Loan recovery via Lok Adalats, IBC falls in FY21; banks report fewer frauds

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Loan recovery through various channels, most notably Lok Adalats, witnessed a sizeable decline in the cases referred for resolution during 2020-21, the Reserve Bank of India (RBI) said.

While 20.35 lakh cases were reported in FY21 involving Rs 4.56 lakh crore, only Rs 64,228 crore was recovered. In 2019-20, 61.27 lakh cases involving Rs 6.94 lakh crore were reported, with Rs 1.52 lakh crore of loans recovered.

Although 19.49 lakh cases involving Rs 28,084 crore were referred to Lok Adalats, only Rs 1,119 crore worth loans were recovered. In the previous year, out of Rs 67,801 crore referred, Rs 4,211 crore was recovered, the RBI said in its report on ‘Trend and Progress of Banking in India 2020-21’.

Even though initiation of fresh insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) of India was suspended for a year till March 2021 and Covid-19 related debt was excluded from the definition of default, it constituted one of the major modes of recoveries in terms of amount recovered.
Though 537 cases were reported to IBC involving Rs 1,35,139 crore, only Rs 27,311 crore was recovered during the year.

In the previous year, out of Rs 2,24,935 crore referred, only Rs 1,04,117 crore was recovered.
Recoveries through Debt Recovery Tribunals (DRTs) were lower at Rs 8,113 crore, as against Rs 9,986 crore last year, and at Rs 27,686 crore through SARFAESI Act, against Rs 34,283 crore.

Allowing pre-pack resolution window for MSMEs is expected to assuage the mounting pressure of pending cases before NCLTs, reduce haircuts and improve declining recovery rates, the RBI said.

Bank frauds
Meanwhile, the number of cases of frauds reported by banks declined during 2020-21 when the Covid pandemic ravaged the country, the RBI said.

There were 7,363 frauds involving Rs 1,38,422 crore during the fiscal ended March 2021 as against 8,703 frauds worth Rs 1,85,468 crore in the previous year, the RBI said. During FY21, there were 1,525 frauds involving Rs 31,074 crore relating to advances.

According to the report, banks reported 4,071 frauds involving Rs 36,342 crore during the six-month period ended September 2021 as against 3,499 frauds involving Rs 64,261 crore in the same period of last year. In terms of amount involved, a bulk of these cases occurred earlier but were reported during 2020-21.

In terms of amount involved, a bulk of these cases occurred earlier but were reported during the year 2020-21. In terms of area of operations, an overwhelming majority of cases reported during the year in terms of number and amount involved related to advances, while frauds concerning card or internet transactions made up 34.6 per cent of the number of cases.

There was a marked increase in frauds related to private banks, both in terms of number as well as the amount involved. In the first half of 2021-22, private banks accounted for more than half of the number of reported fraud cases.

However, in value terms, the share of PSU banks was higher, indicating predominance of high value frauds. While the major share of loan-related cases pertained to PSU banks, private banks accounted for a majority of card/ internet and cash-related cases.

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