Even as the Reserve Bank of India and the Centre have been pushing banks to take the legal route in resolving bad loan assets, lenders have filed fewer number of legal cases against defaulters in FY17.
According to data published by Credit Information Bureau of (India), the number of suits filed by banks and financial institutions on defaults of Rs 1 crore and above declined by about 11 percent by value and 17 percent in number of cases. The number was at 9,575 cases worth Rs 1.5 lakh crore as on March 2017 as against 11,555 cases worth about Rs 1.7 lakh crore as of March 2016.
In comparison, the suits filed in the previous two years had shown an increase of 68 percent (value terms) in March 2015 and a further 47 percent in March 2016.
Banking experts suggest this could be because more borrowers would be willing to settle cases without recourse to a legal eagle.
Another reason which could explain the weaker number is because there are cases currently being tried under the resolution mechanisms. Also, banks have managed to sell a portion of their bad loans to asset reconstruction companies (ARCs).
A senior private sector bank executive said it could be because the banks have more confidence in talking to borrowers who may opt for one-time settlement and have also sought the help of RBI mechanism in the past.
In the past couple of years, the RBI has set out various mechanisms especially the Strategic Debt Restructuring (SDR), 5/25 refinancing and Scheme for Sustainable Structuring of Stressed Assets (S4A).
In 2016-17, banks sold bad loans of about Rs 35,000-40,000 crore to ARCs, as compared to Rs 20,000 crore sold in 2015-16.
Top banks file more cases, government banks file less
A substantial reduction in suits filed was seen in cases filed by nationalised banks to just over 3,100 cases worth about Rs 41,600 crore as on March 2017 from 6180 cases worth Rs 79,600 crore a year ago.
On the other hand, suits filed by private sector banks stood at 2,121 worth Rs 29,200 crore against 1,935 cases worth Rs 26,000 crore a year ago.
Bigger banks were more forthcoming in hauling defaulters to a court than smaller banks, the CIBIL data highlighted.
Cases filed by State Bank of India and a few other big banks including Bank of Baroda, Bank of Maharashtra and private banks such as Axis Bank, ICICI Bank and HDFC Bank showed a rise.
SBI filed 3600 cases worth Rs 71,900 crore as against 2688 cases worth Rs 50,500 crore.
"Banks are also operating in consortium and of late the lead bank takes the action on behalf of all the lenders in the consortium. This could be one of the reasons," said a public sector bank official.
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