New Delhi: Some banks have reached out to the Reserve Bank of India seeking permission to engage third-party litigation funds for recovery of their dues from overseas entities.
Litigation funding is a globally accepted model through which a third party, unrelated to the litigants, provides financial support for legal proceedings in exchange for a share of the recovered amount if the case succeeds.
Lenders made a representation on this to the RBI last month. There is currently no provision in Indian laws that allows banks recourse to litigation funding to recover dues, said people familiar with the development.
"Banks currently use their resources, like hiring a legal firm, and other related expenses for recoveries," said a bank executive. "Globally, there are firms that specialise in such cases, and often the recoveries at initial stages are better than offloading it later to an asset recovery firm at a deep discount."
An email sent to the RBI did not receive any response.
Independent experts support the idea. “These specialist funders carefully vet cases and bring in a worldwide network of lawyers and asset-recovery experts, helping banks enforce judgements more quickly and press debtors to settle on better terms,” said Swatantra Bhatia, partner, accounting and outsourcing services, Forvis Mazars.
Burford Capital’s $100 million joint fund with the IFC to buy and litigate Middle East and North Africa (MENA) non-performing assets has been a success, he pointed out.
According to Vivek Iyer, partner and financial services risk leader, Grant Thornton Bharat, Singapore has a successful framework on litigation funding, making it an attractive global financial market.
Benchmarking their practices may be a good step for India, given the larger global aspirations of the Indian economy, he said. However, the RBI may have some concerns, he added.
Litigation funding is a globally accepted model through which a third party, unrelated to the litigants, provides financial support for legal proceedings in exchange for a share of the recovered amount if the case succeeds.
Lenders made a representation on this to the RBI last month. There is currently no provision in Indian laws that allows banks recourse to litigation funding to recover dues, said people familiar with the development.
"Banks currently use their resources, like hiring a legal firm, and other related expenses for recoveries," said a bank executive. "Globally, there are firms that specialise in such cases, and often the recoveries at initial stages are better than offloading it later to an asset recovery firm at a deep discount."
May not need legislative changes
Bankers have suggested that this model can be exclusively used for pursuing recoveries of their foreign exposure and will not need any legislative changes. The RBI can permit this model under the asset recovery framework, they said.An email sent to the RBI did not receive any response.
Independent experts support the idea. “These specialist funders carefully vet cases and bring in a worldwide network of lawyers and asset-recovery experts, helping banks enforce judgements more quickly and press debtors to settle on better terms,” said Swatantra Bhatia, partner, accounting and outsourcing services, Forvis Mazars.
Burford Capital’s $100 million joint fund with the IFC to buy and litigate Middle East and North Africa (MENA) non-performing assets has been a success, he pointed out.
According to Vivek Iyer, partner and financial services risk leader, Grant Thornton Bharat, Singapore has a successful framework on litigation funding, making it an attractive global financial market.
Benchmarking their practices may be a good step for India, given the larger global aspirations of the Indian economy, he said. However, the RBI may have some concerns, he added.
