HDFC Ltd Chairman Deepak Parekh stressed that the debt collection mechanism in India remains a challenge and needs to be tightened.

“There is a need for development in the debt collection system in India. Even after the presence of the National Company Law Tribunal (NCLT) and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), the law is no longer effective.” “The system is not right,” said Parekh am September 7th at the Global Fintech Festival in Mumbai.

Parekh also highlighted that India has a slow mechanism compared to global legal systems.

“NCLT decisions need to be taken faster. Maybe it’s understaffed, but that needs to be fixed,” Parekh said.

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Willful debtors

Willful defaulters owe major private and public banks Rs 88,435 crore, up from Rs 75,294 crore in a year.

As of December 2022, willful defaulters owed PNB Rs 38,712 crore, up from Rs 37,055 crore in December 2021.

The other public sector lender, the Bank of Baroda, had willful debtors of Rs.38,009 crore up to January 2023, compared to Rs.24,404 crore in the corresponding period last year.

In the case of HDFC Bank, willful defaulters owed the lender Rs.11,714 crore in February 2023, down from Rs.9,007 crore in March 2022.

Loan write-offs

Aside from intentional defaults, banks have also written off large amounts of corporate loans.

To put things in perspective, from December 2016 to March 2022, 47 percent of corporate bankruptcies went into liquidation, compared with 14 percent that ended in a resolution plan, data from the Insolvency and Bankruptcy Board of India (IBBI) shows.

To quantify: Of a total of 5,258 corporate insolvencies initiated under the Insolvency Code by March, only 3,406 were completed. Of the completed procedures, 1,609 procedures ordered liquidation while 480 ended with the approval of resolution plans. Additionally, as of December 2021, only 457 cases had resulted in resolution plans.