Confirming the development a senior banker said: "We are left with no choice but to take this route, as the existing legal system cannot effectively tackle bank defaulters. Even if we get a decree in our favour, we are not able to execute it always to realise the dues. We are resorting to recovery through private agencies, after having exhausted all avenues for the execution of the decree."

The provocation for the "innovative recovery process" is fast-deteriorating asset quality against the backdrop of the industrial slowdown. In absolute terms, most state-run banks ended up posting higher non-performing assets in 1997-98, although some banks reduced their bad debts in percentageterms.

International credit-ratings agency Standard & Poor's recently said the quantum of non-performing assets in Indian banks was much higher than the Reserve Bank of India projections.

Bank of India last week appointed IBI Detective Agency to chase absconding clients in Maharashtra. It is also appointing detective agencies in other zones to give a boost to its aggressive recovery drive. The bank's net non-performing assets went up from 6.93 per cent to 7.34 per cent in March, 1998.

According to industry sources, at least two banks -- Central Bank of India and Bank of India--have chalked out a detailed recovery policy that involves appointment of private agencies for recovery of decretal dues, having exhausted all avenues for the execution of the decree. Banks, like Bank of Baroda, have also experimented with outside agencies in a small way.

Bank of India pays recovery charge of 5 per cent of the recovered amount, if the age of decree is between one and three years. The recovery charge goes up to7.5 per cent of the recovered amount, if the age of decree is between three and five years. It is 10 per cent for decree above five years.

For a sticky loan of up to Rs 10 lakh, regional manager is authorised to appoint recovery agents. For decreed amount above Rs 2 crore, the committee of general managers designated for compromise proposal is authorised to appoint the agency.

Broadly, the recovery agents are categorised into three categories: seizure agents (who seize vehicles, etc. in case of defaults), advocates and chartered accountants (who execute the decree or create a situation where the defaulters are forced to pay up) and facilitators (who help identifying buyers for properties at the right price to enable defaulters to pay up).

State Bank of India, the country's largest public sector bank, appoints outside agencies like panchayats or government bodies to recover priority- sector loans. "We do not hire detective agencies... For priority sector loans, we take outside help for which we pay 10per cent of the recovered amount as fees," an SBI executive said.

INSIGHT

Only option left

Resorting to employing outside agencies for asset recovery is not a very palatable option for any financier, banks included. Foreign banks have been doing this for some time and so have some NBFCs. These financiers have little option but to resort to these tactics, as the law is loaded in favour of the defaulter. Asset-recovery tribunals have not proven to be very successful as these defaulters eventually seek shelter at the courts. The main culprits here are industrial houses, which can protect themselves from such attempts. Short of overhauling the legal system regarding recoveries, this is the only option left to the banks.