Banks will start legal proceedings mainly against larger defaulters.
Some banks in the UAE are going after the Indian nationals who defaulted on their loans in the UAE and then moved to India.
Source said banks will start legal proceedings mainly against larger defaulters due to big costs associated with the recovery procedures.
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.
India's Economic Times on Saturday reported that nine banks from the UAE are considering taking legal route against the defaulters in order to recover around 50,000 crore (Rs500 billion; Dh25.67 billion) from the defaulters.
Banking sources told Khaleej Times that it is shareholders' money that defaulters take away from the UAE, hence, it is local bank's right to go after the defaulters who have left without settling their debts.
"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 law allows the banks to pursue, we will certainly pursue those defaulters," a banking source told Khaleej Times
"The news of UAE courts' verdicts to be implemented in India is a good development," he said.
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, Economic Times reported.
When contacted, Dubai's largest bank Emirates NBD declined to comment on the report. Other banks couldn't be reached for comments over the weekend.
Atik Munshi, senior partner at Crowe, said the recent announcement by Indian regarding enforceability of loan defaults recovery in India has provided UAE banks good hope of recovery.
"Though this gives a fresh lease to UAE banks for possible recovery of bad loans in India the process of such enforcement in India might be lengthy and long drawn. Solvency laws, particularly for individuals in India, differ than compared to UAE. Hence, it remains to be seen how Indian courts will react to such," Munshi said.
"Most UAE banks can now expect better financial discipline from Indian corporates and Individuals as this will be a strong deterrent. I gather that many UAE banks have recovery centers in India; the new reciprocating law will ease their working," he added.
Munshi believes that banks are most likely to go after larger debts as cost of litigation on recovery could be substantial.