The data from 33 banks (27 public sector and 6 private sector) and the study of files relating to measures taken for recovery by way of suits filed by 15 banks have revealed that banks do file suits after exhausting other means of recovery. ``During 1996, the amounts involved in suit filed cases accounted for 26.21 per cent of these banks' NPAs. In 1997 and 1998 this was further increased to 33.9 per cent and 46.38 per cent respectively. However, the recoveries made out of suit filing by these 33 banks during thelast three years were 7.33 per cent, 4.74 per cent and 4.32 per cent respectively. The suit filed amounts evidencing decreasing trend of recovery through this route,'' the RBI said.

As per the study, the gross NPA of banks has gone up by 4.7 per cent to Rs 45,653 crore in 1998 over the previous year and the net NPA by 4.6 per cent to Rs 21,232 crore during the same period. Out of gross NPAs, SBI contributed as much as Rs 15,522 crore.

In view of such meagre recovery, it said, the banks before filing suit weigh the likely recovery prospects out of the suit and the opportunity cost of any amounts that could be recovered immediately. ``Suit filing, as such, is resorted to as the last alternative. Further, as advances in `sub-standard' category due to temporary problems like slow moving stocks, delay in receivables and some of them get regularised and upgraded to `standard' accounts, the suit filing in such accounts is neither required nor resorted to. In view of the cost-benefit implications and time factoris suit filing, banks consider legal measures only when the account is classified at least as doubtful,'' the RBI study said.

Pointing to the futility of the system, the RBI said in some cases there were cases where the suits were pending for 15 to 20 years, but no progress was made in the suit. ``Out of all the suit filed cases of Rs 1 crore and above studied in 15 banks which were visited, there was only one case in which the suit filing was taken to the logical end ie., execution of decree, recovery as per the decree, and closure of the borrowal account,'' the central bank said.

In the light of the above, the central bank said, the issue that needs deliberation is that despite banks resorting to filing the suits in NPA cases constituting 48.27 per cent of the NPAs even as a last resort, whether the legal process has been beneficial in recovery of dues of banks and enforcement of credit discipline and if not, the measures that could be taken for making this process an effective tool.

Regarding thedelay in solving cases through the route of Board for Industrial and Financial Reconstruction (BIFR), the RBI said: ``During the course of study certain cases were seen wherein recovery process has been further delayed due to BIFR/AAIFR taking up those cases. At present a reference to BIFR places the borrower in an advantageous position vis-a-vis banks as no recovery proceedings can be started till the pendency of the case with BIFR/AAIFR. This is exploited by the borrowers to the hilt. It may be added that borrowers fudging the accounts in order to bring the units under the SICA/BIFR purview and stall the recovery actions by banks is not improbable,'' the RBI said.

Such instances have been noticed during the RBI study. Banks strongly feels that BIFR generally takes very long time to decide the case and approve rehabilitation package in case of sick units. ``There is an immediate need to suitably amend SICA providing certain period within which BIFR should adjudicate a unit as sick one and come out withrehabilitation package. Banks also feel that constitution of more benches of BIFR at major centres with sufficient backup may help in expediting disposal of cases by BIFR,'' the RBI said.

The RBI data further suggests that the working of debt recovery tribunals (DRTs) had fallen short of the expectations by not creating a fast track system for recovery of bank dues. ``Banks are of the view that so far, the constitution of the debt recovery tribunals has not contributed substantially in recovery of problem loans/enforcement of securities by the bank as they are not equipped with proper infrastructure and required flexibility. There is therefore immediate need for removing all the impediments coming in the way of smooth functioning so as to make it play the role expected of it.''

The RBI has suggested setting up of debt settlements tribunals following the failure of DRTs. This system involves appointment of a debt recovery officer by the bank who will issue the demand notice and pass the award. Forrecovery of smaller loans, the RBI has suggested Lok Adalats. Further, it also mooted setting up of asset reconstruction companies which will transfer NPAs to an agency and develop securitisation of such loans.