India's banking sector needs urgent reforms for loan recovery: CII

A CII report calls for urgent banking reforms to address slow loan recovery and complex laws. It highlights procedural delays leading to asset devaluation and suggests stricter timelines, a unified financial code, and better institutional capacity.

India's banking system needs urgent reforms to address delays in loan recovery, simplify legal frameworks, and improve overall efficiency, according to the Confederation of Indian Industry's (CII) 'Report on Banking and Financial Services Sector Reform'.

Delays in Loan Recovery and Resolution

The report flags slow resolution of bad loans and procedural bottlenecks as key challenges, calling for stricter timelines and stronger institutional capacity to support the sector. Highlighting the effect of delays, the report said, "prolonged proceedings lead to the asset devaluation, creditor losses and overall inefficiency in resolving the cases." It noted that despite laws aimed at faster recovery, implementation remains weak. The report added that "there are frequent extensions and delays," even in processes designed to be time-bound. To address this, the report recommends strict enforcement of timelines and faster judicial action. It said, "Strict enforcement of timelines by minimising avoidable enforcements... would help preserve asset value," while improving transparency and efficiency in resolution.

Need for Enhanced Institutional Capacity

The report also underlined capacity constraints in tribunals handling banking disputes. It suggested expanding infrastructure, noting that "increasing the number of National Company Law Tribunal benches and appointing more members" would help speed up resolution.

Overlapping Laws and the Need for a Unified Code

Another major concern highlighted is the complexity of India's banking legal framework. The report said multiple laws governing the sector have led to confusion, stating that "the financial sector of India is governed by multiple statutes... which results in overlapping and inconsistencies." To simplify the system, the report proposes consolidation of laws under a unified framework. According to it, "consolidating banking and financial laws under a Unified Financial Code... would provide... clarity in legislative framework" and remove inconsistencies.

Strengthening Debt Recovery and Lending Practices

The report further pointed to inefficiencies in debt recovery mechanisms, including delays in issuing recovery certificates. It noted that "recovery certificates are often issued after 3 years or more due to procedural delays," impacting banks' ability to recover dues. Calling for improved accountability, the report said banks must strengthen their lending practices, adding that "banks may undertake proper due diligence" to ensure responsible credit decisions.

Reforms to Enhance Investor Confidence

The CII report emphasised that reforms must balance the interests of lenders and borrowers to improve trust in the system. It concluded that "meaningful reforms will not only strengthen financial discipline but also enhance investor confidence and overall economic stability." (ANI)(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)