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Asset Recovery Department

01 April, 2014

To All Branches / Offices


Circular No. 4016 / ARDC 204 / 2014-15 Reg: Review of NPA Recovery Policy
The NPA Recovery Policy of the Bank has been reviewed and approved by the Board of Directors. The revised NPA Recovery Policy is attached as annexure to this circular and also published in Drisya Announcements and Drisya - ARD Home page. The revised policy comes into effect from 01-04-2014. A summary of changes brought about in the revised policy is given below: 1. Compromise Proposals: Pricing for dues and sacrifice computation has been modified. The minimum and maximum interest rates for sacrifice computation have been fixed as simple interest at Banks Base Rate and simple interest at Banks Base Rate + 6% respectively, based on the age of NPA and the risk score. The revised compromise worksheet and C422 have been published in Drisya Announcements and ARD Home page. All Branches / SAMCs / Regional and Zonal Offices shall ensure that only the revised compromise worksheets are used for dues and sacrifice computation while submitting compromise proposals from 01-04-2014. 2. Revised Compromise worksheets (Table 1,2,3) and C 422 are attached to the revised NPA Recovery Policy. 3. Procedure for valuation of security property of NPA accounts has been brought in line with the valuation policy of the Bank. 4. Power / Authority for approving compromise proposals of NPAs has been revised. 5. Power / Authority for according sanction for extending period of compromise settlements; filing Suit / Revenue Recovery application; permitting extension of time to the bidder of security under SARFAESI sale; verification of draft plaints / RR application; permitting Waiver of Legal Actions; permitting filing / not filing of appeals against decree from Civil Courts / Debt Recovery Tribunals; and permitting partial release of securities in NPA accounts (not as part of a compromise settlement of full liability) has been revised. 6. Power / Authority to sanction NPA Recovery related expenses has also been revised. All employees of the Bank are requested to refer the revised NPA Recovery Policy and comply with the revised guidelines in matters relating to NPA recovery. Syriac Joseph Deputy General Manager

NPA Recovery Policy

NPA Recovery Policy (with effect from 01-04-2014)


Table of Contents 1. Introduction ...................................................................................................................... 4 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. Objectives ........................................................................................................................ 4 Non-Performing Assets [NPA] .......................................................................................... 4 Categories of NPA ........................................................................................................... 5 Guidelines for classification.............................................................................................. 5 Recovery function and Structure ...................................................................................... 6 Monitoring and Review of NPA accounts submission of reports .................................... 7 Follow up actions ............................................................................................................. 8 Appropriation of recovery in NPAs and interest application .............................................. 9 Valuation of securities in NPAs ........................................................................................ 9 Settlement of NPA accounts under compromise ............................................................ 10 Power/Authority to approve compromise settlement of NPAs ......................................... 15 Special Scheme for One Time Settlement [OTS] of small value NPAs ........................... 18 One Time Settlement of NPAs in Micro and Small Enterprises Sector. .......................... 19 Restructuring of NPAs .................................................................................................... 20 Right of Recompense .................................................................................................... 20 Lok Adalats .................................................................................................................... 20 SARFAESI Act Proceedings .......................................................................................... 22 Debt Recovery Tribunals and Appellate Tribunals ......................................................... 24 Recovery Camps ........................................................................................................... 24 Recovery through legal action ........................................................................................ 25 Waiver of legal action..................................................................................................... 25 Identification of Willful Defaulters and submission of reports to RBI and Credit Information Bureaus ......................................................................................................................... 26 Non Banking Assets....................................................................................................... 28 Suits / cases against the Bank relating to NPAs ............................................................. 29 Sale of NPA ................................................................................................................... 29 Power / Authority for according sanction for filing Suit / Revenue Recovery application. 29 Power / Authority for permitting Waiver of Legal Actions ................................................ 30 Power / Authority for permitting filing / not filing of appeals against decree from Civil Courts / Debt Recovery Tribunals............................................................................................. 30 Power / Authority for permitting partial release of securities in NPA accounts (not as part of a compromise settlement of full liability) ..................................................................... 31 Power / Authority to sanction NPA Recovery related expenses...................................... 32 Submission of Reports to the Board / Finance Committee / Audit Committee ................ 35 Submission of Reports to Managing Director & CEO ..................................................... 36
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NPA Recovery Policy

34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46.

Submission of Reports to Reserve Bank of India and Credit Information Bureaus ......... 36 Scope for Audit .............................................................................................................. 37 Staff Accountability ........................................................................................................ 37 Review of the policy ....................................................................................................... 38 Custodian of the policy ................................................................................................... 38 Other Policies ................................................................................................................ 38 Annexure I Eligibility Score Card [Table 1] .................................................................. 40 Annexure II - Basis for pricing [Table 2] ......................................................................... 41 Annexure III Dues and Sacrifice Computation [Table 3] .............................................. 42 Annexure IV C422 [Format of proposal for compromise settlement]............................ 44 Annexure V Format of request for OTS for small value NPAs ..................................... 47 Annexure VI - NPA Review Format [C 742 A] ................................................................ 48 Annexure VII - NPA Review Format [C 742 AB] ............................................................ 53

Federal Bank

Asset Recovery Department

NPA Recovery Policy

1. Introduction
1.1. This policy document shall be called NPA Recovery Policy.

1.2. The NPA recovery policy sets out policies and processes of the Bank for identifying and managing non-performing assets, reviewing non-performing assets and recovering the money due to the Bank. The document also sets out processes and resources for compliance of regulatory guidelines on NPAs, ongoing monitoring of such assets, and establishes authority to approve actions directly related to NPAs. 1.3. The policy envisages that the Board and the top management receive timely and appropriate information about the Banks Non-Performing Asset portfolio, including classification of Non-Performing Assets and resolution thereof. 1.4. The NPA Recovery Policy was adopted by the Board of Directors of the Bank in April 1999. The policy has been reviewed every year to keep abreast with the changes consistent with evolving business and regulatory environment.

2. Objectives
2.1. a. b. c. d. The broad objectives of the NPA Recovery Policy are as follows: Reduce stock of Non Performing Loan Assets of the Bank Maximise recovery in Non-Performing Asset accounts through consistent and continuous follow up, settlement, legal actions, sale of assets, etc. Upgrading of assets classified as NPA at the earliest by collecting past dues and / or rectification of deficiencies which lead to classification. Adhering to statutory and regulatory requirements.

3. Non-Performing Assets [NPA]


3.1. A Non-Performing Asset [NPA] is an asset, including a leased asset, loan or investment asset, which ceases to generate income for the Bank. NPA, as defined by the Reserve Bank of India in the Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances is a loan or an advance where; a. interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a term loan, b. the account remains out of order in respect of an Overdraft/Cash Credit (OD/CC), c. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, d. the installment of principal or interest there on remains overdue for two crop seasons for short duration crops, e. the installment of principal or interest there on remains overdue for one crop season for long duration crops, f. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of RBI guidelines on securitization.
Federal Bank Asset Recovery Department

NPA Recovery Policy

g. the overdue receivables representing positive mark-to-market value of a derivative contract remain unpaid for a period of 90 days from the specified due date for payment. 3.2. An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'. 3.3. Any amount due to the Bank under any credit facility is overdue, if it is not paid on the due date fixed by the Bank. 3.4. The Bank shall classify its assets as Non-Performing, strictly based on and completely adhering to the norms and guidelines issued by Reserve Bank of India, from time to time.

4. Categories of NPA
4.1. Non-Performing Assets shall be classified into the following three categories based on the period for which the asset has remained nonperforming and the extent to which realisation of the dues is possible. a. Substandard Assets - a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. b. Doubtful Assets - an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. An asset, classified as doubtful asset, is further classified as Doubtful 1 during the first year, as Doubtful 2 during the next two years and as Doubtful 3 beyond three years. c. Loss Assets - a loss asset is one where loss has been identified by the Bank or internal or external auditors or the RBI inspection, but the amount has not been written off wholly. 4.2. The classification as above need not necessarily follow the chronological order in instances where frauds are involved or where there is considerable deterioration in the value of securities.

5. Guidelines for classification


5.1. Classification of assets should be done according to the prudential norms on income recognition, asset classification and provisioning pertaining to advances, published by the Reserve Bank of India from time to time. 5.2. The Bank should not delay or postpone the identification of NPAs, especially in respect of high value accounts. The responsibility for ensuring proper asset classification shall lie with the Asset Recovery Department of the Bank. The process shall normally be system driven, with validation levels built into the accounting software. Doubts in asset classification due to any reason shall be settled by the Asset Recovery Department within one month from the date on which the account would have been classified as NPA as per extant guidelines. 5.3. The classification of an asset as NPA should be based on the record of recovery. The availability of security or net worth of borrower/ guarantor should not be taken into account for the purpose of treating an advance as NPA or otherwise.
Federal Bank Asset Recovery Department

NPA Recovery Policy

6. Recovery function and Structure


6.1. The structure of recovery function in the Bank shall be as follows:

a. Asset Recovery Department at Head Office b. Stressed Asset Management Cells attached to Zones [SAMC] c. Asset Recovery Branches [at least one in each of the Zones] d. Recovery Officers attached to Regional Office e. Branches f. External Recovery Agents

6.2. Asset Recovery Department at Head Office shall be primarily responsible for managing NPA recovery functions in the Bank as a whole. 6.3. Stressed Asset Management Cells [SAMCs] attached to each Zonal Office shall monitor the progress in recovery of NPA accounts and guide the branches in recovery measures. Each SAMC shall be responsible for the overall supervision and monitoring of recovery processes of the branches attached to it. 6.4. Principal Officers of branches and the Officers who are entrusted by the Principal Officers with the responsibility of managing NPA recovery shall be directly responsible for executing the recovery actions and upgrading NPA accounts. Every possible step shall be taken to upgrade a Non Performing Account to standard category. Branches shall initiate the recovery process immediately after an account is classified as Non-Performing and ensure that the account is upgraded to standard category at the earliest. 6.5. Zonal Head shall be responsible to ensure that the NPA recovery functions across the Zone are carried out regularly and the goals set up by the Corporate Office in NPA front are achieved. The Regional Head shall monitor, co-ordinate and control the NPA recovery functions of the respective Region. 6.6. Asset Recovery Department shall co-ordinate with SAMCs and Regional Heads and provides necessary guidance for recovery operations. 6.7. Asset Recovery Branches shall act as Nodal Offices for coordinating / follow up of all applications filed / to be filed before the Debt Recovery Tribunals and Appellate Tribunals functioning at the respective centers and also extend necessary support and guidance to branches for NPA recovery. Asset Recovery Branches shall be reporting directly to Asset Recovery Department at Head Office in all functional matters. Asset Recovery Branches shall supplement the NPA recovery efforts in the Zone as a whole, in many different manners. 6.8. The Bank shall maintain a panel of Recovery Agents for augmenting the recovery efforts of the branches, adhering to the guidelines of Reserve Bank of India and Banks outsourcing policy and policy on engagement of Recovery Agents. The Bank should have a Board approved policy for engaging external Recovery Agents for NPA recovery. The empanelment of agencies / persons as Recovery Agents shall be done centrally by Asset Recovery Department at Head Office. Asset Recovery Department shall conduct ongoing reviews of performance of Recovery Agents and submit reports to the Managing Director & CEO on a quarterly basis.

Federal Bank

Asset Recovery Department

NPA Recovery Policy

6.9. The Bank shall post its own Officers as Recovery Officers attached to its Regional Offices under the direct control of the Regional Heads. The Recovery Officers shall extend all necessary support to branches in NPA recovery and in preventing slippage of accounts to NPA category. 6.10. Corporate Office shall fix gross NPA level targets and NPA recovery targets for the Bank as a whole, and for different Zones. Zonal Offices shall distribute their targets to the Regions and Branches and take all necessary steps and measures to achieve the targets of Gross NPA level and recovery of NPAs. Asset Recovery Department at Head Office shall be responsible for the overall achievement of various targets related to NPAs, for the Bank as a whole.

