Professional Documents
Culture Documents
Banks were never so serious in their efforts to ensure timely recovery and consequent reduction of NPAs as they are today. It is important to remember that recovery management, be of fresh loans or old loans, is central to NPA management. his management process needs to start at the loan initiating stage itself. !ffective management of recovery and NPA comprise two pronged strategy. "irst relates to arresting of the defaults and creation of NPA thereof and the second is to handling of loan delinquencies. message that either they perform or perish. into the asset quality. A debt from a loan, credit line or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. In accounting, the bad debt recovery would credit the #allowance for bad debts# or #bad debt reserve# categories, and reduce the #accounts receivable# category in the books. Not all bad debt recoveries are #like$kind# recoveries. "or e%ample, a collaterali&ed loan that has been written off may be partially recovered through sale of the collateral. 'r, a bank may receive equity in e%change for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit. he tenets of financial sector reforms were revolutionary which created a sense of urgency in the minds of staff of bank and gave them a he prudential norm has forced the bank to look
Recovery Meaning:
!Recovery i" #e$ine# a" %&e 'roce"" o$ regaining an# "aving "o(e%&ing )o"% or in #anger o$ *eco(ing co"%"+, (ecovery is a key to the stability of the banking sector there should be no hesitation in stating that Indian banks have done a remarkable )ob in containment of Non$Performing Assets *NPA+ considering the overall difficult environment. (ecovery management is also linked to the bank,s interest margin,s we must recogni&e that cost and recovery management supported by enabling legal framework hold the key to future health and competitiveness of the Indian banks. No doubt, improving recovery management in India is an area requiring e%peditions and effective actions in legal institutional and )udicial processes. Banks at present e%perience considerable difficulties in recovering loans and enforcement of securities charged with them. he e%isting procedure for recovery of debts due to banks has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time.
professionals
(easonable fees with no up$front costs. hey get paid only when it is collect. (ecovery -anagement .ystems will design a collection strategy to meet bank,s
liens, and levies (ecovery -anagement .ystems will collect when legal action is the only option.
0utting edge skip$tracing tools and techniques recovery -anagement .ystems can work
1st, 2nd, and 3rd placements and even turn bank old )udgments into money.
he process of assigning debt collection to outsides enables officials of non$Banks. 0ost to develop more beneficial new business.
Di"a#van%age":
4ebt collection does cost money5
he debt collection agency will be establishing a relationship with the banks customers, which could be potentially harmful if they sour that relationship by not dealing with customers in a courteous manner.
4on,t make a call to the debtor before 67.66 hours or after 21.66 hours.
4on,t make anonymous calls or bunched calls to the debtor, which may be perceived as harassment.
4on,t conceal or misrepresent your identity during calls and visit or other interaction with the debtor.
4on,t show uncivil8indecent8dirty behavior or use such language during calls and visits to the debtor.
4on,t intrude into the privacy of the debtor,s family members, friends8colleagues.
4on,t forget that the debtor is a human being and deserves to be treated with fairness and courtesy, despite the fact that he8she is a debtor for the time being.
0ode of conduct in recovery process may include dress code, verbal and written communication rules top be followed by the individuals employed by the agency for the purpose of collection.
(ights of the agent, including the commissions8fees payable by the principal to the agent8agency for the recovery of debt8other services. he 4ebt (ecovery Policy and code of conduct in the debt recovery will be regulations
compliant, i.e. in accordance with the directives and guidelines of the (eserve Bank of India issued from time to time. If, however these are not incorporated therein, it is advisable for agents to seek clarification from the principal, as compliance with the regulations is mandatory for the banks and also their recovery agents. 5
(BANKING & INSURANCE)
he 4ebt (ecovery Agreement between the credit institution and the debt recovery agent8agency serves as the contractual arrangement that is legally binding on both. .uch an arrangement, being bank specific may vary from bank to bank in details. he duties of the agent8agency the authority delegated and code of conduct prescribed by the bank in the process of recovery function would to be carefully noted for strict compliance by the agent.
dictum that :one si&e does not fit all,. In the foregoing paragraphs, three types of debtors have been described and they need different strategies for recovery success9 Normal debtors, i.e. who :can pay, and :will pay, if reminded or8and persuaded to pay. 4ifficult debtors, i.e. those who :can pay,, but :will not pay,. 6
(BANKING & INSURANCE)
4oubtful debtors, i.e. whose who can pay the reduced amount as negotiated with them. ;hile different strategies are required for different types of debtors, the following are the common points to be followed in all kinds of recovery strategies9 (ecovery effort should start with the establishing a good rapport with the debtor. 0ommunication, listening and persuasive skills would be applied in building good interpersonal relations. /o through the :know <our 0ustomer, papers furnished by the bank and know the customer,s identify and personal profile. /o through the copy of the loan agreement of the debtor furnished by the bank and note down the financial position, cash flow pattern, and assets charged to the bank.
