10 February 2020
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Banks in the UAE are going after the Indian nationals who defaulted on their loans in the UAE and then moved to India.
As many as 9 UAE-based banks are understood to be in the process of initiating legal action against Indian defaulters to recover around $7bn.
During the last few years, starting 2016, a number of Indian businessmen and salary earners have left the country leaving behind a trail of loan defaults following stress in the small and medium enterprises (SME) sector which resulted in a domino effect in terms of business failures and job losses.
So, be it India or any other country, if [the] law allows the banks to pursue, we will certainly pursue those defaulters"
While most of the cases involve corporate loans taken by Dubai or Abu Dhabi-based subsidiaries of Indian companies, action is also being planned against individuals, according to India's Economic Times.
"Cost of loan recovery will be a major consideration before we initiate legal action against any defaulter. While hiring our lawyers, we will consider cost per case and decide on the viability of each case," said the legal department head of a local bank, the news outlet reported.
Law firms in India have indicated that banks are negotiating on legal fees on the basis of bulk of recovery cases rather than the number of cases. If that is the case, both big and small loan default cases can be bundled together making the legal costs cheaper for banks.
Over the past five years, total defaults by Indian borrowers in the UAE is estimated in excess of Dh26 billion (Rs500 billion).
While a big chunk of the defaults are by business entities accounting for more than 75% of the money owed to the banks, personal loans, mortgages, credit cards and auto loans togethe account for about 20% of the skips.
This initiative by the local banks have been taken after India's Ministry of Law and Justice issued a gazette notification in January 2020, declaring the UAE as a "reciprocating territory" for the Code of Civil Procedure. This means verdicts of the UAE courts against bank loan defaulters and other civil case convicts can be executed in India and vice-versa.
"If someone takes a loan and runs away with it, they are taking away the shareholders' money. So, be it India or any other country, if [the] law allows the banks to pursue, we will certainly pursue those defaulters," a banking source told the Khaleej Times. "The news of UAE courts' verdicts to be implemented in India is a good development," he added.
Among the nine UAE banks which plan to initiate legal proceedings against defaulters include Emirates NBD, Abu Dhabi Commercial Bank, Mashreq bank and other regional banks.
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