fide transactions of Banking Industries are beneficial for world economy. Money loaned is one of the major functions of Banks, and “What is owe, must be repay” is the universal law. But, since last two decades, Banks are facing problems in recovery of loans and fluctuating NPA levels and thereby decline in profitability of commercial sector banks. The study is organised to know the provisions, measures, and suitable actions which banks can take to reduce the burden of increasing crisis of bad loans and to recover the same. As per Economic Survey 2016-17 Gross NPAs has climbed to almost 12 % of Gross Advances for Public Sector Banks at the end of September 2016. If bank money is locked with some defaulters, then it prevents this money from being used by thousands of others who could put it to productive use. Therefore, recovery of loans becomes important for the banking sector. Until mid eighties, the management of NPAs in India was left to the banks and auditors. As the need arises for restructuring to deal with the changing risk profile of banking in 1965, the first ever system of classification of assets for the Indian Banking System was introduced. The system is called “HEALTH CODE” system, involved classification of advances into 8 categories (Bad and Doubtful Debts). Robust legal and recovery framework and an effective credit information system can play a critical role in ensuring that the asset quality of banks remains healthy. Thence, Government of India and RBI has continuously issuing variety of guidelines, master circulars, provisions, legal and criminal legislations to help banks for fighting this devil of banking sector. The research study analysed the provisions issued by Government of India and RBI right from the beginning of Lok Adalats to the PARA (Public Sector Asset Rehabilitation Agency) quick fix. The first satisfying step towards reducing indebtedness of banks is the statutory status to Lok Adalats under the Legal Services Authority Act, 1987. Then Debt recovery tribunals and SARFAESI Act, 2002 was introduced. On the other end, there is Corporate Debt Restructuring mechanism which aimed at rehabilitating viable but temporarily distressed corporate advances. In addition to this there are Asset Reconstruction Companies which facilitate improved credit risk management by banks by sale of problem loans and creation of secondary market for such loans. Apart from these proceedings, the recent actions taken by Government and RBI were Strategic Debt Restructuring and Insolvency and Bankruptcy Code 2016. The research study wholly based on secondary data and main motive is to analyse the available provisions for loan recovery helps banks to increase their profitability and liquidity.