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Selection of Borrowers Poor Appraisal Failure of providing timely support Poor follow up and monitoring Hesitation to accept project failure or precipitate PNPA. Government Policies Unforeseen Circumstances.

Term Loan: Interest and/or installment of principal remain over due for a period of 90 days. Cash Credit/overdraft: Account remains out of order for a period of 90 day. Bills Account: Bills purchased/discounted remain overdue/ unpaid for a period of 90 days. Other Account: A/c Remains overdue for a period of 90 days.

Year(as Gross Gross on mar Advance NPAs(cr) 31st) s(cr) 2008 25,07,900 56,400 2009 2010 2011 2012 30,38,300 35,44,900 43,51,100 51,58,900 68,200 84,700 97,900 1,42,300

Gross NPA % 2.3 2.3 2.39 2.5 3.1

year Mar 2012 Dec 2012

Rs(in crores) 1,43,765(3.1% of advances) 1,84,193(4.18% of advances)

Bank Group
Gross NPAs to Gross Advances (%)

FY 2007-08 FY 2008-09

FY 2009-10 FY 2010-11 FY 2011-12

Scheduled Commercial Banks Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks



2.4 2.2

2.5 2.4

3.1 3.3








2.2 1.8

3.1 4.0

2.9 4.3

2.7 2.5

2.2 2.6

[It is very unfortunate that non-perform- ing assets have increased not due to economic slowdown, delay in implementation of project, it is due to improper as- sessment of the proposals. [Many banks still rely upon pro- posals come chartered accountants, intermediaries etc who just want to earn commission bring in proposal and recovery procedure is not effective. There are cases banks have lend crores of rupees, in spite of borrower had no background of business activity. ] The gross NPAs of public sector banks stood at 1,84,193 crore in December 2012crores. As far as old NPAs are concerned, a bank can remove it on its own or sell the assets to AMCs to clean up its balance sheet. For preventing fresh NPAs, the bank itself should adopt proper policies. There are various factors behind the transformations of assets from performing to non-performing. ].

1. funds borrowed for a particular Projects not completed in time, 2.Poor recovery of receivables, 3. lack of proper follow-up, 4.Delay in sanctioning, 5.Non-co-operation of Govt. Agencies in recovery, 6.Social-political pressures, 7. Imbalances of inven- tories, 8. Poor quality management, 9. Willful defaults, 10. Natural calamities, 11.Product failure due to lack of demand or quality, 12.Industrial recession, power shortage, 13. industrial recession, 14.ex- cess capacity, Strikes, 15.lockouts and labour problems, 16.Heavy market competition, 17.Sluggish legal system, 18.Low morale and ethics

Term Loan: Interest and/or principal remains over due for two harvesting seasons for short duration crops. Interest and/or principal remain overdue for one harvesting season for long duration crops. KCC: If account remains out of order for two harvesting seasons in case of short duration crops. If account remains out of order for one harvesting season in case of long duration crops.

STANDARD: A loan Asset which does not pose any threat to recovery. SUB STANDARD: NPA up to 12 months. DOBTFUL: Doubtful - I : NPA up to 24 months Doubtful - II : NPA up to 48 Months Doubtful - III : NPA beyond 48 Months Loss Assets : Loss has been identified by Banks Internal/ external/ auditor/ RBI inspector.

willing to pay able to pay

willing to pay unable to pay

unwilling to pay unwilling to pay able to pay unable to pay


Adalat Debt recovery Act Orissa and Bihar Money suit or Mortgage Suit. Debt Recovery Tribunal 1993 Securitization and Reconstruction of Financial Assets and enforcement of Security Interest. (SARFAESI) - 2002 Sale of Financial Assets to Securitization/ Reconstruction Company.

Recovery of Debts Due to Banks and Financial Institutions Act, was passed by the Government of India (Act 51 of 1993) for expeditious adjudication and recovery of debts due to banks and financial institutions.


Debts Recovery Tribunal have been constituted under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.


of Presiding Officer (PO) and Recovery officer. (RO) Setting of DRT Offices.

Authority :

Secured Loan 10 lac and above To Auction Defaulters Property Charged to Bank. To hear Appeal against SARFAESIA. STRUCTURE Presiding officer
High court Judge or Officer of General Manager Rankwith Legal Background. RECOVERY OFFICER Chief Manager of sponsored Bank

DEMAND Valuation


Possession Auction For

unsecured portion - regular court For Appeal DRAT.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) Empowers Banks and Financial Institutions to recover their non performing assets without the intervention of the Court. The provisions of this Act are applicable only for NPA loans with outstanding above Rs.1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act.


