Resolution of NPAs, Write offs & Recoveries in Banks                       

As per the Union government’s disclosure in the Parliament the scheduled commercial banks (SCBs) in the country have written off bad loans (non-performing assets—NPAs) worth a staggering Rs16.35 lakh crore worth of over the past decade (2014-2024).

Year-Wise Breakdown of Write-offs

According to the data tabled in the Parliament, the following amounts were written off by SCBs year-wise:

• Total NPAs Written Off (2014-15 to 2023-24): ₹16.35 lakh crore
• NPAs Written Off in ‘Large Industries and Services’: ₹9.27 lakh crore
• Top Year for Write-offs: 2018-19, with ₹2.36 lakh crore written off

The data presented in the House revealed that the bulk of these write-offs pertained to large industries and services which alone accounted for about Rs9.27 lakh crore of the total NPAs written off during this period.

In response to a Right to Information (RTI) query by Praful P. Sarda, a civil rights activist, RBI informed that Indian banks have written off loans worth Rs 16,61,310 crore since April 1, 2014. The breakup of the write-offs by bank category wise is- Public sector Banks Rs.12,08,621 Crs, Private sector Banks Rs. 4,46,669 Crs, Urban Cooperative Banks Rs. 6,020 Crs. This said data extends to September 30, 2024, indicates that only Rs 2,69,795 crore of this amount has been recovered. It is noteworthy here that recovery rates remained low across all the sectors. The recovery by bank category wise is – Public sector Banks Rs 2,16,547 Crs, Private Sector Banks Rs.53,248 Crs. It seems that recovery data for urban cooperative banks was unavailable as noted by the RBI. So far, Rs 13,91,515 crore are still unrecovered which makes the overall recovery rate stand at roughly 16%.

Recovery of dues through legal mechanism

Banks continue to pursue the recovery of dues through legal mechanisms such as civil courts, debt recovery tribunals (DRTs), and the national company law tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC).

Details of the amount recovered by scheduled commercial banks through DRTs and under the SARFAESI Act

Amounts in crore Rs.

Source: RBI

The amount recovered as against the total amount involved via debt recovery tribunals (DRTs) fell to (Rs. 36,924 Crs) 9.2% in FY23 compared to (Rs. 12,114 Crs) 17.5% in FY22. Whereas, the amount recovered via SARFAESI Act increased to (Rs. 30,864 Crs) 27.6% In FY23 compared to (Rs. 27,349 Crs) 22.5% in FY22.

Year wise data of average time taken for resolution at NCLT

(data provided by the corporate affairs ministry in the Parliament on 6^th August, 2024.)                                                                                                                               

According to data from the Insolvency and Bankruptcy Board of India (IBBI), the number of ongoing corporate insolvency resolution processes stood at 1,973 as of June 30, 2024. Out of these, 1,249 cases have exceeded 330 days. The 330-day timeline is exclusive of extensions granted by the National Company Law Tribunal (NCLT) and time spent in legal proceedings related to the resolution process. According to the government the Increase in resolution time is attributable to associated litigation on account of increased number of interlocutory applications.
19,770 cases were pending before NCLT as on June 30. 2024. Out of the total, 10,125 cases were pending for more than a year. At the end of June 30, 2024, as many as 3,019 cases were pending before the National Company Law Appellate Tribunal (NCLAT) and out of them, 1,356 cases were pending for over a year.

During the financial year 2023-24 the government has made a total of 12 amendments to various regulations and model bye laws were carried out, thereby bringing about 86 changes in the regulatory framework to further strengthen the insolvency resolution process.

 Inordinate delay in filling up the vacancies of NCLT, DRT members is one of the main reasons behind the pendency of the cases for resolution beyond 400 days. Though the Supreme Court has issued directives on a number of occasions for filling up the vacancies of the members of these tribunals on timely basis, the things have not improved significantly.

In addition to the NCLT Benches not working to their full strength, the following are some of the other major factors that lead to inordinate delay in the resolution of the insolvent borrower accounts:

• Huge Case Backlog & Limited Infrastructure
• Complex Legal & Financial Disputes
• Frequent Appeals & Litigation
• Delays in Resolution Plans Approval
• Regulatory approvals
• Lack of Buyers & Poor Asset Valuation
• Misuse of IBC Mechanism by Corporate Debtors
  
  

There is a set pattern in case of influential wilful defaulters who are able to either delay the liquidation process or leave the country to unknown destinations. It requires political will and effective coordination among various agencies/ institutions to address this challenge.

Improving recovery from the Insolvency and Bankruptcy Code (IBC) mechanism requires a multi-pronged approach involving legal, procedural, and structural reforms. Here are key steps to enhance the recovery process:

• Filling up the NCLT Tribunal members vacancies on timely basis and strengthening the infrastructure.
• Introducing deemed approval concept within a specified period for obtention of regulatory approvals.

• Introducing Pre-Packaged Insolvency: Encouraging pre-packaged insolvency resolution for large companies to enable faster and more efficient restructuring.
• Specialized Training: Judges and resolution professionals should receive specialized training to expedite decision-making.
• Faster Enforcement of Recovery: Ensuring better coordination between IBC and other laws like the SARFAESI Act, Companies Act, and RBI regulations to avoid contradictory legal interpretations.

Focus on Early Intervention & Avoidance of Liquidation

• Strengthening Pre-Insolvency Workouts: Encouraging out-of-court settlements and restructuring mechanisms before insolvency is triggered.
• Identifying Distressed Assets Early: Banks and financial institutions should proactively recognize stressed assets and restructure them before insolvency proceedings.

Increase Recovery for Operational Creditors

• Fair Distribution of Proceeds: Addressing concerns of operational creditors (vendors, suppliers) to ensure better and equitable distribution in the resolution plan.
• Encouraging Debt Trading Market: Developing am active secondary market for distressed debt, allowing operational creditors to sell their claims to financial institutions for faster recovery.

 Promoting Digital & Tech-Driven Solutions

• Using AI & Data Analytics: Implementing AI-driven tools for tracking insolvency cases and predicting distressed firms before bankruptcy.
• Online Case Management: Ensuring digital submission and tracking of insolvency cases to reduce paperwork and procedural delays.

Innovative approach in revival of NPA accounts of genuine borrowers

• Banks may use the data analytics to leverage on their database to identify the new suppliers and customers and connect them to the NPA accounts of genuine borrowers, so that the revival and recovery of such NPA accounts becomes much easier and faster, compared to the conventional approach of restructuring which is limited to financial aspects alone. 

To conclude, there is a need to increase the efforts for effective resolution of NPAs through legal mechanism and step up the efforts to improve the recovery of the NPAs that are written off by the banks.