7. Monitoring and Review of NPA accounts submission of reports


7.1. Non Performing Accounts of all categories with net balance up to Rs.10Lakhs shall be monitored individually by the respective SAMC. 7.2. Non Performing Accounts of all categories with net balances of Rs.10Lakhs and above shall be monitored individually by Asset Recovery Department on a continuous basis. 7.3. Branches / Regions / SAMCs / Zones shall be responsible for follow up and recovery of all NPAs, irrespective of the amount, whether technically written off or not, even though monitoring and overseeing of NPAs are segregated as shown in 7.1 and 7.2 above. 7.4. SAMC along with the Regional Head concerned shall review all NPA accounts of the branches attached to it, irrespective of the amount, at least once in a quarter. 7.5. Regional Heads shall participate in the NPA review process actively. The Zonal Heads shall oversee NPA review and ascertain progress from time to time. 7.6. Asset Recovery Department shall review all NPA accounts with net balances of Rs.10Lakhs and above on an ongoing basis. 7.7. The NPA Review Officer and the supervising official in Asset Recovery Department at Head Office shall prepare review reports for each of the NPAs with net balances of Rs.10Lakhs and above and place the same before the higher authorities for completing the review process. Once the review process is completed, the review reports shall be forwarded to the Branch and SAMC concerned for further actions. Asset Recovery Department shall follow up the progress in recovery with each of the branches / SAMCs on individual account basis. The process of review and submission of review reports shall be as follows: NPAs with net balance Up to Rs.10Lakhs Rs.10Lakhs up to Rs.25Lakhs Review Reports Review to be conducted by to be prepared by Branch concerned SAMC and Regional Head, once in a quarter. HO / ARD Head of Asset Recovery Department and another Officer of ARD not below Chief Manager, once in a quarter. HO / ARD Head of ARD and the General Manager & Chief Risk Officer, once in a quarter. Rs.100Lakhs up to Rs.500Lakhs HO / ARD The General Manager & Chief Risk Officer and one of the senior
Asset Recovery Department

Above Rs.25L upto Rs.100L

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NPA Recovery Policy

Rs.500Lakhs and above

HO/ARD

executives in DGM cadre or above in Head Office, once in a quarter. Board of Directors, through Credit Committee of the Board, once in a quarter

7.8. Individual review reports in respect of top 25 NPA borrowers with net balances up to Rs.500Lakhs in each category (Substandard, Doubtful, Loss), excluding technically written off accounts, shall be placed before the Credit Committee of the Board once in a quarter [separate memorandum for each category]. 7.9. Newly classified NPA accounts [fresh slippage] with net balance of Rs.500Lakhs and above shall be reported to the Board of Directors once in a quarter. 7.10. Asset Recovery Department at Head Office shall place a memorandum before the Board of Directors, with the details of recovery in NPAs on a quarterly basis, with particular reference to recoveries of Rs.50Lakhs and above. 7.11. Review of NPAs as above shall be done in prescribed formats. The format C742A [Annexure VI] shall be used for the review of NPAs with current net balance above Rs.1Lakh, The format C742AB [Annexure VII] shall be used for the review of NPAs with current net balance up to and including Rs.1Lakh. 7.12. Asset Recovery Department at Head Office shall place a review note before the Board of Directors, on SARFAESI and other recovery actions initiated during the period on a quarterly basis.

8. Follow up actions
8.1. Non Performing Accounts of all categories shall be directly followed up by the branches. Follow up actions shall include sending letters, meeting the borrowers in person and persuading to regularize / settle the dues, meeting co-obligants, guarantors etc and convincing them to settle the dues, etc. 8.2. It shall be ensured that the securities charged to the Bank are intact and are not alienated. Securities shall be inspected at periodic intervals and the correct value properly recorded. 8.3. Liquid securities and pledged goods shall be appropriated to reduce the balance outstanding. 8.4. If an account has become NPA due to cash flow problems, the repayment program may be re-scheduled based on the revised cash flow projections. This would enable the Bank to maintain the asset quality at the same level for one year and asset quality can be upgraded after one year, if the repayment is received as per the re-drawn schedule. 8.5. In the case of sick but viable industrial units, prospects for rehabilitation shall be looked into and nursing program be evolved. 8.6. Possibility of CDR and internal restructuring by Bank shall be explored.

8.7. The advance shall be recalled if the activity is not continuing in the expected manner or if there is evidence of diversion / siphoning of funds. 8.8. Possibility of settlement through compromise shall be explored in all cases of NPAs.
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8.9. In the case of accounts coming under priority sector, Revenue Recovery proceedings shall be initiated. 8.10. ECGC / CGTMSE claims, if any, shall be lodged with the respective agencies and followed up for early settlement of the claim. 8.11. In the case of all eligible accounts, action under SARFAESI Act shall be initiated as and when an account turns NPA. In all cases eligible for recovery actions under SARFAESI Act, demand notice under section 13(2) of SARFAESI Act shall be issued to all borrowers / coobligants / guarantors within 10 days of the account being classified as NPA. 8.12. In case all the efforts to regularize / settle the account fails or if alienation of the securities charged to the Bank is anticipated, the Bank shall resort to other legal remedies. It shall be ensured that documentation is proper and complete. Irregularities, if any, shall be got rectified before resorting to legal action. 8.13. If found necessary, SAMCs shall entrust the follow-up of an account to Recovery Agents empanelled by the Bank for augmenting the recovery efforts of branches. 8.14. If recovery / settlement of accounts is found to be difficult and time consuming, the Bank shall explore the possibility of exiting the loan through sale to ARCs / other banks / FIs. 8.15. If all avenues for recovery are exhausted, the Bank may examine the option of write off of the balance dues.

9. Appropriation of recovery in NPAs and interest application


9.1. Interest realized on NPAs may be taken to income account, provided the credits in the accounts towards interest are not out of fresh / additional credit facilities sanctioned to the borrower concerned. 9.2. In the absence of a clear agreement between the Bank and the borrower for the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest due), the accounting of recoveries in NPAs shall be based on first in first out policy; ie. the earliest entry shall be realized first. If different entries are made in the account on the same day, the realization shall be in the order of charges, interest, and principal. 9.3. On an account turning NPA, the Bank should reverse the interest already charged and not collected by debiting the Profit and Loss account. Such accrued interest and interest applied thereafter should be recorded in the suspense account Unrealized Interest in the books. For the purpose of computing Gross Advances, interest recorded in the suspense account should not be taken into account.

10.

Valuation of securities in NPAs

10.1. While conducting valuation of security properties in NPA accounts, the procedures and guidelines stipulated in the Banks Valuation Policy shall be complied with. 10.2. Valuation of security properties shall be got done by external professionals / agencies empanelled by the Bank. Such professionals / agencies should value the property, fix the value and submit reports with comments on the nature of the property, its characteristics, etc in the format prescribed by the Bank.
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10.3. Wherever valuation by external professional / agency is obtained for security properties in NPAs, the Branch Head should also visit / inspect the security properties and confirm the value reported by the external professional / agency. The branch head shall inform Asset Recovery Department and the SAMC, of any adverse comments on the value arrived at by the external valuer. Confirmation of valuation by the Branch Head shall be done in the format prescribed by the Bank 10.4. In centres where external valuers are not empanelled, valuation of security property shall be conducted by the officials of the Branch, for NPA loans and advances with net balance not exceeding Rs.10Lakhs. Valuation report in C7E shall be submitted to SAMC. 10.5. If the current net balance in NPA is Rs.2500Lakhs or above, the valuation of the security property shall be got conducted independently by two external valuers who are in the panel of the Bank. 10.6. If there is any considerable negative variation in the value of the properties compared to the previous valuation report, the Branch Head shall investigate and record the reasons for such variations and report to SAMC and Asset Recovery Department. 10.7. Wherever guideline value fixed by the government is in force, it shall be taken into consideration while valuing and the valuation shall be made in line with the guideline of valuation. 10.8. External valuers shall be rotated periodically. The property shall not be valued by the same valuer who has valued the property last time. 10.9. All security properties in the nature of Land and / or Building in NPAs shall be valued / revalued as above once in three years. However, if a proposal for compromise settlement of NPA is received from the borrower, and if the existing valuation report is more than one year old (but not older than three years), the property shall be revalued by the Branch Head and the valuation report shall be prepared in the format C7E. Report in C7E shall be submitted along with the previous valuation report which is not more than three years old. If the previous valuation report is older than three years, fresh valuation shall be got conducted as laid down in clause 10.2, 10.3, 10.4, 10.5, 10.6, 10.7 and 10.8 above. If the committee approving the compromise proposal desires so, a fresh valuation report shall be obtained, even in cases where the latest valuation was done recently. 10.10. Assessment of realizable value of Securities while considering proposals for Compromise Settlement of NPAs shall be done, as provided under clause 11 of this policy. Valuation of NPA securities shall also be based on various aspects as contained specifically in Clause 11.14 to 11.19 of this policy document.

11.

Settlement of NPA accounts under compromise

11.1. Settlement of non-performing advances under compromise shall be considered in the following circumstances: a. Borrower is not a wilful defaulter, or if the borrower is a wilful defaulter, settlement terms shall be worked out to the maximum benefit of the Bank, b. Activity of the borrower is stopped / become un-viable due to reasons beyond his control and over-dues mounting up due to application of interest / penal interest and other charges and the recovery of the debt has become doubtful,
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c. Value of primary / collateral securities is inadequate / nil, d. Means of the borrower / guarantor / co-obligant are nominal, e. All remedies available other than filing of suit are exhausted, f. Legal position of the Bank is weak, g. Legal action is expensive and time consuming and not commensurate with the amount involved, h. Borrower expired and the legal heirs approached for a settlement, i. The unit is potentially sick where rehabilitation process is not likely to yield any results, j. All possible steps for recovery have been taken and there is no considerable scope for recovery. 11.2. The negotiation shall aim at recovering maximum dues and minimizing the sacrifice. In cases where sufficient securities are available to cover the dues, the Bank shall opt for compromise, only if it is beneficial for the Bank, considering other relevant factors. 11.3. If realizable value of primary / collateral and net worth is more than 100% of the total dues as on the date of NPA, negotiation process shall not confine to the Notional Settlement Amount computed by the Bank. Actual dues as per the books shall be advised to the borrower and negotiation should start from such total/gross dues owed by the borrower. 11.4. Write off or compromise shall be resorted to, only if it is in the larger interest of the Bank. Compromise / write off decisions shall be judicious. 11.5. Proposals for compromise settlement of NPAs shall be prepared in the specified format, C 422 [Annexure IV]. 11.6. While submitting compromise/ write off proposal in accounts where claim has been received from ECGC/CGTMSE, terms and conditions stipulated by the respective body should be complied with. Prior permission / concurrence of ECGC / CGTMSE shall be obtained for compromise settlement, if claim has been received in the NPA account. 11.7. Wilful defaulters, cases wherein any type of fraud is involved and borrowers defaulting due to reasons beyond their control shall be distinguished. 11.8. All guidelines issued by Reserve Bank of India from time to time in respect of compromise settlement of NPAs shall be complied with. Compromise settlement of NPAs for an amount below the realizable value of securities shall not normally be permitted. Write off / Waiver 11.9. A compromise/negotiated settlement involves certain amount of sacrifice on the part of the Bank such as: a. b. c. d. Waiver of interest / penal interest. Reduction in the rate of interest as against the contracted rate Charging of simple interest instead of compound interest Scaling down of the debt/ write off of principal

