+919892855900 EMCA House, 205, Ballard Estate, Fort, Mumbai-400001, Maharashtra. info@npaconsultant.in
Your Guide in Crisis

Dr. Visswas ( Ex. Banker)
B.Com, LL.B., M.A. (Eco.),
ACS, A.I.I.A. (USA), Ph.D. (U.K)

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Recovery & Npa Management Policy

Get the best NPA Recovery Process from NPA consultants. Contact us today and get your npa queries resolved.

NPA Recovery Steps which can be adopted by the Banks:
Bank has to identify as to how each loan or advance has become NPA and it has to be tackled as a strategy.

  • If further assistance will help unit to generate income, then by taking additional collateral security it has to be recovered.
  • By asking the borrower to sell surplus assets NPA can be recovered.
  • Court or legal proceedings are cumbersome and that have to be resorted only as a last resort.
  • By compromise, negotiated deal by reducing interest or by waiving penalty so for levied in the account of borrower.
  • By inducting additional partners, promoter’s additional capital, management can be brought in which can turn the unit to be viable.
  • By converting a portion of Advance of funded term loan levy lower rate to enable the unit to generate income and then to recover.
  • By opening back to back LC encourage unit to do some trading activity which will not need additional funds, but the expertise of the unit can be utilised to generate additional profit and then recover NPA.
  • Bank can allow operations in the account when the unit is in bad shape, but retain a small portion to enable it to service the interest and thus unit will not be classified as NPA.
  • By declaring unit as wilful defaulter take action, publish in newspaper and coerce the unit to repay.
  • SARFAESI / DRT / Coperative Court proceedings.

1. The policy is intended to contain NPAs to a minimum level in conformity with the guidelines issued by Government of India and our sponsor bank. The policy includes both preventive and curative measures for containment of NPAs through various measures inter-alia (i) maintenance of quality of assets through proper credit appraisal (ii) thorough scrutiny and processing of such applications (iii) maintaining the quality of assets by having proper monitoring mechanism (iv) identifying the weaknesses of assets through early warning signals (v) effective measures to prevent those accounts whenever symptoms of deterioration in quality are observed (vi) identification of potential NPAs vii) up-gradation of assets through various methods viii) recovery of NPAs through legal process, compromise settlements, announcement of OTS and ix) writing off the loss assets where prospects of recovery or up-gradation are perceived to be bleak.

2. The primary guiding factor for recognizing an NPA is the Income Recognition and Asset Classification (IRAC) norms advised by RBI to RRBs from time to time. In terms of these, loan accounts will be identified as potential NPAs classified as IRAC 1, 2 & 3 which have become overdue by one week, one month and two months respectively. Similarly, newly turned NPAs are identified as IRAC-4 as at the end of 90 days overdue period.

3. Potential NPAs or Special Mention Accounts

3.1 ‘Early warning signal system’ is an integral part of Bank’s Risk Management process as it provides an opportunity for early identification of potential NPAs, review and reporting of problem loans and initiation of time bound corrective action including rehabilitation and restructuring. Keeping the above in view, in tune with RBI guidelines, a new category of asset is introduced viz., Potential NPAs or Special Mention Accounts (SMAs) between ‘standard’ and ‘sub-standard assets’ has been introduced which show tendencies for possible default or delinquency. These potential NPAs or Special mention accounts would not require any provisioning as they are not classified as NPAs. We have already devised a report named as “IRAC 2 & 3” through which details of borrower wise potential NPAs are advised to branches and Regional Offices at weekly intervals.

3.2 The objective behind providing these reports is to put in place a mechanism for internal monitoring and follow up of these accounts for regularization so as to prevent them from slipping to NPA category. Normally, the following categories of accounts would be designated as potential NPAs.

a) Accounts where interest/installment has not been served for 30 days.

b) Accounts which are not in default but showing early warning signals such as frequent return of cheques, non-submission of financials at regular intervals etc.,

c) Failure to complete the unit as per the project report.

3.3 The following are the reasons for default or account becoming special mention account.

a) Diversion of funds

b) Disputes within

c) No contribution by the borrower

d) Natural calamities

e) Defective sanction

f) Delay in disbursement

g) Failure of activity

h) Poor maintenance of unit

i) Personal accidents

j) Borrower avoiding contacting with bank

k) Delay in submission of required data

l) Increased competition) Sales not routing through our account

3.4 Once the account has been identified as IRAC-1, branches shall call the borrower over phone and advise the borrower to regularize the account immediately. If it is not regularized and slips to IRAC-2, the branch shall analyse the following:

  • The problem based on facts and circumstances and shall take immediate remedial steps for upgrading the loan account.
  • Diagnose the reasons for the deterioration of the asset is essential for taking remedial action. Close monitoring of the unit is required.
  • Revalidate assumptions made at the time of sanction of loan duly undertaking the assessment of credit risk up to Rs.1.00 lakh. Regional Office has to analyse in respect of loans above Rs.1.00 lakh.
  • Verify correctness of documentation including revival position, creation/registration of charges, insurance cover etc., to be made and deficiencies if any have to be rectified immediately.
  • Verify whether charges pertaining to insurance, equitable mortgage, processing charges are due to be paid.
  • Whether all parameters including gestation/moratorium details are fed in the system correctly.
  • Whether the problem faced by the borrower for delinquency is of temporary in nature or whether any proactive action like guidance, nursing, problem resolving from the bank-side is required.
  • Bring the deterioration in asset quality to the notice of the borrower and call upon him to regularize the account. Obtain realistic and time bound commitment from the borrower/guarantor to initiate necessary suitable steps to arrest deterioration in the loan quality.