DE8AU9TS O8 9OAN:
'ne ma)or problem which the banks in India are facing is the problem of recovery and overdue of loans. he reasons behind this may vary for different financial institutions as it depends upon the respective nature of loans. =ere an attempt is made to find out the some causes of default of loans due to which financial Institutions are facing the problems of overdue of loans. he recovery officers of different banks are interviewed for finding out the causes of defaults. hese reasons may be useful for the and Banks for the better recovery of loans in future. After surveying different banks, the following can be said to be some of the main causes of default of loans from industrial sector9$
therefore, 4ebts .ervice 0overage (atio *4.0(+ worked out incorrectly, fi%ing unrealistically high installments and conservative schedule of repayments. hese inner pulls and pressures may find reflection in fi%ing e%cessive amounts of installments in order to show an early period of repayment. he borrower at this stage finds himself in an unenviable position of a @<es -aster@ and nods his head at whatever conditions are attached or whatever repayment schedule is fi%ed by the financial institutions, in all probability, covering up his design to evade payment of the future dues. And, the real problem surfaces when repayment of installment8payment of interest falls due and the borrower conveniently and blissfully ignores calls for clearance of the said dues, not so much due to his intention to defraud the loans, as due to him already bleeding white to keep his concern going.
9a*o0r 'ro*)e(":
he labour situation in India can be broadly classified into two categories namely availability and welfare related problems. .killed labour is in shortage for many speciali&ed industrial units particularly because of the geographical situation of such units. .hortage of 1B
labour results in unwarranted deceleration of production thereby hampering the profitability of the concerned unit. 'n the other hand labour welfare is grossly neglected by industrial units leading to a feeling of dissatisfaction and disgruntlement among the working force. here are numerous instances where political and vested interests tend to instigate labour problems.
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he -odel Policy on collection of 4ues and (epossession of security framed by the Indian Banks, Association.
A bank will normally incorporate its policy and procedure for debt recovery in the arrangement entered into its recovery agents. In terms of the recovery management agreed with the bank, the recovery agents should adhere to the policy, procedure, etc. prescribed by the bank.
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Genera) G0i#e)ine":
1.
(BANKING & INSURANCE)
All the members of the staff or any person authori&ed to represent our Bank in collection and 8 or security repossession would follow the guidelines set out below9 he customer would be contacted ordinarily at the place of his 8 her choice and in the absence of any specified place, at the place of his 8 her residence and if unavailable at his 8 her residence, at the place of business 8 occupation. Identity and authority of persons authori&ed to represent the Bank for follow up and recovery of dues would be made known to the borrowers at the first instance. he bank staff or any person authori&ed to represent the bank in collection of dues or 8 and security repossession will identify himself 8 herself and display the authority letter issued by the bank upon request.
he bank is committed to ensure that all written and verbal communication with its borrowers will be in simple business language and the bank will adopt civil manners for interaction with borrowers.
Normally the bank,s representatives will contact the borrower between 6766 hrs and 1A66 hrs, unless circumstances warrant visiting the borrower at odd hours and occasions. .uch circumstances would include continuous irregularity in the accounts.
Borrower,s requests to avoid calls at a particular time or at a particular place would be honored as far as possible.
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he bank will document the efforts made for the recovery of dues and the copies of communication, if any, sent to the customers will be kept on record.
All assistance will be given to resolve disputes or differences regarding dues in a mutually acceptable and in an orderly manner.
Inappropriate occasions such as bereavement in the family or such other calamitous occasions will be avoided for making calls 8 visits to collect dues.
Re'o""e""ion o$ Sec0ri%y:
(epossession of security is aimed at recovery of dues and not to deprive the borrower of the property. he recovery process through repossession of security will involve repossession, valuation of security and reali&ation of security through appropriate means. All these would be carried out in a fair and transparent manner. (epossession will be done only after issuing the notice as detailed above. 4ue process of law will be followed while taking repossession of the property. he bank will take all reasonable care for ensuring the safety and security of the property after taking custody, in the ordinary course of the business.
9ega) recovery 'roce"": he intervention of the court is required to possess mortgaged immovable property by the bank or its recovery agent. Also if the charged assets do not e%ist, or the debt is unsecured, the debtor will have to be sued for recovery of the dues by the bank8recovery agent.
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he agent contacts the debtor between 6766 hours and 1A66 hours, unless the special circumstance of his8her business or occupation requires the bank to contact of a different time. >nder no circumstances, can the customer be called beyond 2166 hours.
