GS Paper 3
Syllabus: Indian Economy and issues relating to Planning, Mobilization of Resources
Source: IE
Direction: The article highlights why the number of stressed accounts reported to Lok Adalats by banks increased dramatically in 2021-22 and contains explanatory infographics on Lok Adalats and NPAs.
Context:
- In 2021-22, the number of non-performing assets (NPAs) referred by banks to various recovery channels, including Lok Adalat and the Insolvency and Bankruptcy Code (IBC), increased fourfold over 2020-21.
- Among all channels, the number of stressed accounts reported to Lok Adalats by banks increased dramatically in 2021-22.
Background:
Bank’s Loan recovery mechanisms:
- Lok Adalat: Conducted by NALSA, the awards of Lok Adalat are final and binding on all parties
- IBC: Introduced in 2016 and amended in 2021, IBC provides a time-bound process of resolving the insolvency of corporate debtors (330 days)
- Debt Recovery Tribunals (DRTs): Along with Debts Recovery Appellate Tribunals (est. Under Recovery of debts and Bankruptcy Act, 1993) for expeditious adjudication and recovery of debts.
- Securitisation and Reconstruction of Financial Assets and Enforcement of the Security Interest Act (SARFAESI Act 2002): Under this, banks can take control of securities pledged against the loan and manage or sell them to recover dues without any court intervention.
Why cases referred to Lok Adalats increased dramatically?
- Banks send stressed accounts worth up to Rs.20 lakh to Lok Adalats, which are organised by banks in collaboration with the district legal service authority.
- The number of cases referred to Lok Adalats is high since the cost of recovery through this route is lower than through DRTs or SARFAESI.
- However, the rate of recovery through this route has been very low (2.3% in 2021-22 and 4% in 2020-21), as it is very difficult to recover loans from defaulters in the small-ticket loan segment.
Insta Links:
Why NPAs are not just about bank governance
Prelims Links:
(UPSC CSE 2017)
Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?
- It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.
- It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.
- It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.
- It is an important provision in The Insolvency and Bankruptcy Code’ recently implemented by the Government.
Ans: 2