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11.10. Write off refers to exemption of principal amount itself. Compromise settlement below the outstanding principal amount is not normally envisaged. However, in exceptional cases where the sanctioning authority is convinced that write off is inevitable under the prevailing situation, compromise settlements involving write off of a certain portion of the principal amount may also be considered, on a very selective basis. A specific note with reasons for allowing such compromise settlements shall be recorded. 11.11. In respect of NPAs in which sufficient collateral security is available, write off of full or part of the dues shall not normally be permitted. Assessment of realizable value of securities 11.12. While assessing the value of securities available, for arriving at a compromise settlement, proper weightage shall be given to its location, condition, marketable title, marketability and possession thereof. Valuation of securities in NPAs shall be done as provided under clause 10 of this document, with particular reference to clause 10.9. 11.13. If the primary/ collateral security is shared on first charge basis with other secured creditor(s), the value to be considered shall be computed on pro rata basis with respect to the principal outstanding of the said creditors. 11.14. Proper distinction shall be made between market value and realizable value of the securities. Wide variation in value of property at the time of considering the OTS/Write off compared to its valuation at the time of original sanction/renewal should be critically examined and highlighted. Earlier valuations may also be correlated/ commented in the latest valuation report. Wide variation in the valuation of securities at the time of considering the compromise proposal may negate the bargaining power/pressure on the borrower to arrive at an amount more favorable to the Bank. 11.15. Under the provisions of SARFAESI Act, sale of charged assets is much faster. Particularly in such cases, there is no justification to build discount factor while arriving at realizable value of the assets vis--vis market value. Therefore, it is important that the valuation reports are analyzed and self-assessment is made about the genuineness of the market/realizable value of the securities given by an external valuer keeping in mind the real-estate market and other attendant factors prevailing in the area, so that it proves to be an effective tool for discussion/negotiation for settlement amount. 11.16. In case it is found that due to the complex features of any of the security properties, assistance and professional advice of an external valuer is required, the branch concerned may be permitted by the Regional SAMC/Zonal Head to seek the assistance and professional advice of one of the external valuers in Banks panel, even in cases where valuation of securities by external agencies is not normally envisaged. 11.17. Valuation should also specify the value likely to be received under circumstances of forced/ distress sale. All factors/circumstances relevant and having impact on the value/chances of sale of the security property shall be examined and the valuation report should specify all positive and negative features based on which the valuation is arrived at. 11.18. Market value of securities shall be shown in all proposals for compromise settlements. 11.19. The following factors shall be considered while assessing the value of securities: a. Nature of the property - Whether commercial or residential
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b. c.

Whether the property is self-occupied or tenant occupied. If tenant occupied, since how many years the same is occupied by the present tenant. Whether the land is on lease from the Government, its agencies / authorities, whether such leased property is covered by any clause of sharing unearned increase/ profit which would result in diminutive realizable value of property Whether dispute about validity and enforceability of the security had surfaced at any stage of the negotiation/legal proceedings Demand for the underlying security in the event of its sale/ disposal and availability of ready buyers whether there are any statutory encumbrances like property tax, lease rent, development charges etc whether there is any attachment by Sale Tax/ Income Tax/ other revenue authorities and/or any Statutory/ related liabilities are pending on the property

d. e. f. g.

Eligibility score card and risk based pricing 11.20. Each of the NPA accounts proposed to be settled through compromise with the borrower shall be subjected to a mechanism to find out its risk score based on the inherent strength or weakness by computing an Eligibility Score Card. The format of eligibility score card is given in Table 1 [Annexure I]. Risk Score 0-40 41-60 61-80 81-100 Risk Rating Very High High Medium Low

11.21. Level of activity of the borrower/unit, realizable value of the primary/collateral securities, value of other securities, net worth of guarantors, status of the legal actions taken and status of SARFAESI actions taken should be given adequate weightage while computing the risk score. 11.22. Pricing shall be based on the risk score computed as above and the age of NPA. The interest rate to be applied for arriving at the Notional Settlement Amount shall be computed based on the risk score calculated as per the score card shown in Table 1 [Annexure I] and the age of the NPA as shown in Table 2 [Annexure II]. Risk Pricing Matrix is shown below: Age of NPA Risk Very High less than 365 days 366-1095 days 1096 to 1825 days More than 1825 days Base Rate Base Rate Base Rate Base Rate High Base Rate+3.5 Base Rate + 3 Base Rate + 3 Base Rate + 2 Medium Base Rate+4.5 Base Rate + 4 Base Rate + 3.5 Base Rate + 3.5 Low Base Rate+6 Base Rate+5 Base Rate+4 Base Rate+4

11.23. In the case of decreed debt accounts, simple interest at rate allowed as per decree or rate as per score card, whichever is less shall be taken for calculating the interest amount to arrive at the compromise price.
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11.24. If the current rate of interest applicable to the loan is less than the rate as per score card, simple interest at the current rate of interest shall be taken. Dues and Sacrifice Computation Concept of Notional Settlement Amount [NSA] 11.25. The Notional Settlement Amount shown in Table 3 [Annexure III] is expected to give an indication of the minimum amount to be collected from the borrower for settling the NPA account. It does not, however, mean that the Bank can be fully satisfied on realization of such amount. Actual dues of the borrower as on date of settlement shall be calculated and every attempt should be made to collect the amount required to avoid any sacrifice / loss to the Bank. Notional Settlement Amount will be considerably lower than the actual dues of the borrower and hence it cannot be treated as the preferred amount for compromise settlement. 11.26. Efforts shall be made to negotiate and secure better offer than the Notional Settlement Amount, especially where the realizable value of the security property is more than the NSA arrived at. 11.27. If the borrower, under compelling circumstances, is unable, to pay the amount arrived at on the basis of Table III, the best possible offer, depending upon merits and attendant circumstances of individual case, may be considered by the Bank as a deviation case; reasons and proper justification for the sacrifice shall be placed on record by the recommending/ sanctioning authority. 11.28. In all cases possible, lump sum remittances of the compromised sum shall be insisted. In case installment payment facility is sought for, as far as possible, maximum amount shall be collected as immediate payment at the first installment itself. 11.29. The Notional Settlement Amount/settlement amount may be different from the actual balance outstanding due to application of interest at contracted rate or allowing operations in the account or due to credit received and adjusted to interest suspense in the system, etc. The amount to be waived in such cases will be different from that allowed in the compromise. In such cases Zonal Head may permit the branches to close the account by accepting the compromise amount in the case of compromises approved by the Zonal Level Committee. In all other cases, such permission shall be obtained from HO/ARD. The balance amount, if any, remaining in the account may be reversed from P& L A/c. 11.30. There may be cases where the offer amount is higher than the Notional Settlement Amount, but less than the actual dues as per decree/ the account balance as per the contract etc. In such cases as party is offering an amount higher than the Notional Settlement Amount, there is no sacrifice as per Table III. However, as the amount offered is less than the actual dues, Zonal Head may, subject to merits, permit the branch to treat the account as closed waiving the balance dues after adjusting the compromise amount, even in cases where the compromise was approved by HO. 11.31. In cases where suits/OAs are pending (not decreed) before courts/ DRTs, the branch concerned should explore the possibility of getting the compromise recorded by the Court/DRT by filing a Joint Memo of Compromise and to draw a compromise decree incorporating the terms of compromise with a default clause entitling the Bank to recover the entire Suit/OA claim in the event of the failure of the borrowers to settle the account, as per terms of compromise. Even in cases where lump sum / part payment is received, memo shall be filed in the court / DRT.
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11.32. If the compromise amount is less than the current net balance, credit for the difference amount shall be obtained by the branch concerned from Asset Recovery Department, for write off, forwarding the full details of approval of the compromise. 11.33. In cases where the borrower makes part remittances towards down payment / installments and interest suspense in the account got wiped off, resulting in increase in write off amount as against the terms of sanction, Regional SAMC may permit the Branch concerned to reverse the amount from the P&L account, as there is no actual write off. 11.34. In cases involving consortium advances, the Bank's decision should be the result of an independent analysis. 11.35. Release of one or more of the security properties before the full settlement of the liability may be allowed by the compromise approval committee as part of the compromise process, after ensuring that value of the remaining securities will be sufficient enough to cover/recover the remaining amount due to the Bank. Current realizable value of the securities proposed to be released, amount proposed to be remitted for releasing the securities, current realizable value of the remaining securities and balance amount due to the Bank after releasing the securities should be the criteria to be taken into account for release of securities. Title, enforceability, marketability etc. of the remaining securities should be examined before decisions are taken for release of any securities. Partial release of securities not as part of compromise settlement of full liability shall be based on norms prescribed under clause 30 of this document. 11.36. In cases where the same borrowers different accounts are being considered for compromise settlement, the sacrifice computation shall be made for each of such accounts separately and a consolidated position shall be shown in the compromise proposal [C 422]. 11.37. Branches/Offices shall seek clarifications from HO/ARD, wherever required, and act upon on the guidelines issued by ARD, wherever there is scope for different interpretation of any of the clauses of the compromise rules. 11.38. The Managing Director & CEO shall, if found necessary, amend and approve the methodology of computing the Notional Settlement Amount by bringing in appropriate changes in the eligibility score card, computation of minimum amount of interest to be collected and computation of dues and sacrifice, except in critical factors affecting the value of settlement amount and the power / authority granted by the Board to approve compromise settlements. 11.39. Compromise settlements approved shall specify a last date for settling the dues by the borrower. Compromise terms will not be valid thereafter. Branches should send letters to borrowers withdrawing the compromise offer, immediately after the expiry of settlement date. 11.40. Any request from branches to completely write off the balance outstanding in NPA accounts, as there is no possibility of recovering any amount thereof, shall be processed and disposed off, based on the computations worked out in Table 1, Table 2 and Table 3 of the compromise procedure and the power / authority to approve compromise proposals. 11.41. Amount of write-off and total sacrifice shall be computed based on the Notional Settlement Amount computed for compromise settlement using Table 3 [Annexure III].

12.

