INCREASE IN BENCHES OF DRT/DRAT AND NCLT
DRT/DRAT
- As per the data, the number of pending cases there are 1,61,034 before the DRT as per the finance ministry1
- There are litigations before the Hon‟ble Supreme Court of India in relation to the absence of presiding officers. Further, the pendency before the DRT/ DRAT has raised the query whether additional benches at DRT? DRAT is required or not. The finance ministry has time and again appointed presiding officer for speedy disposal of matters.
- However, there has been a huge delay in appointment of presiding officers and this has caused in increase in the pendency of the cases before DRT/ DRAT. The issues of pendency have to be taken seriously as the this the one of the remedies available for the recovery of debt for threshold under One crore.
- The banks however, has proposed specialised benches at DRT for high value debts2 . A similar request is being considered for NCLT for specialised benches for insolvency. NCLT
- The National Company Law Tribunal came into existence replacing the Company Law Board and reducing the company law matters before the High Court of different states. It is a specialised tribunal dealing with company law and insolvency law in the country. However, even after almost 6 years of its inception, the pending cases number is not decreasing. The government has changed the threshold in the year 2020, even then it has not helped in reducing the pendency.
- Time and again the request to increase the number of the benches in NCLT is made before the government. However, the government always responds saying that they are making efforts to increase the benches of NCLT/ NCLAT in a phased manner depending on the quantum of workload and other factors.
- The government wanted to open dedicated cross border insolvency benches in Mumbai in the year 2019-20 but that never took place. Even the talks of introducing dedicated benches for insolvency is discussed, but nothing is concrete the increase in benches will only help NCLT/ NCLAT only if the disposal is done in the correct manner and in an efficient manner.
- As of now as per the pending cases, there are 21,089 cases are pending with NCLT benches as of March 31, 2022, including 13,188 cases under Insolvency and Bankruptcy Code (IBC), 1,107 cases of merger and amalgamation (M&A), and 6,794 other cases.
- As of now there is no proposal before the government to setup in any new NCLT and NCLAT benches.
DIGITAL BANKS AND BANK FINTECH PARTNERSHIP
- Since the inception of the Digital India, the crime involving digital banks has increased drastically. As per a Deloitte Report, only 50 percent the banks in India conduct fraud risk assessments and update the fraud risk register once in a year, finds a recent report, India Banking Fraud Survey Edition IV, by Deloitte published in January 2022.
- Fintech has redefined the financial system and changed the way people pay, send money, lend, borrow, and invest. The growth of fintech companies is fuelled by the complexity in the traditional financial system which allowed fintech to find opportunity in the poor banking experiences. Fintech provides offer new and fresh services at affordable costs, through well designed platforms or mobile apps.
- Fintech drives the financial industry to be smarter and more agile, allowing it to make processes faster than ever. Digital banking is a move from traditional banking activities to a digital one where consumers can avail the banking services online through their mobile phones or laptop.
DIFFERENCE
- Fintech or financial technology, revolutionized financial services through innovative technologies, products, and business models. Fintech competes against old traditional financial banking methods and long-standing institutions with new technology-thinking products and services. Digital banking, on the other hand, is digitized traditional banking services, activities, or products offered via online channels, applications, and mobile platforms.
- Fintech start-ups are digital natives who disrupted legacy banking with digital functionalities, simplicity, big data, accessibility, agility, cloud computing, contextuality, personalization, and convenience. Fintech is not only improving the financial consumer experience, but is changing the way people pay, transfer money, lend, borrow, and invest. Digital banking is traditional banking dressed up in a digital wrapper.
- FinTech’s can also be categorized into seven categories3 :
- Payments
- Money Management
- Crowdfunding
- Crypto
- Lending
- Insurance
- Robo-Advising
- Fintech, enabled by emerging technologies and innovative solutions, has significantly transformed the global financial services industry. India is leading the Fintech adoption race with an adoption rate of 87% substantially higher than the world average of 64%. The promising Indian Fintech market is expected to reach $ 1 trillion in AUM and $200 Billion by 2030
NPA RECOVERY SYSTEM
RECOVERY FROM NPA
- As per the RBI data, recovery made by public sector banks during the financial year as a percentage of gross non-performing assets as on beginning of the financial year has improved from 11.33% in FY 2017-18 to 13.52% in FY 2018-19 to 14.69% in FY 2019-20.4
- The government for loan recovery from the wilful defaulters, the Minister stated that as per the inputs received from the Enforcement Directorate, it has attached assets worth INR 19111 crore up to 23 March 2022, under the provisions of PMLA, 2002 in certain cases of loan fugitives, which is 84.61% of the defrauded amount of INR 22, 586 crores in these cases. Further, out of these attached assets, worth INR 15, 113 crores, which is 66.91% of the defrauded amount, has been restituted to PSBs.