3.5 The system of identifying and classifying accounts as potential NPAs is in addition to and not in substitution of the asset classification under IRAC norms.

3.6 In order to prevent loan accounts from becoming NPAs preventive measures to be taken are furnished in Annexure-I.

4. Impaired Assets/Non-Performing Assets

4.1 There are several reasons for loan accounts becoming NPAs which can be categorized under three heads viz., External, Internal and Bank related reasons as furnished in Annexure-II. If these are handled properly many loan accounts can be prevented/upgraded.

4.2 In order to have a proper monitoring mechanism, robust MIS has been put in place. Branches shall maintain ‘NPA Monitoring Register’ (as furnished in Annexure-III) wherein crystallization of each NPA account will be done along with action proposed for recovery/regularization.

4.3 Branch wise/region wise NPA levels vis-à-vis NPAs as on March of previous Financial Year and increase/decrease over previous day shall be advised by IT Cell for the information of branches and management.

4.4 Apart from above, the following reports will be provided by the IT Cell for better monitoring and control:

a) Details of borrower wise/activity wise NPAs at weekly intervals.

b) Quick Mortality accounts at fortnightly interval

c) Loan accounts sanctioned recently but appearing as NPAs due to non-recovery of processing charges

d) Fortnightly reports containing details of loans sanctioned in a month for amounts above Rs.1.00 lac, above Rs.5.00 lacs and NPA accounts above Rs.1.00 lac and NPAs above Rs.5.00 lacs.

e) NPA reports in excel format to enable branches to prepare reports as per their requirements to enable them to maintain the data for easy reference and follow up.

f) Annual SA returns containing details of borrower wise asset classification and provision made.

4.5 The NPA Management department at Head Office shall provide necessary inputs and guidance to regions and branches for reduction of NPAs depending upon the need & circumstances keeping the seasons and requirements in view.

4.6 Asset classification and stamping of accounts will be done at monthly intervals by the system.

5. Review of Doubtful/Loss Assets/AUCA

5.1 Doubtful/Loss Assets/AUCA are not generally considered amenable to any rehabilitation efforts and hence, these assets are being clubbed so that the focus of the review will shift entirely to various means of recovery i.e. legal action, compromises, enforcement of security rights under SARFAESI etc., Importance is attached to AUCA also as recovery efforts in these accounts might not have been exhausted. Further, there may be accounts which have deteriorated to Doubtful or Loss assets due to mere passage of time and not due to deterioration of security and are still viable. Exclusive review of such accounts should be done by the regions and necessary recommendations should be put up to Head Office including option of restructuring.

5.2 Writing off loans: As a matter of policy, loans with small outstanding where recovery chances are remote and adequate provision has been made will be reviewed every year. As part of cleansing of Balance Sheet a prudent decision will be taken to write off such loans (excluding staff loans and fraud related loans).

Eligible accounts for write off:

  • The accounts proposed to be written off should be classified as doubtful or loss assets (IRAC 5 and above) in respect of which approval for waiver of legal action has been granted.
  • The loan account should have adequate provision so as to contain the loss at minimum level.
  • The accounts to be considered for writing off include residual balances after appropriating the securities.
  • The accounts where no security is available and the units not in existence can be considered for write off.
  • Accounts pertaining to fraud where staff accountability has been examined and legal and other proceedings have been completed can be considered.
  • Accounts where suits have been filed but chances of recovery are bleak even if the cases are decreed.

2. The proposals for write off shall be accorded approval subject to adherence of the following:

  • Prior sanction for write offs must be obtained from the competent authority by submitting the proposal in the prescribed format.
  • All write off proposals should be thoroughly screened by the ROCC before submitting for approval.
  • Staff accountability examination status has to be indicated in the proposals put up for write off.
  • Write off should be effected only after transfer to Recalled Assets account.
  • It has to be ensured that the authority approving the write off proposal did not sanction the advance in question in his individual capacity.
  • Branches on receiving write off approvals should carry out the exercise and the amounts written off should be invariably parked in Advances Under Collection Account (AUCA) irrespective of outstanding.
  • The detail of written off accounts should be entered in the AUCA register invariably and should be balanced once in a quarter.
  • The follow up should be continued for recovery on par with other live accounts.
  • It should be ensured that the relative documents are enforceable and legal options/compromise proposals to be explored.
  • All possible steps to recover the dues have to be initiated and should be continued for recovery of the debt even after write off in the larger interest of the bank.
  • These accounts will be reviewed from time to time to watch the progress of recovery in such accounts and desirability of further continuation of an account in AUCA.
  • It should be ensured that the details of accounts written off are uploaded in CIBIL.
  • 3. Branches will be advised to submit recommendations for writing off proposals to Regional Office duly verifying each NPA account as crystallized in NPA Monitoring Register in respect of eligible accounts. Regional Office in turn shall scrutinize and process the proposals. The discretion to accord write off approval will be delegated to ROCC from time to time.

    4. The branches will be advised to ensure that writing off loans should not in any manner dilute the recovery mechanism and should not give any negative signals to regular and prompt borrowers.

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EMCA House, 205, Ballard Estate, Fort, Mumbai-400001, Maharashtra.

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