Power/Authority to approve compromise settlement of NPAs

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12.1. The proposals for compromise settlement of NPAs or complete write off of balance due shall be examined by various committees as per the chart shown below and approval may be granted, subject to merits of each of the cases. SL No Approval Committee Members Total sacrifice on

compromise as per Table III

settlement

Zonal

1. Zonal Head 2. An Officer of the Zonal Office, not Committee below the rank of Chief Manager 3. An Officer of the Zonal Office, not below the rank of Manager (Admn) HO/ARD level 1. The General Manager & Chief Risk Officer Committee 2. DGM of Asset Recovery Department 3. An Executive in HO not below the rank of DGM(other than ARD) as nominated by MD& CEO HO/Senior 1. Executive Director 2. The General Manager & Chief Risk Management Officer Committee 3. Two of the senior Executives in DGM cadre or above in Head Office (other than ARD) as nominated by the MD & CEO Quorum - Presence of at least 3 members; either Executive Director or the General Manager & Chief Risk Officer shall

level

Maximum Rs 7.50 L, out of which write off should not be more than Rs 1.50 L

Maximum Rs 50 L, out of which write off should not be more than Rs 10 L

Maximum Rs 150 L, out of which write off should not be more than Rs 30 L

essentially be present. 4 HO/Managing 1. Managing Director 2. Executive Director Director & 3. The General Manager & Chief risk CEO level Officer committee 4. One of the senior Executives in DGM cadre or above in Head Office (other than ARD) as nominated by the MD & CEO. Presence of at least 3 members; if MD & CEO is not present, post approval Maximum Rs 250.00 L, out of which write off should not be more than Rs 50 L

concurrence of MD & CEO should be obtained. 5 Credit Committee of the Board Maximum Rs 500 L, out of which write off should not
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be more than Rs 100 L 6 Board of Directors Any proposals beyond the powers of the Finance

Committee 12.2. The Zonal Level Committee, HO/ARD level committee, HO/Senior Management committee shall approve a compromise proposal, only if all the three members arrive at a unanimous opinion and decision, failing which, the proposal shall be placed before the next level committee for consideration. The senior most member of the committee shall be the Head of the compromise approval committee 12.3. Proposals for compromise settlements of NPAs, in which the total sacrifice/write off is beyond the power/authority of the Zonal Level Committee should be referred to Head Office/Asset Recovery Department for placing before the relevant committee. 12.4. The Zonal Level Committee does not have the power/authority to approve compromise proposals in cases where any type of fraud or malpractice is involved. All such cases shall be referred to the next level committee in Head Office, irrespective of the amount. 12.5. In cases where the loan became NPA within 2 years of its first disbursal, Zonal Level Committee may sanction compromise proposals, only if the sanctioned limit was not more than Rs.10Lakhs. All other proposals shall be submitted to Head Office/Asset Recovery Department. 12.6. If the realizable value of securities is more than 125% of the total amount due from the borrower as on date of the proposal and the net balance as on NPA date is Rs.10Lakhs or above, the compromise settlement will not fall under the power / authority of the Zonal Level Committee and hence the proposal shall be submitted to Asset Recovery Department. 12.7. Any write off over and above Rs 10000/- in respect of Gold loans and Agri Gold Loans shall be permitted only at Head Office level, subject to the power/authority for permitting write off. 12.8. All compromise proposals placed before the HO Level Committees should bear the views and recommendations of the Branch and Regional SAMC concerned, the Zonal Head and Head Office/Asset Recovery Department. All compromise proposals placed before the Zonal Level Committee should bear the views and recommendations of the Branch and Regional SAMC concerned. 12.9. Compromise settlements approved by Zonal Level Committee should be reported to Asset Recovery Department/Head Office for noting, on a consolidated basis every fortnight. Compromise settlements approved by ARD level committee should be reported to MD & CEO for noting, on a monthly basis. Compromise settlements approved by Senior Management Committee or MD & CEO level committee should be reported to the Credit Committee of the Board on a quarterly basis. 12.10. Zonal Heads may extend date of compromise settlement approved under the delegation of the Zonal Level Committee for a maximum period of 12 months, provided interest for delayed period is collected @ current Base Rate plus 5% (minimum) 12.11. Head of HO / Asset Recovery Department may extend the period of any of the compromise settlements for 24 months with the stipulation of the interest for delayed period at current Base Rate Plus 5% (minimum).
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12.12. General Manager in charge of Recovery functions in HO may, on a case to case basis and depending up on merits, waive interest for delayed period, either fully or partially, for any of the compromise settlements approved by any of the committees / Board. 12.13. No compromise settlement approved earlier shall be treated as valid on expiry of 24 months from the due date specified earlier. Fresh proposal for settlement shall be worked out, subject to the norms prevailing as on the date of new proposal. 12.14. If the loan for which compromise settlement is proposed had been originally sanctioned or last renewed by the Head of the compromise approving committee earlier, in his individual capacity, the compromise proposal should be submitted to the next level committee for consideration. 12.15. Power /Authority granted herein above shall be used by the respective authorities most judiciously. Decisions of the committee shall be fully based on merits; no compromise settlement shall be approved for the sole reason that it otherwise falls within the powers of the committee, amount wise.

13.

Special Scheme for One Time Settlement [OTS] of small value NPAs

13.1. To reduce the stock of small value NPAs, Asset Recovery Department shall periodically announce Special Scheme for One Time Settlement of small value NPAs including Technically Written Off accounts and suit filed/decreed debt /RR initiated accounts, with current net balance up to and including of Rs.100,000/-. Accounts classified and remained as NPA in the books of the Bank for a minimum period of 1 year as on the date of proposal for OTS shall be treated as eligible to be included under such OTS Scheme. 13.2. While announcing the OTS Scheme, the date of commencement and date of expiry of the Scheme shall be invariably specified. Once the Scheme is announced, Branches shall immediately identify the eligible borrowers, meet them and persuade them to settle the accounts through the Scheme. 13.3. Branches shall submit the proposal for OTS in the prescribed format [Annexure V] to the Regional SAMC concerned. 13.4. Branches shall try to get all accounts eligible under the scheme settled in a phased manner, without waiting till the expiry of the scheme. 13.5. In the case of suit filed accounts, Branches / Regional SAMCs may seek the assistance of the respective advocates for effective out of court settlement. In pending suits, wherever possible, refund of court fee shall also be obtained by recording the compromise. 13.6. Only such accounts in which no fraud is involved or suspected shall be considered for settlement under this scheme. If the borrower concerned is related to any of the employees of the Bank, OTS shall not be considered. 13.7. The accounts which come under any debt waiver scheme approved by the Government shall not be considered for OTS under this scheme. Subsidy, if any, shall not be treated as part of the compromise amount. 13.8. Accounts in which compromise under any other scheme/policy has been sanctioned earlier shall not be considered under this Scheme.

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13.9. Accounts in the names of any of the present or former employees of the Bank or accounts in which any of the present or former employees of the Bank is co-obligant or guarantor shall not be considered for compromise under the Scheme. 13.10. Terms of settlement: Period for which Minimum amount for settlement # the account Secured Loans Unsecured Loans

remained as NPA 1 year and above up to and including 3 years Above 3 years up 70% of the net balance to and including 5 years Above 5 years 60% of the net balance 35% of the net balance 50% of the net balance 80% of the net balance 65 % of the net balance

# The amount stipulated is the minimum required for OTS. Branches/ SAMCs shall endeavor to recover the maximum amount for settlement. Net balance means net balance as on the date of compromise proposal. 13.11. Staff accountability in respect of such accounts shall be considered by the SAMC on the strength of the particulars available in the OTS format and a serious view needs to be given, only in respect of cases in which any fraud or malpractices or unethical practices are found to have been involved or mala fides are suspected. Zonal Heads may take appropriate decisions in all other cases. Branches need not be advised to submit staff accountability reports separately. 13.12. Zonal Offices shall allow one time settlement of eligible accounts, based on the general norms prescribed above. A Committee consisting of the Zonal Head and another two officers of the Zonal Office, one of whom should be an officer not below the rank of Senior Manager, shall grant sanction for one time settlement of eligible accounts. 13.13. All such cases of OTS allowed by the Zonal Office shall be reported to Asset Recovery Department at Head Office for noting, on a fortnightly basis. A copy of the OTS proposal cum Sanction Order should be forwarded to Asset Recovery Department at Head Office. 13.14. Calculations and computations prescribed for compromise settlement of NPAs ( Table 1,2,3 ) need not be done for one time settlement of small value NPAs as covered herein above.

14.

One Time Settlement of NPAs in Micro and Small Enterprises Sector.

14.1. In order to extent timely and adequate assistance to potentially viable Micro and Small Enterprises (MSE) units which have already become sick or are likely to become sick, the Bank shall announce from time to time, Scheme for One Time Settlement [OTS] of NPAs in Micro and Small Enterprises Sector, as per the guidelines issued by Reserve Bank of India. 14.2. This shall be a non-discretionary and non-discriminatory scheme, applicable for units originally classified as Micro or Small Enterprises at the time of granting the credit facility.

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14.3. Cases of fraud, malfeasance and willful defaults shall not be eligible to be included under the Scheme. 14.4. The terms of the Scheme shall be as per the guidelines issued by Reserve Bank of India from time to time.

15.

Restructuring of NPAs

15.1. The Bank, for economic or legal reasons relating to the borrower's financial difficulty, may permit restructuring of Non-Performing Assets classified as 'substandard' and 'doubtful' categories. Restructuring would normally involve modification of terms of the advances / securities, which would generally include, among others, alteration of repayment period / repayable amount/ the amount of installments / rate of interest (due to reasons other than competitive reasons). 15.2. Accounts of borrowers indulged in frauds and malfeasance shall not be eligible for restructuring. 15.3. Prior permission from HO / Asset Recovery Department shall be obtained for restructuring or rescheduling of NPA accounts. After obtaining permission from Asset Recovery Department, the respective Business Department, Regional Credit Hub or National Credit Hub may process and take appropriate decisions on the proposal for rescheduling / restructuring. 15.4. Bank shall not restructure accounts with retrospective effect. While a restructuring proposal is under consideration, the usual asset classification norms would continue to apply. The process of NPA classification of an asset should not stop merely because restructuring proposal is under consideration. The asset classification status as on the date of approval of the restructured package by the competent authority would be relevant to decide the asset classification status of the account after restructuring / rescheduling / renegotiation. 15.5. Reserve Bank of India guidelines for restructuring of loan accounts shall be strictly followed while restructuring NPA accounts. 15.6. BIFR cases are not eligible for any types of restructuring without the express approval of BIFR. 15.7. The Bank shall participate in the CDR Mechanism wherever found appropriate. Wherever the Bank is the lead institution / major stakeholder, it shall take the responsibility to work out a preliminary restructuring plan in consultation with other stakeholders and submit to the CDR Cell.

16.

Right of Recompense

16.1. The Bank extends concessions, compromise settlements, restructuring, etc to its borrowers, based on the operating status of the loan account / unit, financial position, income generation and repayment capacity of the borrower / guarantor, etc. The Bank should incorporate a Right of Recompense clause in the sanction letter and other documents, while approving concessions, compromise settlements and restructuring, to the effect that when such borrowers / units turn the corner and rehabilitation is successfully completed, the sacrifices undertaken by the Bank should be recouped from these borrowers / units out of their future profits/cash accruals.

17.

Lok Adalats
Asset Recovery Department

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17.1. Lok Adalat is a legally constituted authority, for resolution of disputes through conciliation. It functions under the aegis of State, District and Taluk Legal Services Authorities headed by judges from High Court, District court and senior most Judicial Officer within the Taluk respectively. Lok Adalats attempt to settle both pending suit filed cases as well as pre litigation cases. Lok Adalats grant awards, which are treated as decree and can be straight away executed in a court of law. 17.2. If there is scope for early settlement of NPA accounts by referring to Lok Adalat, the Bank may file an application before the Secretary of the High Court Legal Services Committee / Secretary of the District Legal Services Authority / Chairman of the Taluk Legal Services Committee organizing the Lok Adalat for referring those NPA accounts to the Lok Adalat, in states where the system is in place. 17.3. In the case of suits pending before court or applications pending before DRT, the Bank may refer to Lok Adalat by making an application to the court / DRT, wherever applicable and permissible. 17.4. Settlements arrived at Lok Adalats generally involve granting of concessions. The Bank shall arrive at a suitable decision in accordance with the terms laid down in this document for compromise settlements. 17.5. At the time of settlement, lumpsum remittance of the compromise amount shall be insisted. If, in any case, deferred payment is permitted, such period shall not exceed three years, with provision for payment of interest for the full period. 17.6. The award made by a Lok Adalat is final and binding on all parties to the dispute, and no appeal will lie to any court against the award. It shall be ensured that the award is properly drawn. The details of each item of securities including mortgaged properties, if any, should be drawn as a separate schedule to the award and charge over the scheduled properties should be specifically mentioned in the body of the awad. There shall be a default clause in the award enabling the Bank to recover the entire amount due as on date with interest and cost personally from borrowers / co-obligants / guarantors and also by sale of the security properties. 17.7. In case the borrowers do not pay within the stipulated period the dues to the Bank in terms of the compromise recorded in the award of the Lok Adalat, Bank shall file application before the Court / DRT concerned as per the terms of the default clause therein. 17.8. No court fee is payable for referring any matter or case, including pre litigation matter, to the Lok Adalat. Where a compromise or settlement is arrived at by a Lok Adalat in a case referred to it by a Court, the court fee paid in such cases shall be got refunded, wherever applicable. 17.9. In view of the fact that the settlement of accounts through Lok Adalat attracts no litigation expenses and enables the Bank to realize the dues without much delay, Bank shall make use of the opportunities for settling maximum number of irregular accounts through Lok Adalats. 17.10. Once the period for settlement as prescribed in the Award expires and the liability is not settled either fully or partially by the borrower, the Bank shall advise the borrower that the terms of the Award are no more valid and start recovery actions forthwith, based on the default clause contained in the Award. The NPA shall not be allowed to be settled based on the expired Award, with the same terms and conditions or even with interest for delayed period. New compromise formula shall be arrived at by discussing with the borrower, to the advantage of the Bank or without extra loss to the Bank.
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18.

