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Loan borrowers filing for insolvency, banks fear increase in bad debts

Loan borrowers are filing for insolvency because they are unable to repay loans due to rising interest rates. Banks fear bad debts. Credit-counselling, out-of-settlement are popular options.

Apnaloan.com Research Bureau

26 Aug 2008

The banking industry estimates show that bad debts have increased from 5-7 per cent to 14-19 per cent for some banks.


loan borrowers seem to be looking for options regarding repayment of loan, primarily due to the frequent revision in loan interest rates. Borrowers who are finding it difficult to repay loans are looking for alternatives.


Some of the available options are approaching lenders for an out-of-court settlement; seeking help of credit counselling centres for debt management package through negotiations with banks and filing for insolvency.


The self-employed lenders are more likely to file for insolvency compared to the other section of borrowers.


A petition for being declared as an insolvent has to be moved before the court under the Provincial Insolvency Act, 1920, or the Presidency Towns Insolvency Act, 1909.


While the Presidency Insolvency Act is applicable to the Presidency Towns viz Calcutta, Bombay and Madras, the Provincial Insolvency Act pertains to the whole of India except these towns. Such a petition can be filed by the creditors too.


The defaulter has to provide proof in court of law that proves his/her inability to repay debts. The court can also issue orders to evaluate the debtor's assets.


The lenders also need to file the claim once the court publishes the matter of insolvency in its official gazette. It is compulsory for the lenders to claim their share, or the borrower is not obligated to repay by law.