IBC RECOVERY METHOD FOR NPA
- NPAs recovered by scheduled commercial banks through the IBC channel increase to about 61% of the total amount recovered through various channels in 2019-20 against 56 percent in 2018-19, according to latest RBI data. 5
- IBC, under which recovery is incidental to rescue of companies, remained the dominant mode of recovery, according to RBI‟s “Report on Trend and Progress of Banking in India 2019-20”/ In absolute terms, of the total amount of INR 172565 crore recovered through various channels in 2019-20, IBC route accounted for INR 105773 crore. in 2018-19, of the total recovered amount of INR 118647 crore, the recovery via IBC channel was INR 66440 crore.
SARFESI CHANNEL
- The report observed that SARFESI, 2002 channel also emerged as a major mode of recovery in terms of the amount recovered as well as the recovery rate, the report said. Under SARFESI. INR 52563 crore was recovered in 2019-20 against INR 38905 crore in 2018-19.
- With the applicability of the SARFESI act extended to co-operative banks, recovery through this channel is expected to gain further traction, the report said. Apart from recovery through various resolution mechanisms, banks also clean up balance sheets through sale of NPAs to assets reconstruction companies (ARCs) for quick exit.
- During 2019-20, asset sale by SCBs to ARCs declined which could probably be due to SCBs opting for other resolution channels such as IBC and SARFESI.
- The acquisition cost of ARCs as a proportion to the book value of assets declined suggesting lower realisable value of the assets.
SUGGESTION FOR A SUPERVISORY AGENCY
- In the last few years, India has seen a rise of Non-Performing Assets (NPA). As per RBI, an asset becomes non-performing when it ceases to generate income for the bank. A Non-performing Asset (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained “past due” for a specified period of time.6
- RBI time and again has released various circulars and regulations to deal with issues in relation to NPAs. It is important to note that RBI is a regulation body which does not have any penal provisions to punish people responsible for these NPA.
- The economic offenders come in the picture only after the NPA has happened and the person has or people has left the country.
- Thus, to secure the banks, we need a system or a specific agency which supervises banks and NBFCs in the country. The role of this agency will be very specific. It will be working in collaboration with Register of Companies. The Agency will have penal powers to restrict people from running away and tracking the people once they become a person related to NPA.
- All the banks will have to report every NPA above the desired threshold. Once any asset of a company is declared NPA, then all the banks with whom the company or NBFC has an account will get notification about the NPA. Once the banks are notified, they can keep a track of the transactions of the defaulters and the company and submit a report to the agency accordingly.
- Once, the preliminary report is submitted to the agency, the agency can accordingly investigate depending on the threshold of the defaulters.
- This agency will have threshold which are industry specific. Every industry will have a threshold as per the industry practice. The agency will have experts from every industry to understand the behaviour of the defaulter and assist the agency to figure out whether the defaulter is a wilful defaulter or a circumstantial.
- This agency will empower the country in understanding the nature of transaction in the country in a more detailed manner and it will also assist in having crucial behavioural knowledge about the NPAs in the country.
- The aforesaid study will help the government to provide assistance to industries as per the study and improve the said industries accordingly.
SIMILAR SYSTEM IN THE WORLD
JAPAN: The Financial Services Agency (FSA), a Japanese government entity responsible for overseeing banking, insurance, and securities and exchange. The role of the FSA is to ensure the stability of the financial system in Japan, protection of depositors, insurance policyholders and security investors. It is in charge of the inspection, supervision and transparency of the financial system through the Securities and Exchange Surveillance Commission. It also oversees the country‟s Certified Public Accountants and Auditing Oversight Board.
EU-EUROPEAN BANK AUTHORITY: The main task of the EBA is to contribute, through the adoption of binding Technical Standards (BTS) and Guidelines, to the creation of the European Single Rulebook in banking. The Single Rulebook aims at providing a single set of harmonised prudential rules for financial institutions throughout the EU, helping create a level playing field and providing high protection to depositors, investors and consumers.
The Authority also plays an important role in promoting convergence of supervisory practices to ensure a harmonised application of prudential rules. Finally, the EBA is mandated to assess risks and vulnerabilities in the EU banking sector through, in particular, regular risk assessment reports and pan-European stress tests.
Other tasks set out in the EBA’s mandate include:
- investigating alleged incorrect or insufficient application of EU law by national
authorities - taking decisions directed at individual competent authorities or financial institutions in emergency situations
- mediating to resolve disagreements between competent authorities in cross-border situations
- acting as an independent advisory body to the European Parliament, the Council or the Commission.
- taking a leading role in promoting transparency, simplicity and fairness in the market for consumer financial products or services across the internal market.
- To perform these tasks, the EBA can produce a number of regulatory and non- regulatory documents including binding Technical Standards, Guidelines, Recommendations, Opinions and ad-hoc or regular reports.
The Binding Technical Standards are legal acts which specify particular aspects of an EU legislative text (Directive or Regulation) and aim at ensuring consistent harmonisation in specific areas. The EBA develops draft BTS which are finally endorsed and adopted by the European Commission. Contrary to other documents such as Guidelines or Recommendations, the BTS are legally binding and directly applicable in all Member States.
