Banks Drowning in Seven-Year Debt Recovery Backlog

30 Jul 2024 , 12:54 PM

Banks are grappling with a significant backlog of debt collection cases, which will take seven years to complete at the current rate. Over 2 lakh cases are waiting in Debt Recovery Tribunals (DRTs), which now handle approximately 30,000-40,000 cases per year. This means that the current pace is insufficient to clear the backlog, which experts estimate will take seven years to overcome.

DRTs successfully resolved 1.45 lakh cases over the last five years, from 2017 to 2022. To address this issue, the government announced plans in the 2017 budget to boost the capacity of both DRTs and National Company Law Tribunals (NCLTs), with the goal of strengthening the Insolvency and Bankruptcy Code (IBC) and improving debt collection processes.

“In its early years, DRT recovery, which is now in single digits, peaked at 77% in 2005-06. Hari Hara Mishra, CEO of the Association of ARCs in India, stated to ET that it is now the weakest link among all recovery processes and demands the most attention because the claim amount involved is bigger than any other legal recovery mechanism.

Currently, India has 39 DRTs, but they are overwhelmed by the number of cases. Every year, approximately 60,000 new claims are filed, yet only 30,000–40,000 cases are resolved.

Compared to DRTs, the IBC has been more effective in resolving disputes, having settled over 1,000 corporations and collected ₹3.3 Lakh Crore for creditors. The cherry on top is that over 28,000 cases totalling more than ₹10 Lakh Crore were settled prior to formal admission under IBC processes.

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