DRTs set up to help the banks to recover collateral had not proved effective as they could resolve only a minority of cases brought before them with recoveries amounting to only a fraction of overall dues, Moody's said in its latest `Banking System Outlook'.

The agency was of the view that more fundamental reforms of the legal system was required to achieve any significant improvement in resolution of cases and recoveries.

Other government-sponsored bodies such as the Board for Industrial and Financial Reconstruction (Bifr) set up to rehabilitate or wind up weak companies have also not given the desired results, it said.

Bifr had come to be used as a shield by promoters against lenders hoping to recover their dues rather than encouraging a pro-active resolution of financial difficulties.

A bank'sefforts to realise collateral would not bear fruits while the company is under the jurisdiction of Bifr, especially when the board's brief is to protect employment as a priority, Moody's said.

Referring to the beleagured Indian bank, Moody's blamed the dismal finances of state governments for losses in its loan portfolios and hoped that the RBI measures to tighten classification and provisioning norms would root out such problems in future.