All calls where the customer becomes abusive or threatening should be appropriately documented. 0ustomer,s question be answered in full. hey should be provided with information requested and given assistance in making recovery. -inor issues should be resolved. =ow often to call customer8 he purpose of a collection call as to bring to the
0ustomer,s notice the obligation and to seek a commitment to pay on a specified date. 'nce a promise is elicited a call may be made to serve as a reminder and for confirmation of payment. If the customer is not available during a few calls made by the agent, a message may be left to an adult family member as followsC Please leave a message that AB0 had called and request the customer to call AB0 back at the given phone numberC. from a (ecovery agency. <i"i% %o c0"%o(er (#e*%or): his is the second step in collection process. "ollowing procedure should generally be followed9 A c0"%o(er "&o0)# *e vi"i%e# $or #e*% co))ec%ion on)y a$%er %&e"e con#i%ion" are "a%i"$ie#: he debtor has not paid the due amount within the days of grace and the dues are still outstanding against him8her. he debtor has been notified of the amount due and also of the name of the collection agent. he collection agent has taken an appointment from the debtor for the visit. he message should not indicate that the customer AB0 has overdue amount , or the call originated
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4uring visit, the agent should be in proper dress and appearance, or wear the dress prescribed by the principal and follow the timing and place of the visit as per the principal,s or (BI8IBA code, unless otherwise agreed by the debtor e%pressly.
At the first stance, the agent should utter salutation words *like good morning8eveningD sir8madam, as per custom of the bank+. he agent should thereafter show his I4 card and authority given by the principal for debt collection from the debtor.8 'nly after these initial formalities, the conversation regarding debt collection should start.
he time of visiting the customer will be generally between 67.66 hours to 21.66 hours.
<i"i%" ear)ier or )a%er %&an %&e 're"cri*e# %i(e B7+BB &r"+ -1+BB &r"+) (ay *e (a#e on)y 0n#er %&e $o))o2ing con#i%ion": ;hen the customer has e%pressly consented to that timing.
;hen attempts to contact the customer have resulted in information that the customer is normally only available outside these hours and no alternate telephone number is available to contact him8her,
;hen due to nature of the customer,s employment i.e. working in shifts e.g. call center, hotel. =e8she is usually available outside these hours.
he agent should respect privacy of the debtor. Privacy policy as discussed above for calls would apply during visits also.
4uring the visit, due respect and courtesy should be shown to the customer and the interactions should be civil and polite as per the principal,s policy. 4uring interactions with the debtor, the agent must not use threats or intimidation verbally or by body language. >nder no circumstances, any physical violence be used in debt collection process. 1?
(BANKING & INSURANCE)
-B
*i+
he (ecovery 'fficer may, at any time or from time to time, by notice in writing,
require any person from whom money is due or may become due to the defendant or to any person who holds or may subsequently hold money for or on account of the defendant, to pay to the (ecovery 'fficer either forthwith upon the money becoming due or being held or within the time specified in the notice *not being before the money becomes due or is held+ so much of the money as is sufficient to pay the amount of debt due from the defendant or the whole of the money when it is equal to or less than that amount. *ii+ A notice under this sub$section may be issued to any person who holds or may subsequently hold any money for or on account of the 4efendant )ointly with any other person and for the purposes of this subsection, the shares of the )oint holders in such amount shall be presumed, until the contrary is proved, to be equal. *iii+ A copy of the notice shall be forwarded to the defendant at his last address known to the (ecovery 'fficer and in the case of a )oint account to all the )oint holders at their last addresses known to the (ecovery 'fficer. *iv+ .ave as otherwise provided in this sub$section, every person to whom a notice is issued under the sub$section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, bank, financial institution, or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like to be made before the payment is made notwithstanding any rule, practice or requirement to the contrary. *v+ Any claim respecting any property in relation to which a notice under this sub$ section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. *vi+ ;here a person to whom a notice under this sub$section is sent ob)ects to it by a statement on oath that the sum demanded or the part thereof is not due to the defendant or that he does not hold any money for or on account of the defendant, then, nothing contained in this sub$section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the (ecovery 'fficer to -1
(BANKING & INSURANCE)
the e%tent of his own liability to the defendant on the date of the notice, or to the e%tent of the defendant,s liability for any sum due under this Act, whichever is less. *vii+ he (ecovery 'fficer may, at any time or from time to time, amend or revoke any notice under this sub$section or e%tend the time for making any payment in pursuance of such notice. *viii+ he (ecovery 'fficer shall grant a receipt for any amount paid in compliance with a notice issued under this sub$section, and the person so paying shall be fully discharged from his liability to the defendant to the e%tent of the amount so paid. *i%+ Any person discharging any liability to the defendant after the receipt of a notice under this sub$section shall be personally liable to the (ecovery 'fficer to the e%tent of his own liability to the defendant so discharged or to the e%tent of the defendant,s liability for any debt due under his Act, whichever is less. *%+ If the person to whom a notice under this sub$section is sent fails to make payment in pursuance thereof to the (ecovery 'fficer, he shall be deemed to be a defendant in default in respect of the amount specified in the notice and further proceedings may be taken against him for the reali&ation of the amount as if it were a debt due from him, in the manner provided in sections 2E, 2F and 27. he (ecovery 'fficer may apply to the court in whose custody there is money belonging to the defendant for payment to him of the entire amount of such money, or if it is more than the amount of debt due an amount sufficient to discharge the amount of debt so due. he (ecovery 'fficer may, by order, at any stage of the e%ecution of the certificate of recovery, require any person, and in case of a company, any of its officers against whom or which the certificate of recovery is issued, to declare on affidavit the particulars of his or its assets. he (ecovery 'fficer may recover any amount of debt due from the defendant by distrait and sale of his movable property in the manner laid down in the hird .chedule to the Income$ a% Act, 1AF1 *H3 of 1AF1+.
