DRT underperforms in recovery of bad loans
KATHMANDU, 10 Sep:
A government body established to assist banking institutions in recovery of loans defaulted by borrowers has failed to claw back much of the bad debt despite being successful in providing legal aid on time.
The Debt Recovery Tribunal (DRT) had received 2,727 petitions from banks and financial institutions seeking recovery of Rs 42.52 billion till the end of last fiscal year that ended in mid-July.
Of these, 2,599 cases were settled from which Rs 42.14 billion, or 99 per cent of the total demanded amount, should have been recouped, shows the latest annual report of the DRT, which was made public today by Finance Minister Shanker Prasad Koirala.
But the body was successful in recovering only Rs 16.73 billion till last fiscal, which is only around 40 per cent of the total amount that had to be recovered.
“The Tribunal cannot rest on its laurels citing it has been successful in issuing verdicts in large number of cases filed at the DRT. It also needs to make more efforts to recover loans as well,” Minister Koirala said.
“If it needs support from the government or other concerned bodies to promptly implement its decisions then it should formally come up with such request,” the minister further said.
The DRT was established in July 2003 to help banks and financial institutions recoup loans that they had failed to recover from defaulters. The body only deals with cases in which principal amount of at least Rs 500,000 or more is involved.
Although the DRT, which had once earned a bad name for keeping cases pending for months, has started delivering effective legal service in the last five years, it still has not been able to implement its legal decisions, which has led to delay in recovery of loans.
“For this, we need to create a certain standard on treatment of cases that have already been settled,” Nepal Rastra Bank governor Dr Yuba Raj Khatiwada said. He made the comment referring banking institutions’ tendency to defer auction of collateral whose market valuation is lower than the loan amount that borrowers have to repay.
“They do this because they won’t be able to recover the loan amount even after the property pledged as collateral is auctioned. This is the reason why there is discrepancy in number of settled cases and loan recovery,” the central bank governor said.
DRT chairman Gokul Prasad Burlakoti accepted what the governor said. “We know many banks have extended loans by securing collateral of inferior quality. This is where the central bank needs to come and strengthen its collateral evaluation process,” Burlakoti said.
But governor Khatiwada said it would be impossible to evaluate quality of collateral pledged by each of around 900,000 borrowers. “We won’t be able to do that even if we double the number of employees from existing 1,300,” he said. “However, to ensure compliance we issue directives regularly and it is the responsibility of the board of directors and the management to abide by our instructions. And in case they fail to do this, they would be penalised as per the provisions in the Banking Offence and Punishment Act.”
Source: THT
