There have been signs of stress in the balance sheets of banks in an environment of increasing uncertainties and a fragile global economy. Weakening loan recovery rates not only forces banks to face the burden of higher provisions and limits their lending capacity, it also diminishes their profitability and solvency. Examining the determinants of recovery of defaulted loans by banks in India, the need for a stronger and effective insolvency regime is felt so as to improve the debtor-creditor relationship and credit environment. The importance of the presence of collateral, the type of collateral used, and a conducive macroeconomic environment towards recovery of bad loans are highlighted. There is a need for strengthening banks' credit appraisal system. Access to alternative resources facilitates loan recovery, highlighting the need for further development of capital market as a source for adequate resources for borrowers.