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It refers to a sum of money owed by one person or entity *debtor+ to another person or entity *creditor+. hus there are two parties to a debt$ debtor who receives money by way of a o illustrate, if (am takes a loan of (s. 3 lacs debt5 and creditor who lends money to the debtor.
from a bank for purchasing a car, (am becomes the debtor *or borrower+, the bank is the creditor *or lender+ and the loan of (s. 3 laces is the debt *principal+. (am would be required to repay the loan in equated ,monthly installment *!-I+,comprising the principal and interest, spread over the repayment period of, say, 3 years * debt tenor+. Recovery: It means collection or recovery of money from the debtor by, or on behalf of the creditor, after it has become due for payment in accordance with the debt terms agreed between the creditor and the debtor. In the above e%ample, if (am *debtor+ fails to pay the agreed installment *!-I+ on the due date, the bank may send him notice to remind him to pay the agreed amount within a stipulated period. If he does not pay even after receiving the notice here that a debt becomes payable by the debtor only on or after the due date, but not before that date. If the debt is not paid on the due date it becomes over due or past due. Agen%: It is a legal term defined in section 1G2 of Indian 0ontract Act as Ia person employed to do any act for another or to represent another in dealings with third personC. he person for whom such acts are done, or who is represented, is called the IPrincipalC. An agent has thus an authority to do acts on behalf of the principal within the limits of the authority and thereby bind the principal for such acts in relation to third parties. here are several kinds of agents e.g. brokers *financial or commodity brokers+, auctioneers, insurance agents, estate or property agents, commission agent, selling agents, marketing agents, debt recovery agents. 4ebt (ecovery Agent may now be defined as a person or entity engaged by a bank for the purpose of collecting specified loans, or advances or other kind of dents from the debtors *or borrowers+ in accordance with the specified terms and conditions. In the above e%amples of the car loan to (am, if the bank *creditor+ engages K< will be called as 4ebt (ecovery Agent of the bank.
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CONC9USION
o conclude with, till recent past, corporate borrowers even after defaulting continuously never had any real fear of bank taking any action to recover their dues despite the fact that their entire assets were hypothecated to the banks. his is because there was no legal Act framed to safeguard the real interest of banks. =owever with the introduction of .ecuriti&ation Act, 2662 banks can now issue notices to their defaulters to repay their dues or else make defaulters face hard and tough actions under the aforementioned Act. his enables banks to get rid of sticky loans thereby improving their -5
(BANKING & INSURANCE)
bottom lines. Also a hallmark of a good business is approaching it with a fresh, new perspective and requires management that is fully awake, fully alive and of course fully focused on making things better. Also, the passing of the .ecuriti&ation Act, 2662 came as a bonan&a 4iscouraged by the results of debtors in filling the coffers of banks, legislature enacted securiti&ation and reconstruction of financial assets and enforcement of .ecurity Interest Act *securiti&ation act+ Lune 21, 2662 for investors in banking sector stocks that in turn resulted into an improvement in their share prices. he banks were empowered under section 13*H+ of securiti&ation act to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale for reali&ing the secured asset. he role of the court was limited to challenge the measures under section 13*H+, by way of appeal, that too on deposit of 7EM of amount claimed on the notice under section 13*2+ of securiti&ation act.
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BIB9IOGRA/DC
Ne2" /a'er"
Business !conomics * .<.B.com+.
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