SARFAESI Act Proceedings

18.1. The Bank shall initiate the provisions of Enforcement of Security Interest under SARFAESI Act 2002 in all applicable cases immediately after an account is classified as NPA. 18.2. As and when any secured loan account, where the provisions of SARFAESI Act 2002 are applicable, is classified in the books of the Bank as NPA, the Bank shall require the borrower by notice in writing (as per Sec 13(2) of the Act) to discharge in full the borrowers liabilities to the Bank within sixty days from the date of notice and advise that the Bank would otherwise be entitled to exercise all or any of the following rights under section 13(4) of the Act: a. b. c. d. Take possession of the secured assets of the borrower including right to transfer by way of lease, assignment or sale for realising the secured asset; Take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; Appoint any person to manage the secured assets the possession of which has been taken over by the Bank; Require at anytime by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the Bank, so much of the money as is sufficient to pay the secured debt.

18.3. The right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt. Where the management of the whole of the business or part of the business is severable, the Bank may take over the management of such business of the borrower which is relatable to the security or loan. 18.4. The notice issued under section 13(2) of the Act shall give the details of the amount payable by the borrower and the secured assets intended to be enforced by the Bank in the event of non-payment of the loan by the borrower. If on the receipt of the notice, the borrower makes any representation or raises any objection and if the Bank comes to the conclusion that such representation is not acceptable or tenable the Bank shall communicate within 15 days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower. 18.5. Where any action has been taken by the Bank against the borrower under provisions of section 13(4) of the Act as mentioned above, all costs, charges and expenses properly incurred by the Bank or any expenses incidental thereto, shall be recoverable from the borrower. Any amount received by the Bank towards the accounts of the borrower shall, in the absence of any contract to the contrary, be applied firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the Bank and the residual amount shall be paid to the person entitled thereto in accordance with his rights and interests. 18.6. If the dues of the Bank together with all costs, charges and expenses are tendered to the Bank at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the Bank, and no further steps shall be taken by the Bank for transfer or sale of that secured asset.

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18.7. Where the dues to the Bank are not fully satisfied with the sale proceeds of the secured assets, the Bank may file an application to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for the recovery of the balance amount from the borrower. 18.8. The Bank may proceed against the borrowers / guarantors or sell the pledged assets without taking any measures under section 13(4) of SARFAESI Act in relation to the secured assets under this act. 18.9. The rights of the Bank under this act shall be exercised by the Officers of the Bank in the rank of Chief Manager or above authorized in this behalf by the Bank. 18.10. Where the possession of any secured asset is required to be taken by the Bank or if any of the secured asset is required to be sold or transferred by the Bank under the provisions of SARFAESI Act 2002, the Bank may for the purpose of taking possession or control of any such secured asset, if required, request in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof. 18.11. When the management of business of borrower is taken over by the Bank, the Bank may, by publishing a notice in a newspaper published in English and in a newspaper published in an Indian Language in circulation in place where the principal office of the borrower is situated, appoint as many persons as it thinks fit to be directors of that borrower, if the borrower is a company as defined in the Companies Act, 1956; or to be the administrator of the business of the borrower, in any other case. 18.12. For initiating actions under SARFAESI Act, in all eligible and applicable NPA accounts including suit filed, pending/decreed accounts, branches need not obtain permission from higher authorities. However, the proceedings under the Act can be initiated only by an Authorised Officer, not below the rank of Chief Manager. Branches where Principal Officer is below the rank of Chief Manager shall get the assistance / guidance from the respective SAMC, Regional Office or Asset Recovery Branch for initiating SARFAESI Act proceedings. 18.13. In case a successful bidder, in an auction conducted under SARFAESI proceedings, approaches the Bank for time beyond the permissible period to remit the balance portion of the bid amount, the Bank may selectively permit so, at its absolute discretion, provided, the bidder agrees to pay interest for the period of delay. No extension of time to remit the initial amount (first part of the bid amount) shall be granted under any circumstances. Authority to permit extension of time to remit the second part of the bid amount or any portion thereof shall be as follows: Authority (a) Zonal Head Extension of time Full settlement within 3 months from the date of auction, with interest for delayed period at Banks current Base Rate + 5% Full settlement after 3 months but before 12 months from the date of auction, with interest for delayed period at rate not less than Banks current Base Rate + 5%

(b) Head of Asset Recovery Department

(c) General Manager in charge of Asset Any other cases not coming under (a) or (b)
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Recovery function / Chief Risk Officer

above.

18.14. The Bank through any of its officers so authorized is entitled to bid the immovable property at any subsequent sale under SARFAESI, where the sale of the property has been postponed for want of a bid, for an amount not less than the reserve price.

19.

Debt Recovery Tribunals and Appellate Tribunals

19.1. For recovery of loans involving Rs.10Lakhs or more, the Bank shall submit to the Debt Recovery Tribunal (DRT) of competent jurisdiction in the prescribed form and manner as stipulated in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and DRT (Procedure) Rules, 1993. 19.2. Accounts for which suit is to be filed before the DRT at places where the Bank has Asset Recovery Branches shall be transferred to the respective Asset Recovery Branch with the permission of Asset Recovery Department at Head Office. Asset Recovery Branch may conduct the case directly through Banks Legal Officers or entrust to panel Advocate having regular practice at the place where the Tribunal is functioning in consultation with SAMC and HO / Asset Recovery Department. 19.3. New cases to be filed before DRT situated at places where the Bank does not have Asset Recovery Branch may be entrusted with a panel Advocate having regular practice at the place where the Tribunal is functioning in consultation with SAMC and HO / Asset Recovery Department. 19.4. The primary responsibility for the follow up of matters transferred to or filed before the DRT will be with the Asset Recovery Branch and in the absence of Asset Recovery Branch , with the respective branch where the account is maintained. The branch shall report progress / position of the cases pending before the DRT / Appellate Tribunal to Asset Recovery Department under copy to SAMC. 19.5. Asset Recovery Department at Head Office shall issue necessary administrative guidelines to Asset Recovery Branches / Other Branches about conducting of suits before the DRTs, from time to time.

20.

Recovery Camps

20.1. After completing review of NPAs every quarter, the Regional Head concerned, with the support of SAMC and in consultation with the Zonal Head shall organize and conduct Recovery Camps at selected branches to mobilize recovery. Recovery camps may be conducted at individual branches or a cluster of branches depending on the number of accounts. Principal Officers of branches participating in the camp along with Officers from SAMC and Regional Office shall attend the camp. 20.2. During quarterly review of NPA accounts, branches shall identify borrowers to be called for recovery camps and educate them about the benefits of settling the accounts through the recovery camps. 20.3. All NPA accounts are eligible to be brought in to the camps, irrespective of the amount involved and nature of NPA / activity.
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20.4. In principle compromise agreement may be reached at in the camps, which shall be taken up with the respective Committee immediately for approval. 20.5. Zonal Offices shall supervise the timely conduct of recovery camps. Recovery through legal action

21.

21.1. Recovery through legal action is an expensive and time-consuming process. The Bank should resort to legal recourse, only after exhausting all other remedies available for getting the accounts settled. 21.2. Before initiating legal action for recovery of the amount due under the irregular loan accounts, it shall be ensured that the loan documents such as DPN, Agreements, Balance confirmations/acknowledgements, letter of request confirming creation of EM etc. available are properly filled in and executed by the parties concerned. 21.3. The appropriate legal action for enforcement of loan documents and security charges for recovery of dues shall be initiated before the expiry of the period prescribed under the law of limitation. The Limitation Act prescribes the period within which rights can be enforced through a Court of Law. 21.4. Application for permission to initiate legal action shall be submitted in the format C.145 to the authority empowered to grant permission through Regional SAMC concerned. 21.5. No legal action through a court of law need be initiated against borrowers for loans with dues not exceeding Rs.10000/- , in view of the costs / expenses involved therein. 21.6. While engaging advocates for filing suits for recovery of NPAs paramount importance shall be given to the ability of the Advocate in handling the matters and quality of service. The principal officer of the branch concerned shall, depending upon the amount and question of law involved in the matter may engage one of our panel Advocates regularly practising before the Court to file the Civil Suit on behalf of the Bank and entrust with him the loan documents, title deeds and the copies of the extract of the ledger of the loan A/c concerned duly certified under the Bankers Books Evidence Act sufficiently early and obtain acknowledgement for the same. 21.7. All possible / required steps shall be taken to identify other assets of the borrowers / coobligants / guarantors and to attach such assets through courts of law, to protect the interest of the Bank. 21.8. SAMCs shall monitor the distribution of cases among the panel advocates by the branches to ensure that large number of cases is not entrusted with any of the Advocates.

22.

Waiver of legal action

22.1. Waiver of legal action shall be granted only in exceptional cases where there is no scope for recovery by initiating legal actions such as filing of Civil Suit / application before DRT for the reason that there is no security or attachable assets in the name of the borrowers / co-obligants / guarantors or Revenue Recovery Proceedings proposed to be initiated / pending is more effective or litigation expenses are likely to exceed the dues to be recovered. 22.2. Sanction for waiver of legal action shall be obtained from the Competent Authority [Clause 28] by submitting the format C-743 in all deserving cases, irrespective of the fact that RR
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proceedings are pending or not, before the expiry of time limit prescribed under law of limitation for initiating legal action. 22.3. Branches need not obtain waiver of legal action in those accounts where RR proceedings are pending, provided the amounts due to the Bank inclusive of un-applied interest do not exceed Rs. 10, 000.00 either at the time of initiation of RR proceedings or on the date on which enforceability of the loan documents will get time-barred. 22.4. The branches may also seek waiver of legal action in deserving cases while submitting C145 seeking permission to initiate Revenue Recovery Proceedings. 22.5. The authorities concerned shall exercise their powers for waiver of legal action [clause 28], only if the following conditions are satisfied: a. The authority approving the waiver of legal action was not the person who sanctioned the credit facility in his / her individual capacity. b. No security is available. There are no securities/assets that can be attached through suit proceedings and/or enforceability of available assets/securities is doubtful and/or the cost of recovery proceedings is likely to exceed the dues. c. The borrowers / co-obligants / guarantors do not have sufficient net worth / attachable assets or such course of actions are not likely to yield results due to specific reasons. d. Securities are not enforceable for specific reasons; statutory dues and attachments thereof are huge which reduces the scope of realization of dues even if legal actions are initiated. e. The ECGC/CGTMSE guarantee, if applicable, has been invoked or shall be invoked as soon as the lock-in-period is over. Permission from ECGC / CGTMSE shall be obtained for waiver of legal action. f. All steps except legal action are taken to recover the dues and there is no further prospect of recovery and hence waiver of legal action is found to be desirable.

22.6. Wherever possible and feasible, Revenue Recovery proceedings shall be initiated before waiver of legal action is sought for. 22.7. Branches may put up application for waiver of legal action without initiating Revenue Recovery actions or if the amount received through Revenue Recovery proceeding is not sufficient to clear the dues, if there are no attachable assets. The fact that there are no attachable assets needs to be certified by the Branch Head on the application submitted.

