Chairman of HDFC Ltd, Deepak Parekh highlighted that the debt recovery mechanism in India remains a challenge and needs to be tightened.
"There is a need for development in the debt recovery system in India. Even after the presence of the National Company Law Tribunal (NCLT) and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), the efficacy of the legal system is not right," Parekh said at the Global Fintech Festival in Mumbai on September 7.
Parekh also highlighted that compared to global legal systems, India has a slow mechanism.
"Decisions from NCLT need to come in quicker. Maybe it is understaffed but that needs to be addressed," Parekh said.
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Wilful defaultors
Wilful defaulters owe major private and public sector banks Rs 88,435 crore, up from Rs 75,294 crore in a year.
As of December 2022, wilful defaulters owed PNB Rs 38,712 crore, up from Rs 37,055 crore in December 2021.
The other public sector lender, Bank of Baroda, had wilful defaulters owing Rs 38,009 crore till January 2023, up from Rs 24,404 crore in the corresponding period last year.
In the case of HDFC Bank, as of February 2023, wilful defaulters owed the lender Rs 11,714 crore, up from Rs 9,007 crore in March 2022.
Loan write-offs
Apart from wilful defaults, banks have been writing off huge amounts of corporate loans as well.
To put things in perspective, beginning December 2016 till March 2022, 47 percent of corporate insolvency processes went into liquidation, compared with 14 percent that ended in a resolution plan, Insolvency and Bankruptcy Board of India (IBBI) data showed.
To quantify, out of a total of 5,258 corporate insolvency proceedings initiated under the bankruptcy code till March, only 3,406 have been closed. Among those closed, as many as 1,609 proceedings have ordered liquidation, while 480 have ended in the approval of resolution plans. Further, till December 2021, only 457 cases had yielded resolution plans.
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