Finance Ministry Urges Banks and DRTs to Expedite Loan Recovery and Reduce Backlog

Finance Ministry Urges Banks and DRTs to Expedite Loan Recovery and Reduce Backlog

In a bid to address the growing backlog of cases in Debt Recovery Tribunals (DRTs), the Ministry of Finance has advised banks and tribunals to actively engage borrowers outside of the formal tribunal process. A senior finance ministry official revealed that both institutions have been encouraged to settle cases involving smaller loans through alternative dispute resolution mechanisms, such as Lok Adalats, to ease the pressure on DRTs.

The official highlighted that a significant number of pending cases involve small-ticket loans. "Many cases between Rs 20 lakh and Rs 1 crore are clogging the system, representing roughly 75% of the total backlog," the official said. By settling these cases through direct engagement with borrowers, DRTs can focus on high-value cases while still ensuring that settlements remain under tribunal jurisdiction.

The finance ministry's Department of Financial Services (DFS) Secretary, M. Nagaraju, chaired a meeting in New Delhi, attended by chairpersons of Debt Recovery Appellate Tribunals (DRATs), presiding officers of DRTs, and senior officers from both public and private sector banks. The strategy discussed at the meeting emphasized prioritizing high-value cases of Rs 100 crore and above. To address these, three DRTs in Delhi, Mumbai, and Chennai have been designated to exclusively handle such cases.

Additionally, the official urged banks to reconsider traditional recovery methods. Many cases, despite partial recoveries, continue to drag on when borrowers have no remaining assets. "We’ve advised banks to withdraw cases where further recovery is unlikely, with the option to refile if new assets are discovered," the official stated. This approach is expected to prevent prolonged litigation with minimal chances of further recovery.

As of January 2024, government data shows that 215,431 cases remain pending before DRTs, including 162,317 original applications filed under the Recovery of Debts and Bankruptcy Act, 1993, and 53,114 securitisation applications filed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The finance ministry has also instructed DRTs to adopt more efficient procedures, such as summary judgments, to speed up case resolution. The ministry is committed to enhancing the capacity and training of DRT officials to ensure smoother and faster processing of cases moving forward.