23.

Identification of Willful Defaulters and submission of reports to RBI and Credit Information Bureaus A wilful default would be deemed to have occurred, if any of the following events is noted: a. b. The borrower / unit has defaulted in meeting his / its payment / repayment obligations to the Bank even when it has the capacity to honour the said obligations. The borrower / unit has defaulted in meeting his / its payment / repayment obligations to the Bank and has not utilised the finance from the Bank for the specific purposes for which finance was availed of, but diverted the funds for other purposes.
Asset Recovery Department

23.1.

Federal Bank

NPA Recovery Policy

27

c.

The borrower / unit has defaulted in meeting his / its payment / repayment obligations to the Bank and has siphoned off the funds and the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets. The borrower / unit has defaulted in meeting his / its payment / repayment obligations to the Bank and has also disposed off or removed the movable fixed assets or immovable property without the knowledge of the Bank.

d.

23.2. Diversion of funds, referred to above, would be construed to include any one of the undernoted occurrences: a. b. c. d. e. f. Utilization of short-term working capital funds for long term purposes not in conformity with the terms of sanction; Deploying borrowed funds for purposes / activities or creation of assets other than those for which the loan was sanctioned; Transferring funds to the subsidiaries / group companies or other corporates by whatever modalities; Routing of funds through any other bank or members of consortium without prior permission of the Bank; Investment in other companies by way of acquiring equities / debt instruments without approval of the Bank; Shortfall in deployment of funds vis--vis the amounts disbursed / drawn and the difference not being accounted for.

23.3. Siphoning of funds, referred above, should be construed to occur if any funds borrowed from the Bank are utilized for purposes not related to the operations of the borrower, to the detriment of the financial health of the entity or of the Bank. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgement of the Bank based on objective facts and circumstances of the case. 23.4. The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate and calculated. 23.5. Bank has to report the cases of wilful default with outstanding aggregate balance of Rs.25Lakhs and above on a quarterly basis to Reserve Bank of India and Credit information Bureaus. 23.6. Reserve Bank of India stipulates that no additional facilities should be granted by any bank / FI to the listed wilful defaulters. In addition, the entrepreneurs / promoters of companies where banks / FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from scheduled commercial banks, Development Financial Institutions, Government-owned NBFCs, investment institutions, etc. for floating new ventures for a period of five years from the date the name of the wilful defaulter is published in the list of wilful defaulters by the RBI. 23.7. The Bank shall identify Wilful Defaulters on a quarterly basis by following the procedure shown below. Asset Recovery Department shall co-ordinate the process of identifying Wilful Defaulters.
Federal Bank Asset Recovery Department

NPA Recovery Policy

28

a.

Each of the branches shall identify wilful default accounts as on 30th June, 30th September, 31st December and 31st March every year and convey the details to the SAMC concerned. SAMCs shall obtain the reports from branches and forward to the Zonal Office, with its comments, for onward submission to Asset Recovery Department at Head Office, with the views and recommendations of the Zonal Head. Asset Recovery Department shall submit the consolidated details and submit a report to the Committee of Executives for Identification of Wilful Default [read 23.8] Once the Committee of Executives for Identification of Wilful Default decides to treat a borrower / unit under wilful default, Asset Recovery Department shall advise the branch concerned for issuing notice to the borrower concerned. A format for issue of notice shall be specified by Asset Recovery Department. As per RBI stipulations, the borrowers shall be given 15 days of time to represent their grievances, if any, before the Grievance Redressal Committee in Head Office [read 23.9]. If any such representation is received, the Grievance Redressal Committee in Head Office shall examine the same and take appropriate decisions. Asset Recovery Department shall be responsible for submission of the reports to Reserve Bank of India and Credit Information Bureaus, from time to time.

b.

c. d.

e.

f. g.

23.8. The Committee of Executives for Identification of Wilful Default shall consist of the Executive Director/CRO and two Senior Executives not below the rank of Deputy General Manager. 23.9. The Grievance Redressal Committee shall consist of the Managing Director & CEO and two Senior Executives not below the rank of Deputy General Manager, who were not members of the Committee for Identification of Wilful Default.

24.

Non Banking Assets

24.1. A Non-Banking Asset is a property acquired by the Bank in satisfaction of a claim. In exceptional cases, when there are no external bidders for purchasing properties put for auction / sale through Court or Tribunal or SARFAESI proceedings, in satisfaction of Banks claim towards liabilities of a borrower, the Bank may participate in the auction and bid the property in its name. The property so acquired is treated in the books of the Bank as Non-Banking Asset 24.2. Generally the Bank is interested only in recovering the dues and not in acquiring NonBanking Assets. All efforts shall be taken to get the accounts settled. Bank shall acquire NonBanking Assets, only in exceptional cases when all possible avenues for recovery are exhausted and there are no external purchasers for the property. 24.3. Administration and maintenance of Non-Banking Assets shall be strictly in terms of the provisions of Banks Policy for Acquisition and Maintenance of Non-Banking Assets. 24.4. Asset Recovery Department/Head Office shall have the responsibility of supervising and monitoring all Non-Banking Assets of the Bank. Asset Recovery Department shall review all non banking assets at least once in a quarter and shall place the review report before the Managing Director & CEO every quarter
Federal Bank Asset Recovery Department

NPA Recovery Policy

29

25.

Suits / cases against the Bank relating to NPAs

25.1. The Bank cannot rule out situations where some of the borrowers, co-obligants, guarantors, their relatives or even persons who are not connected in any manner with loan accounts filing petitions / suits / cases against the Bank and / or its Directors / Officials alleging actions detrimental to them. 25.2. Applications or appeals filed against suits / cases filed by the Bank or against various recovery actions initiated by the Bank including actions under SARFAESI Act proceedings do not, however, fall under this category of suits / cases against the Bank. 25.3. Asset Recovery Department at Head Office shall be responsible for pursuing and conducting suits / cases filed against the Bank, relating to Non-Performing Assets. 25.4. Asset Recovery Department at Head Office shall place before the Managing Director & CEO, a report of review, covering all such cases, on a quarterly basis.

26.

Sale of NPA

26.1. When the recovery of any of the Non-Performing Assets through normal methods becomes difficult or time consuming, the Bank shall explore the possibilities of selling such assets to Securitisation Companies [SC], Assets Reconstruction Companies [ARCs], other Banks, Financial Institutions, etc, as provided under Banks Policy on Sale of Non-Performing Assets and other regulatory / statutory laws and guidelines. 26.2. SARFAESI Act allows acquisition of financial assets by SC/ARC from the Bank on mutually agreed terms and conditions. 26.3. Asset Recovery Department of the Bank shall identify NPAs for sale, as a part of Banks on-going efforts to reduce the Non-Performing Assets, on a quarterly basis or even at shorter frequencies. 26.4. List of such NPAs identified for sale shall be placed before the Managing Director & CEO from time to time and the Managing Director & CEO may, considering the merits of the case, grant approval for inviting bids from ARCs/Banks/FIs/NBFCs, as the case may be. 26.5. The entire process of sale of NPAs shall be subject to satisfaction of the norms contained in the Banks Policy on Sale of Non-Performing Assets. 26.6. Asset Recovery Department at Head Office shall place before the Managing Director and CEO a report on the position of Security Receipts subscribed by the Bank on sale of NPAs to Asset Reconstruction Companies, on a quarterly basis.

27.

Power / Authority for according sanction for filing Suit / Revenue Recovery application. Authority for permitting filing of suit / Initiating actions under Revenue

Total amount due to the Bank from the Borrower as on date Up to and including Rs.25Lakhs Above Rs.25Lakhs up to Rs.50Lakhs.
Federal Bank

Recovery proceedings Head of SAMC, not below Chief Manager Zonal Head
Asset Recovery Department

NPA Recovery Policy

30

Rs.50Lakhs up to Rs.100Lakhs.

Assistant General Manager / Deputy General Manager HO / ARD General Manager & Chief Risk Officer/ Executive Director MD& CEO

Rs. 100Lakhs up to Rs.500Lakhs Rs. 500Lakhs and above Notes: a.

No officer (other than MD & CEO) who had sanctioned a facility, in his / her individual capacity shall approve filing of suit in respect of such account. Such application shall be referred to the next level. Draft plaint / RR application shall be verified and approved by the functionaries as shown below:

b.

Total amount due to the Bank from the Authority for verifying and approving Borrower as on date Up to and including Rs.5Lakhs Rs.5Lakhs up to Rs.25Lakhs Rs.25Lakhs up to Rs.50Lakhs SAMC Head, not below Chief Manager Zonal Head. (For cases to be followed by ARBs, Head of the ARB concerned) Assistant General Manager / Deputy General Manager HO / ARD draft plaint / RR application The Branch Head concerned

Above Rs.50Lakhs

28.

Power / Authority for permitting Waiver of Legal Actions Authority Branch Head [by recording appropriately with reasons in the respective loan document file] Head of SAMC, not below Chief Manager Zonal Head Head of HO/ARD General Manager & Chief Risk Officer MD & CEO Finance Committee

Total amount due to the Bank from the Borrower as on date

Up to and including Rs.2.00L

Above Rs.2.00L up to Rs.10.00L Rs.10.00L up to Rs.25.00L Rs.25.00L up to Rs.100.00L Rs.100.00L up to Rs.500.00L Rs.500.00L up to Rs. 1000.00L Above Rs.1000.00L

29.

Power / Authority for permitting filing / not filing of appeals against decree from Civil Courts / Debt Recovery Tribunals

Federal Bank

Asset Recovery Department

NPA Recovery Policy

31

Instances of Court /Tribunal award (1) Courts / Tribunals awarding lower rate of Interest on Plaint amount (irrespective of rate of interest allowed by the Court/Tribunal) (2) Dismissal of suit / OA filed by the Bank by Courts / Tribunals, irrespective of reasons.

Approving Authority Head of SAMC, not below Chief Manager Zonal Head Head of HO/ARD General Manager & Chief Risk Officer MD & CEO

Notional Loss calculated in terms of the decree Up to Rs.5Lakhs Rs.5Lakhs up to Rs. 10.00L Rs. 10.00L up to Rs.50.00L Rs.50.00L up to Rs.500.00L Rs.500L and above

30.

Power / Authority for permitting partial release of securities in NPA accounts (not as part of a compromise settlement of full liability)

30.1. Partial release of securities in NPA accounts may be permitted either as a part of compromise settlement of NPA accounts or otherwise by the authorities as shown below. Partial release of securities as a part of compromise settlements may be permitted as provided for under clause 11.34 of this document. In all other situations, the following norms shall apply. 30.2. Current realizable value of the securities proposed to be released, amount proposed to be remitted for releasing the securities, current realizable value of the remaining securities and balance amount due to the Bank after releasing the securities should be the criteria to be taken into account for release of securities. Title, enforceability, marketability etc. of the remaining securities should be examined before decisions are taken for release of any securities. Total amount due (actual

dues) from the borrower as Amount agreed to be Authority for permitting on date of release of remitted for release of release of security securities securities (a) 150 % or more of the latest market value of securities proposed to be released. (a) Head of SAMC, not below Chief Manager

Up to and including Rs.10Lakhs

(b) Less than 150 % of the latest market value of securities proposed to be released.

(b) Zonal Head

Federal Bank

Asset Recovery Department

NPA Recovery Policy

32

Rs 10Lakhs up to Rs. 25Lakhs

(a) 150 % or more of the latest market value of securities proposed to be released. (b) Less than 150 % of the latest market value of securities proposed to be released.

