CALCUTTA, February 6: Banks and financial institutions are calling for a drastic change in the country's judicial system since, according to the executives of the industry, it is not delivering in so far as the loan default cases are concerned.Although this has always been one of the demands of the financial sector, it has gained momentum recently, for the number of defaulters have increased and there is pressure on the banks and FIs to reduce non-performing assets (NPAs).
People in the banking industry complain that instead of making the offenders accountable, the courts stretch the cases and sometimes acquit them, ``on grounds of lack of sufficient evidence.'' Not surprisingly, defaulters prefer to go to court as this is the only way they can delay payment of liabilities. A bank official said that cases had been known to drag on for as much as 10 years without reaching any conclusion.
The chief executive of a financial institution, who spoke to `The Financial Express', demanded that issuers ofdishonoured cheques should be legally punished by the court "because it is a criminal offence." "The person/organisation which issues the cheque does so wilfully knowing that there are insufficient funds in the account to cover the debt," he added.
The debt recovery tribunals (DRTs) were set up primarily to speed up the process of redressals in the banking sector. However, experience shows that the DRTs are an exercise in futility and more often than not the presiding officer at the hearings is inclined to favour the offending party rather than the bank or FI, which is being cheated out of its money.
The FI executive said that in most of the cases there were a definite nexus between the lawyers and the judges and, ``they allow the case to drag on for a long time on flimsy pretexts." The financial sector is inclined to blame the judges, who, they feel, do not take sufficient care to expedite cases. Bankers say most of their NPAs are loans which have not been paid up for years together.
As a directfallout of this banks are being forced to make compromise proposals to the defaulters to settle the sticky accounts. ``Compromise inevitably means sacrificing the interest portion of the loans, but at least we are getting our principal amount back," said a bank official.
Cleaning up the balance sheets is imperative for the banks and FIs as sticky loans have to be provided for. Ideally, gross NPAs should not form more than 10 per cent of the total debt portfolio of the banks while net NPAs (after provisioning) should not be more than five per cent.
However, a look at the NPAs of public sector banks for 1996-97 shows that the figure was at Rs 20,284.73 crore, more than nine per cent of the net advances. Some of the banks had net NPAs in excess of 13 per cent, such as Allahabad Bank and Central Bank of India.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
