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DEFINITION OF NPAS
A NPA is a loan or an advance where;
Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan, The account remains out of order in respect of an overdraft/ cash credit The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted The installment or interest remains overdue for two crop seasons in case of short duration crops and for one crop season in case of long duration crops
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CATEGORIES OF NPA
Substandard Assets Which has remained NPA for a period less than or equal to 12 months. Doubtful Assets Which has remained in the sub-standard category for a period of 12 months Loss Assets 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.
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PROVISIONING NORMS
Standard Assets general provision of a minimum of 0.25% Substandard Assets 10% on total outstanding balance, 10 % on unsecured exposures identified as sub-standard & 100% for unsecured doubtful assets. Doubtful Assets 100% to the extent advance not covered by realizable value of security. In case of secured portion, provision may be made in the range of 20% to 100% depending on the period of asset remaining sub-standard Loss Assets 100% of the outstanding
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Reschedulement of payment of interest and principal after considering the Debt service coverage ratio, contribution of the promoter and availability of security
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Lok Adalats
Small NPAs up to Rs.20 Lacs Speedy Recovery Veil of Authority Soft Defaulters Less expensive Easier way to resolve
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The objective of CDR is to ensure a timely and transparent mechanism for restructuring of the debts of viable corporate entities affected by internal and external factors, outside the purview of BIFR, DRT or other legal proceedings The legal basis for the mechanism is provided by the Inter-Creditor Agreement (ICA). All participants in the CDR mechanism must enter the ICA with necessary enforcement and penal clauses. The scheme applies to accounts having multiple banking/ syndication/ consortium accounts with outstanding exposure of Rs.10 crores and above. The CDR system is applicable to standard and substandard accounts with potential cases of NPAs getting a priority. Packages given to borrowers are modified time & again Drawback of CDR Reaching of consensus amongst the creditors delays the process
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DRT Act
The banks and FIs can enforce their securities by initiating recovery proceeding under the Recovery if Debts due to Banks and FI act, 1993 (DRT Act) by filing an application for recovery of dues before the Debt Recovery Tribunal constituted under the Act. On adjudication, a recovery certificate is issued and the sale is carried out by an auctioneer or a receiver. DRT has powers to grant injunctions against the disposal, transfer or creation of third party interest by debtors in the properties charged to creditor and to pass attachment orders in respect of charged properties In case of non-realization of the decreed amount by way of sale of the charged properties, the personal properties if the guarantors can also be attached and sold. However, realization is usually time-consuming Steps have been taken to create additional benches
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BIFR has been given the power to consider revival and rehabilitation of companies under the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA), which has been repealed by passing of the Sick Industrial Companies (Special Provisions) Repeal Bill of 2001. The board of Directors shall make a reference to BIFR within sixty days from the date of finalization of the duly audited accounts for the financial year at the end of which the company becomes sick The company making reference to BIFR to prepare a scheme for its revival and rehabilitation and submit the same to BIFR the procedure is same as laid down under the CPC. The shelter of BIFR misused by defaulting and dishonest borrowers It is a time consuming process
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Whether Second Amendment to Companies Act and SARFESI Provide effective and compatible enforcement
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The second amendment and SARFESI are a leap forward but requirement exists to make the laws predictable, transparent and affordable enforcement by efficient mechanisms outside of insolvency No definite time frame has been provided for various stages during the liquidation proceedings Need is felt for more creative and commercial approach to corporate entities in financial distress and attempts to revive rather than applying conservative approach of liquidation
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Tribunals have largely failed to serve the purpose for which they were set up. NCLT would be over-burdened with workload. Change in eligibility criteria for making a reference would itself generate a greater workload. The second amendment stops short of providing a comprehensive bankruptcy code to deal with corporate bankruptcy.
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Does not introduce the required roadmap of the bankruptcy proceeding viz:
Application for initiating Appointments & empowerment of trustee Operational and functional independence Accountability to court Monitoring and time bound restructuring Mechanism to sell off Number of time bound attempts for restructuring Decision to pursue insolvency and winding up Strategies for realization and distribution
Need for new laws & procedures to handle bankruptcy proceedings in consultation with RBI
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Preparation Stage
Thorough study of the case Find out our strengths and weaknesses in the case. Find out the vulnerable point/weaknesses of the borrower. Follow-up with the Borrower and Guarantors. Visit factory/Collaterals/residence. Find out properties not charged to the bank. Indicate that Bank is willing to compromise.
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THANK YOU
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