(a) Zonal level committee for compromise settlement of NPAs

(b) HO/ARD level Committee for compromise settlement of NPAs (a) HO/ARD level Committee for compromise settlement of NPAs (b) HO/Senior Management committee for compromise settlement of NPAs (a) HO/Senior Management committee for compromise settlement of NPAs (b) HO/MD & CEO level committee for compromise settlement of NPAs (a) HO/MD & CEO level committee for compromise settlement of NPAs

Rs.25Lakhs up to Rs 100Lakhs

(a) 150 % or more of the latest market value of securities proposed to be released. (b) Less than 150 % of the latest market value of securities proposed to be released. (a) 150 % or more of the latest market value of securities proposed to be released. (b) Less than 150 % of the latest market value of securities proposed to be released. (a) 150 % or more of the latest market value of securities proposed to be released. (b) Less than 150 % of the latest market value of securities proposed to be released.

Rs.100Lakhs Rs.750Lakhs

up

to

Rs.750Lakhs and above

(b) Credit Committee of the Board

31.
31.1.

Power / Authority to sanction NPA Recovery related expenses Travel by taxi for NPA recovery / related matters

Federal Bank

Asset Recovery Department

NPA Recovery Policy

33

Travel by taxi Travel works NPAs, follow recovery, by taxi

Approving Authority for a. Taxi charges up to and including Rs. 1000/- per trip - SAMC (by an to officer not below the rank of Chief Manager)

relating

including b. Taxi charges up to and including Rs. 3000/- per trip - Zonal Office up and (by an officer not below the rank of Chief Manager) wherever c. Taxi charges above Rs. 3000/- per trip and upto Rs.5000/- per trip Zonal Office (by an officer not below the rank of AGM) d. Taxi charges beyond the above norms AGM / DGM of ARD / HO Note: No official shall approve / sanction taxi charges incurred by himself / herself Officials in SAMC shall not approve / sanction taxi charges incurred by any of the officials in the SAMC.

such travel is found to be inevitable.

31.2.

Professional / Consultancy Charges Regional Head / SAMC Zonal Head Head of HO / ARD Scale V (Maximum Amount in Rs) HO / ARD HO / ARD Scale VI Scale VII

Professional/Con

ARBs (Officer

sultancy Charges not below on an account of the rank of NPAs (at a time) Chief Manager) 10000 25000 50000 150000 200000

31.3. Sl No.

Other Expenses relating to NPAs Regional SAMC Zonal Head (Maximum Amount in Rs) HO / HO / HO / ARD ARD ARD

Head / Head of ARBs (Officer not below the rank of Chief Manager

Scale V

Scale VI

Scale VII

A.

Recoverable
Asset Recovery Department

Federal Bank

NPA Recovery Policy

34

Expenses a. Advocate fees at a time b. SARFAESI / Suit and other expenses at a time@@ Irrecoverable Expenses a. Advocate fees at a time b. SARFAESI / Suit and Other expenses at a time@@ c. Miscellaneous expenses on account of NPAs and related matters (at a time) HO only Payment to Recovery Agents, (at a time ), based on sanction to 5000 50000 100000 200000 1000000 15000 75000 100000 150000 200000

8000

40000

50000

75000

200000

B.

10000

50000

75000

100000

150000

5000

30000

40000

50000

100000

___

___

10000

25000

100000

engage Recovery Agents approved rates Note: @@ Other Expenses include: and card

a. NPA security Insurance charges (at a time). b. NPA security Security Guard charges (at a time), based on sanction to engage Security Guards. c. Fees related to filing of Interlocutory Applications. d. CERSAI registration charges with respect to NPA accounts, CGTMSE fee and charges with respect to NPA accounts e. Expenses for taking EC, fixing board for taking possession and purchase of lock, expenses for initiating SARFAESI proceedings, other recovery expenses. 31.4. Court Fee for NPAs.

Federal Bank

Asset Recovery Department

NPA Recovery Policy

35

Officers in the rank of Chief Manager and above in ARB / Regional SAMC or Zonal Office may accord sanction for the payment of Court Fee as per rules applicable in different states, if C 145 (sanction to file suit) is approved by competent authority. Note: (1) In the case of CBBs, all NPA related expenses upto the delegation otherwise permitted to be exercised by Zonal Heads in respect of items shown above may be exercised by the Head of Large Corporate Department. (2) Suit related expenses incurred in respect of Suit Filed / Decreed Debt / Technically written off A/c should be debited to Suit Expenses Receivable A/c and wiped off by debit to P&L account legal charges after obtaining necessary sanction from appropriate authorities. Similarly recoverable expenses incurred for initiating actions under SARFAESI Act in respect of Suit Filed / Decreed Debt / Technically written off A/c, shall first be debited to SARFAESI Expenses Receivable Account (SARFAESI ER A/c - XXXX0088601001) and afterwards the debit entry under the SARFAESI ER A/c shall be wiped off by debit to P&L (Legal Charges) A/c after obtaining sanction from competent authority. While closing / settling suit filed, decreed debt and technically written off accounts, care shall be taken to ensure that expenses accounted through Suit Expenses Receivable A/c and SARFAESI Expenses Receivable account and charged to Banks profit & loss account are recovered / taken into account while arriving at compromise settlements

(3) The recoverable expenses incurred for initiating actions under SARFAESI Act in all other NPA accounts shall first be debited to SARFAESI Expenses Receivable Account and immediately afterwards the debit entry under the SARFAESI ER A/c shall be wiped off by debit to the respective loan account. The borrowers shall be informed about the expenses charged to their loan accounts (4) General Manager & Chief Risk Officer /Executive Director may approve / sanction NPA recovery related expenses of the above categories without limits, on recommendation of Asset Recovery Department at HO.

32.

Submission of Reports to the Board / Finance Committee / Audit Committee 32.1. As stated elsewhere in this Policy document, the following reports shall be placed before the Board of Directors / Finance Committee of the Board by Asset Recovery Department, from time to time. Periodicity of submission

To be placed before

Report (Memorandum)

Audit Committee of Review of loss assets with balance of Rs.10Lakh Half Yearly the Board and above outstanding for more than two years and where legal action has not been initiated Credit Committee of Details of Compromise settlement of NPAs approved the Board by ED Level and MD Level Committees
Federal Bank

Quarterly

Asset Recovery Department

NPA Recovery Policy

36

Credit Committee of NPA review reports in respect of top 25 NPAs with Quarterly the Board net balance up to Rs.500Lakhs in each category [S, D, and L] excluding technically written off accounts [category wise separate memorandum] Credit Committee of Review note on SARFAESI and other recovery Quarterly the Board actions initiated in NPA accounts Board of Directors Board of Directors Details of recovery of NPAs with particular reference Quarterly to recoveries of Rs.50Lakhs and above. Details of new NPAs with net balance of Quarterly Rs.500Lakhs and above, identified during the previous quarter. NPA review reports in respect of NPAs with net Quarterly balance of Rs.500Lakhs and above, including technically written off accounts [ Zone wise separate memorandum]

Board of Directors

33.

Submission of Reports to Managing Director & CEO Contents of the Report Periodicity of submission Quarterly Quarterly Quarterly the Quarterly

Review of Non Banking Assets Review of Security Receipts Sale of Assets to ARCs Review of performance of Recovery Agents Position of suits/cases pending against

Bank/Directors/Officials (relating to NPAs)

34.
To

Submission of Reports to Reserve Bank of India and Credit Information Bureaus be Contents of the Report Periodicity submission Quarterly data regarding SARFAESI, DRT and Quarterly Lok Adalat cases of

submitted to RBI

RBI

List of Wilful defaulters Rs. 25Lakhs and Quarterly above ( Non Suit filed cases)

RBI

Non Banking Assets acquired by the Bank- Half yearly Position

RBI

Defaulters list ( Non Suit filed cases) Half yearly Rs.100Lakhs and above ( Classified as Doubtful and Loss assets)

Federal Bank

Asset Recovery Department

NPA Recovery Policy

37

CIBs

List of Wilful defaulters above (Suit filed cases)

Rs.25Lakhs and Quarterly

CIBs

Additions and Deletions to Defaulters list (Suit Quarterly filed cases) Rs.100Lakhs and above

(Classified as Doubtful and Loss assets) CIBs Defaulters list (Suit filed cases) Rs.100Lakhs Yearly and above( Classified as Doubtful and Loss (consolidated list) assets)

35.

Scope for Audit

35.1. Inspection & Audit Department of the Bank shall have a proper system and procedure in place for regular, but random verification of the compromise settlements approved by various Committees, computation of Notional Settlement Amount, write-off, total sacrifice etc, and exercise of delegated powers by the Committees at Zonal Office and Head Office levels. 35.2. Inspection & Audit Department shall arrange or such verification either through Banks own Inspecting Officers or through Concurrent Auditors. 35.3. Exercise of power / authority in other matters as contained in the NPA Recovery Policy shall also be subjected to audit and inspection. 35.4. All branches / offices shall systematically maintain records and registers to enable inspection & audit, as above.

36.

Staff Accountability

36.1. The Bank has framed a Board approved Staff Accountability policy in respect of Credit portfolio, Operational matters, inspection/audit and Treasury operations. Staff accountability in respect of NPA accounts shall be examined considering the norms contained in the Staff Accountability Policy approved by the Board. 36.2. Staff accountability shall be examined immediately on an account turns NPA, if the net balance is Rs 10L or above. 36.3. Staff accountability need not be examined for the mere reason that account is classified as NPA, if there exists valid reasons/ conclusions for an NPA account getting upgraded as per norms. In such cases Zonal Office should specifically permit waiver of staff accountability till such period with in which the NPA account is expected to be upgraded after reaching a conclusion with reasons recorded. If the account is not upgraded within the expected time, staff accountability shall be examined immediately thereafter. Such waiver of examination of staff accountability will not be applicable for quick NPA accounts. 36.4. While according sanction for filing Suit / RR application, staff accountability aspect shall be got examined and the report submitted beforehand, or arrange / advise to be completed within 2 months from the date of approval for filing suit / RR application. In case, the documents are getting time barred, Staff Accountability matters shall be completed within a period of one month, after granting permission to initiate legal action.
Federal Bank Asset Recovery Department

NPA Recovery Policy

38

36.5. Staff accountability shall be examined in the case of NPA accounts taken up for write off / compromise settlements before sanctioning of such proposals. This will be applicable for all NPA accounts irrespective of balance outstanding. If for any genuine reasons the examination is not possible to be completed before sanction of compromise / write off the sanctioning authority shall specify in the sanction order itself as to a specific time limit from the date of such sanction within which the accountability shall be examined by the ZO concerned. The time limit specified by the sanctioning authority as above, shall not exceed two months from the date of sanction. The ZO concerned will be responsible to examine the accountability within the time frame fixed by the sanctioning authority. 36.6. Staff Accountability aspects involved in all cases wherein waiver of legal action is sought for shall be got examined beforehand. However, if time is a pressing factor as in the case of documents getting time barred, etc, the requests for waiver of legal action shall be preferred first and the staff accountability matters examined within a period of 2 months thereafter. 36.7. Accountability of all other NPA accounts below Rs.10Lakhs shall be fixed only if there is prima facie evidence to believe / suggest that any gross irregularities have occurred. However ZO shall call for report from branches in the above accounts and decide whether there is any material to examine the accountability. If not, a list of such accounts with brief narration is to be prepared and a decision recorded by ZO / SAC to that effect is to be kept as record.

37.

Review of the policy

37.1. This policy shall be reviewed at least once in a year and got approved by the Board of Directors. Asset Recovery Department at Head Office shall be responsible for the periodic review of the NPA Recovery Policy. 37.2. The policy was last reviewed by the Board of Directors in March 2013. Amendment to delegation of powers in NPA related matters was approved by the Board of Directors in June 2013.

