sarfaesi act

Topics: Loan, Debt, Bank Pages: 35 (10327 words) Published: July 17, 2014
Working Paper Series

A Study on the Effectiveness of
Remedies Available For Banks in a
Debt Recovery Tribunal - A Case
Study on Ernakulam DRT
Mukund P Unny
February 2011

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For more information, please contact Centre for Public Policy Research, Door No 28/3656, Sonoro Church Road, Elamkulam, Kochi, Kerala, 682 020 India. Telephone: +91 484 6469177, Fax +91 0484 2323895, E-mail: Or visit the CPPR website at

Chapter: Abstract

Centre for Public Policy Research


The practice of lending and borrowing is millenniums old. The concept of banking was incepted ever since humans started engaging in economic transactions of any kind. The banking system has evolved since then. We have well-established banks now in the 21st century-huge ones having more than $1 trillion in assets. The banking (or credit) sector is one that hold the reins of the world economy. Without the presence of a well-established credit-system, we cannot expect the economy to roll on. A dynamic banking system is essential for a thriving economy. Banking in India faces the difficulty of mounting NonPerforming Assets (NPA), which is unfavourable for the bank’s financial health. Banks have had to wait for very long time in Civil Courts to get cases concerning debt-recovery disposed and recovered. This led to the trapping of crores of rupees in litigation proceedings, which the bank could not re-advance, forcing the Government to establish a Debt Recovery Tribunal (DRT) to assure expeditious recovery proceedings and speedy adjudication of matters concerning debt recovery of banks. This paper aims to study the functioning of the Debt Recovery Tribunal, established following the Recovery of Debts due to Banks and

Financial Institutions Act, 1993.

Centre for Public Policy Research




1.1. Introduction to the Banking System in India
The banking system in India is significantly different from that of other Asian nations because of the country’s unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population, but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. These features are reflected in the structure, size, and diversity of the country’s banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive five-year development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction and elimination of private sector monopolies in trade and industry. The banking system in India faces many problems at present. One of such problems is the vast number of Non-Performing Assets on the bank’s balance sheet. To ensure proper functioning of the banking system in the economy, we need to see that the level of NPAs is kept down. Non-Performing Loans (NPLs) are an area of concern, as they adversely affect the financial health of the bank. The bank’s primary activity is to advance loans to the needy. Extension of credit is one of the major activities of banks and financial institutions. Credit (or retail products of banks like loans) represents the bulk of the bank and financial institution’s asset portfolio. Apart from raising resources through fresh deposits, borrowings and recycling of funds received back from borrowers constitute a major part of funding credit dispensation activity. Finance is the life-blood of economic activities. Advancement of credit is significant so as to fund the productive purposes. However, Credit Risk is attached to the retail products of banks, which arises from the failure of the borrower in repayment. Here, the credit cycle gets upset, leaving the...

References: Khan, M.Y. 2007. Indian Financial System (2nd Edition). New Delhi: Tata McGraw-Hill
Prasad, S Shyam
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