Cases referred to debt recovery tribunal posted highest growth in FY23: RBI

Debt recovery has emerged as the key sphere as far as the banking sector in India is concerned, amongst the multiple channels through which banks resolve their stressed assets, debt recovery tribunals witnessed the highest growth rate in the number of referred cases as also the amount involved during 2022-23.

“After a sharp increase in the previous year, referred cases as well as amount involved contracted for cases under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act,” the RBI said in its note.

The number of cases referred to Lok Adalats rose from 85,06,741 in 2021-2022 to 1,42,49,462 in 2022-2023.  The number of cases referred to IBC also rose sharply from 891 in 2021-2022 to 1261 in 2022-2023.  Similarly, the cases referred to debt recovery tribunal also jumped sharply  from 30,651 in 2021-2022 to 58,073 in 2022-2023.

Out of multiple channels of debt recovery, the Insolvency and Bankruptcy Code (IBC) remained the dominant mode of recovery, with a share of 43.0 per cent in the total amount recovered in 2022-23 and the recovery rate also improved. And barring SARFAESI Act, almost all recovery channels witnessed the growth in  number of cases referred in comparison to 2021-2022.

The apex banks also highlighted that apart from recovery through various resolution mechanisms, banks also clean up their balance sheets through sale of NPAs to asset reconstruction companies (ARCs). “Sales to ARCs shot up in 2022-23, partly reflecting assets sold to the newly operationalised National Assets Reconstruction Company Ltd (NARCL),” the report stated.

During 2022-23, 9.7 per cent of the previous year’s stock of SCBs’ GNPAs was sold to ARCs as compared with only 3.2 per cent in 2021-22 on the other hand, the acquisition cost of ARCs as a proportion to book values of assets declined from 33 per cent at end-March 2022 to 29.8 per cent at end-March 2023.