38.

Custodian of the policy

38.1. Asset Recovery Department [ARD] at Head Office shall be the custodian of the NPA Recovery Policy. ARD is authorized to bring in necessary changes in the formats shown in Annexure IV, V, VI and VII to this document, as found appropriate, from time to time.

39.

Other Policies

39.1. While NPA Recovery Policy shall act as the master policy for recovery management, the following policies as approved by the Board of Directors, from time to time, shall act as supplementary policies for recovery management 39.1.1. Policy on Sale of Assets 39.1.2. Policy on NPA Recovery Agents 39.1.3. Policy on collection of dues and security repossession 39.1.4. Policy on Non-Banking Assets 39.1.5. NPA Provision Policy
Federal Bank Asset Recovery Department

NPA Recovery Policy

39

All the policies shall be reviewed at least once in a financial year and be placed before the Board for approval, by Asset Recovery Department at Head Office.

Federal Bank

Asset Recovery Department

NPA Recovery Policy

40

40.

Annexure I Eligibility Score Card [Table 1]


Table 1 ELIGIBILITY SCORE CARD (1) Present Level of Activity Running at full capacity Running less than full capacity /Partially operational Activity not started/No Activity at present (2) Realisable Value of Security If realisable value of primary/collateral security is above 150 % of the present Net Balance. Maximum Allowable Score 10 5 0 Maximum Allowable Score 65 Eligible Score

a b c

Eligible Score

If realisable value of primary/collateral security is 101% to 150% of the present Net Balance. If realisable value of primary/collateral security is 76 % to 100 % of the present Net Balance.

60

55

If realisable value of primary/collateral security is 50 % to 75% of the present Net Balance. If realisable value of primary/collateral security is less than 50% of the present Net Balance.

50

30

a b c d a b c d e f

(3) Value of other Securities Including Net Worth of Guarantors Above 60 % of present Net Balance. 41 to 60 % of present Net Balance. Upto 40% of present Net Balance. NIL (4) Suit Status Execution at Final Stage /Auction process started Suit not filed as recovery chances are other wise bright Decreed and Execution process started Suit filed is at evidence stage Suit filed is at Initial stage/suit not filed as chances of success is low Non executable Decree (5) SARFAESI

Maximum Allowable Score 10 8 4 0 Maximum Allowable Score 5 4 4 3 2 0 Maximum Allowable Score

Eligible Score

Eligible Score

Eligible Score

d e a b c d

Taken actual possession under SARFAESI Act and value of securities eligible for enforcement under SARFAESI Act is 75 % to 100% of the present Net Balance. 10 Taken actual possession under SARFAESI Act and value of securities eligible for enforcement under SARFAESI Act is less than 75% of the present Net Balance. 5 Initiated proceedings under SARFAESI Act and value of securities eligible for enforcement under SARFAESI Act is 75% to 100% of the present Net Balance. 3 Initiated proceedings under SARFAESI Act and value of securities eligible for enforcement under SARFAESI Act is less than 75% of the present Net Balance. 2 Accounts are not eligible for enforcement of security interest under SARFAESI Act 0 (6) Less Discount Factors (Maximum discount value 10) Maximum Allowable Score Borrower/mortgager expired 10 Borrower absconding 10 Mortgage invalid/not enforceable 10 Fraud or serious malpractices involved 10 TOTAL SCORE OBTAINED FOR ARRIVING AT INDICATIVE OTS AMOUNT Signature

Eligible Score

Federal Bank

Asset Recovery Department

NPA Recovery Policy

41

41.

Annexure II - Basis for pricing [Table 2]

Note: Mark the applicable rate of interest from the table.

Signature:

Federal Bank

Asset Recovery Department

NPA Recovery Policy

42

42.

Annexure III Dues and Sacrifice Computation [Table 3] (Amount in Rs.) Table 3 - Dues and Sacrifice Computation

NPA date (Identified date) in dd/mm/yyyy format Date of proposed final settlement in dd/mm/yyyy

b c d e

format Net Balance as on NPA date Interest suspense as on NPA date Balance as on NPA date (c+d) Legal expense debited to P&LA/c / to be debited to

P&L A/c./ other debits to NPA account after NPA date Amount payable to Advocate/Other Expenses

payable on settlement of the A/c (Example : Amount Payable to Recovery Agent)

Interest due from NPA date till the proposed date of settlement i.e. Interest as per Table II Amount to be refunded, if any, to CGTMSE/ECGC, etc Computed dues (e+f+g+h+i) Claim received from CGTMSE/ECGC, if any Remittance received after NPA date, if any Notional Settlement Amount NSA = (j) minus (k+l) Settlement Amount Total Sacrifice (m minus n) - Applicable, only if n is less than m Present Net Balance Out of the total sacrifice (o)

i j k l

n o p

q r

Write off (p minus n) - Applicable only if p is greater than n) Waiver of legal expenses and other charges

Federal Bank

Asset Recovery Department

NPA Recovery Policy

43

s t u

Waiver of unrealized / un applied interest Total waiver (r+s) Total Sacrifice (q+t) (should tally with column o above) Rate of interest allowed as per decree (give value only if applicable) Current rate applicable to the loan Current Base Rate Total amount due to the Bank as per contracted

v w x

rate / decree terms as on the proposed date of settlement (ie. Actual amount due)

Signature:

Federal Bank

Asset Recovery Department

NPA Recovery Policy

44

43.

Annexure IV C422 [Format of proposal for compromise settlement] Date: PROPOSAL FOR COMPROMISE SETTLEMENT OF NPA ACCOUNTS

Branch/Office:

1. Details of the account: Branch Region & Zone Borrower Constitution Name(s) of Proprietor/Partners/Directors Name(s) of Co-Obligants and their Net Worth in Rs. Lakhs Name(s) of Guarantors and their Net Worth in Rs. Lakhs

2. Details of the credit facility: Nature of Credit facility Date of Original Sanction and Sanctioning Authority Date of last renewal and Total

Sanctioning Authority Amount disbursed in Rs. Lakhs Date of disbursal NPA date Asset type as on date Provision made in Rs. Present book balance

outstanding in Rs.

3. Details of the securities Primary security details Total value : Rs.Lakhs

Date of original valuation


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Date of present valuation Original value Rs. Lakhs Present value Rs. Lakhs Collateral security details Total value : Rs.Lakhs

Date of original valuation Date of present valuation Original value Rs. Lakhs Present value Rs. Lakhs 4. Details of Suit /SARFAESI proceedings: Date of filing Suit/OA & Plaint amount Date of Decree & terms of decree Date of filing Execution Petition Present Position of Suit/RP/EP Position of proceedings under SARFAESI Act 5. Brief history of the account and reasons for preferring compromise route for settlement:

6. Details of Staff Accountability assessment and decisions thereof:

7. Recommendations placed before the Approval Committee (Based on Table 3) : 1. Notional Settlement Amount as per Table 3 in Rupees 2. Settlement amount in Rupees 3. Write off amount in Rupees as per Table 3 4. Waiver of charges in Rupees as
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per Table 3 5. Waiver of interest amount in Rupees as per Table 3 6. Total sacrifice amount in Rupees (3+4+5) 7. Total amount due to the Bank (actual dues) as per contracted rate/decree terms as on proposed date of settlement in Rupees 8. Difference between actual dues and the settlement amount (7-2) in Rupees

8. Impact on Current Years P&L Account: a Amount offered for settlement in Rupees

b c

Provision held in Rupees Net balance outstanding in the books as on date in Rupees

Amount to be refunded to CGTMSE/ECGC in Rupees

Net Impact on P&L (a+b)- (c+d) in Rupees (Mention positive or negative)

9. Recommended terms for settlement:

10. Recommendations of the Branch Head/Regional SAMC Head/ Zonal Head/ Asset Recovery Department, as the case may be:

11. Details of delegation (Power / Authority) to approve compromise settlement

Name, Designation and Signature


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Note: Attach Table I, II and III duly signed, to this proposal, without which the proposal will not be treated as complete.

44.

Annexure V Format of request for OTS for small value NPAs Request for One Time Settlement of NPA account (Applicable only for NPAs with Current Net Balance upto and including Rs.1Lakh)

Branch : Name of borrower : Account Number : Balance as on date of proposal (In CBS)

Zone:

Date :

Rs. Rs. Rs Rs. Rs. Rs.

Interest suspense as on date of proposal (in CBS) Other charges Net balance as on date of proposal (In CBS) Primary security value: Collateral/ Additional security value: Co-obligants/ Guarantors and their Net worth Date of NPA (Identified date in C 710) : Settlement amount Minimum required under the scheme Plaint amount, if applicable (SF/RR Accounts) Comments and observations, if any:

Rs. Rs. Rs.

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Certified that all the conditions stipulated in the NPA Recovery Policy of the Bank have been complied with. Recommended for sanction.

Assistant Manager/Manager (Admn)/Senior Manager

Branch Head

-----------------------------------------------------------------------------------------------------------------------------------For the use of Zonal Office: Total dues as on date (Rs) of sanction (Rs) (Rs) (Rs) S.O. No: Write off(a) Waiver (b) Date: Total (a)+(b) (Rs) Sacrifice

Settlement Amount

Last date for remitting the amount:

Recommended by

Sanctioned by

Note: Zonal Office shall forward one copy of this proposal / sanction order to HO / ARD for noting purpose.

45.

Annexure VI - NPA Review Format [C 742 A]

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(For NPAs with current net balance above Rs.1Lakh) -Prepare in triplicateBranch : Review of NPA as on: Date of Review:

(Amount in Rs.Lakhs) Name of the Borrower & A/c.No: Account No: Branch: Zone: Limits sanctioned: Date of original sanction & Sanctioning authority: Date of last renewal & Sanctioning authority Activity of the borrower: Whether activity is going on at present: Date of NPA: Net Balance as on date of review (including Technically Written of

accounts, if any): Present Dues) Date on which the documents get time barred: Technically Written Off or not: Whether any Recovery Agent is balance outstanding: (Total

engaged? If yes, show details: Remarks on Staff Accountability: Securities sold / adjusted, if any, and date of credit to account: Total value of securities available at present: Primary Security (with total value): Collateral Security (with total value): Co-obligants / Guarantors and their net worth:
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Connected accounts, if any: If Consortium, other members of the Consortium and our share:

a) Brief history of the loan:

b) Steps taken after the date of NPA (mention in brief):

c) Position at the end of previous quarter:

d) Decision in the last review:

e) Present Position:

f) Proposed actions:

Branch Head

SAMC Head

Regional Head

Note: 1. Branch Head / SAMC Head / Regional Head shall preserve one copy each, for follow up and future actions. 2. Preparation and submission of NPA review reports shall be as shown in clause 7.7 and 7.11 of NPA Recovery Policy

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Annexure VII - NPA Review Format [C 742 AB] (For NPAs with current net balance up to and including Rs.1Lakh) -Prepare in triplicateBranch: Date:

Review of NPA as on: . (Amount in Rs.Lakhs) Sl No: Name of borrower and Account No: Date of NPA Net Balance as on date Total dues as on date Present Value of Primary Security Present Value of Collateral Security Whether eligible for action under SARFAESI? If yes, present position. Date on which documents get time barred Steps taken so far Actions advised by the Review Committee

Branch Head Note: Branch Head / SAMC

SAMC Head Head / Regional Head shall preserve one copy each, for follow

Regional Head up and future actions

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NPA Recovery Policy - 2014

Federal Bank Asset Recovery Department

The Federal Bank Ltd. Registered Office: Asset Recovery Department, Federal Towers, P O Box No.103, Aluva, Kerala, India 683 101 E-mail: ard@federalbank.co.in| Phone: 0484-2622640, 2622432