Act has made provisions for registration and regulation of Securitisation companies or Reconstruction Companies by the RBI, to facilitate securitisation of financial assets of banks, empower SCs/ARCs to raise funds by issuing security receipts to qualified institutional buyers (QIBs), empowering banks and FIs to take possession of securities given for financial assistance and sell or lease the same to take over management in the event of default


issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge their dues in full within 60 days. To give notice to any person who has acquired any of the secured assets to surrender the same to the Bank. To ask any debtor of the borrower to pay any sum due or becoming due to the borrower.


the borrower fails to comply with the notice, the Bank may take recourse to one or more of the following measures: Take possession of the security Sale or lease or assign the right over the security Manage the same or appoint any person to manage the same


of Authorized person. Recall of loan 30 days notice The bank or financial institution may, if it considers appropriate, give a notice of acquisition of financial assets. 60 days. Possession Immovable Assets, Movable Assets. Normally 30 days time to file objections. Auction of the property.


are many Assets reconstruction Companies to whom Bank Sale its NPA Assets for which SARFAESI Act has spelt out the detail procedure. Some of them are Assets care and Reconstruction enterprises.(ACRE) ARCIL Pridhvi Asset Reconstruction and Securitisation Company Limited (PARAS)

There must be an effective and regular follow-up with the customers and need to watch is there any diversion of funds. This process can be taken up at regular intervals. A number of personal visits after sanction and disbursal of credit and close monitoring of the operations of the ac- counts of borrowed units. Between the Bankers borrower a healthy relationship should be developed. Many instances reported that the banks uses force in recovery of loans, which is unethical. Banks have to take decisions regarding filing of suits expe- ditiously and effectively follow-up the filed and decreed cases. Managers in charge of non-performing assets should have dynamism and seal in their work. But many of them are worried due to accountability fixed arbitrarily. Many man- agers say that we do not fear to negotiate but we do not negotiate out of fear. Such fear leads to arbitrary negotia- tion, which fails. Frequent discussions with the staff in the branch and taking their suggestions for recovery of NPAs make them feel responsible.

Priority sector lending involves more risk and less return. Hence the priority sector lending bench mark of 40 per cent of net bank credit should be redefined. Assisting the borrowers in developing his/her entrepre- neurial skill will not only establish a good relation be- tween the borrowers but also help the bankers to keep a track of their funds. Another way to manage NPAs by banks is compromise set- tlement schemes or One Time Settlement Scheme (OTS). However, under such schemes the banks keep the actual amount recovered in secret, under these circumstances, it is necessary to bring more transparency in such deals so that any flaw could be removed. RBI need to take necessary actions against defaulters like, publishing names of defaulters in News papers, broad- casting media, which is helpful to other banks and finan- cial institutions. If the delinquencies are due to reasons beyond the control of borrower i.e. draughts, floods, natural disasters etc the banker should suitably restructure the loans taking into consideration of the genuine difficulty of the borrowers. Lok Adalats are identified as fast recovery agencies of smaller loans. The present maximum limit is Rs. 20 lakhs, which may be extended up to Rs. 50 lakhs. In the export related loan, banks have to check the authen- ticity of the firm with the export houses.

Bank of Baroda Bank of Maharashtra Corporation Bank Andhra Bank Syndicate Bank

0.54 0.84 0.87 0.91 0.96

1.Appointment of Nodal officers for recovery, 2.to conduct special drives for recovery of loss assets, 3.to put in place early warning system 4.to replace system of post dated cheques with Electronic Clearance System (ECS).

Banks have been advised to adopt a multi-pronged strategy for loan recovery. The multi-pronged strategy includes constitution of a board-level committee for monitoring recovery, review of NPA accounts of Rs 1 crore and above by the board of directors, and the top 300 NPA accounts by the management committee of the boards, and guidelines for NPA management as part of an early-warning system. Apart from restructuring, banks have been advised to initiate penal measures against wilful defaulters. These include not granting them additional facilities and debarring the entrepreneurs/promoters of defaulting companies from getting institutional finance for floating new ventures for a period of five years.

the 5-Cs to assess the quality of the applicant. The 5-Cs stands for: Capacity - measures the borrowers ability to pay, including borrowers payment source and amount of income related to debt. Collateral - what are the banks options if the loan is not paid? What asset can be turned over to the bank, what is its market value, and can it be sold easily? A valuable asset might be a house or a car.

Condition - this refers to the borrowers circumstances. For example, if a furniture storeowner is asking for a loan, the banker would be interested in how many chairs and sofas the store is expected to sell in the area over the next five years.
Capital - the applicants assets (house, car, and savings) minus liabilities (home mortgage, credit card balance) represent capital. If liabilities outweigh assets, the borrower might have difficulty repaying a loan if his regular source of income unexpectedly decreases. Character - measures the borrowers willingness to pay, including the borrowers payment history, credit report and information from other lender