CHAPTER 1

Introduction

Banks were never so serious in their efforts to ensure

timely recovery and consequent reduction of NPAs as they
are today. It is important to remember that recovery
management, be of fresh loans or old loans, is central to
NPA management. This management process needs to start
at the loan initiating stage itself. Effective management of
recovery and NPA comprise two pronged strategy. First
relates to arresting of the defaults and creation of NPA
thereof and the second is to handling of loan delinquencies.
The tenets of financial sector reforms were revolutionary
which created a sense of urgency in the minds of staff of
bank and gave them a message that either they perform or
perish. The prudential norm has forced the bank to look into
the asset quality.
A debt from a loan, credit line or accounts
receivable that is recovered either in whole or in part after it
has been written off or classified as a bad debt. In
accounting, the bad debt recovery would credit the
"allowance for bad debts" or "bad debt reserve" categories,
and reduce the "accounts receivable" category in the books.

1
 Not all bad debt recoveries are "like-kind" recoveries.
For example, a collateralized loan that has been written off
may be partially recovered through sale of the collateral. Or,
a bank may receive equity in exchange for writing off a loan,
which could later result in recovery of the loan and, perhaps,
some additional profit.
Recovery
“Recovery is defined as the process of regaining and
saving something lost or in danger of becoming costs.”

Recovery is a key to the stability of the banking sector

there should be no hesitation in stating that Indian banks
have done a remarkable job in containment of Non-
Performing Assets (NPA) considering the over all difficult
environment. Recovery management is also linked to the
bank’s interest margin’s we must recognize that cost and
recovery management supported by enabling legal
framework hold the key to future health and competitiveness
of the Indian banks. No doubt, improving recovery
management in India is an area requiring expeditions and
effective actions in legal institutional and judicial processes.
Banks at present experience considerable difficulties in
recovering loans and enforcement of securities charged with
them. The existing procedure for recovery of debts due to
banks has blocked a significant portion of their funds in
unproductive assets, the value of which deteriorates with the
passage of time.

2
 1.1 Why recovery management?
• Bank deserves to be paid for their products and
services. The collection professionals in Recovery
Management Systems will work to see that.

• Reasonable fees with no up-front costs. They get paid

only when it is collect.

• Recovery Management Systems will design a

collection strategy to meet bank’s objectives. Bank can
recover their debts without losing customers.

• Monthly settlements with meaningful reporting. Status

updates on demand.

• Extensive experience obtaining and collecting money

judgments in Ohio. Garnishments, liens, and levies
Recovery Management Systems will collect when legal
action is the only option.

• Cutting edge skip-tracing tools and techniques

recovery Management Systems can work 1st, 2nd, and
3rd placements and even turn bank old judgments into
money.

3
 1.2 Advantages & Disadvantages of recovery

Advantages:
1) The process of assigning debt collection to outsides
enables officials from Banks to develop more
remunerative new business.
2) Third party involvement in debt collection has proven
time and again to improve the chances of recovering
bank dues as these people are specialists in
negotiating with debtors and the result usually speak for
themselves;
3) A skillfully negotiated debt collection could mean saving
on litigation cost.
4) The process of assigning debt collection to outsides
enables officials of non-Banks. Cost to develop more
beneficial new business.

Disadvantages:

1) Debt collection does cost money;

2) The debt collection agency will be establishing a

relationship with the banks customers, which could be
potentially harmful if they sour that relationship by not
dealing with customers in a courteous manner.

4
 1.3 Certain important points for debt recovery

On the basis of the foregoing procedure for normal

recovery process, we may list below certain Don’ts for the
dent recovery, which are as follows:
1) Don’t violate or breach the recovery policy, procedure
etc. prescribed by the principal.

2) Don’t exceed the authority given in the recovery

arrangement.

3) Don’t make a call to the debtor before 0700 hours or

after 2100 hours.

4) Don’t make anonymous calls or bunched calls to the

debtor, which may be perceived as harassment.

5) Don’t conceal or misrepresent your identity during calls

and visit or other interaction with the debtor.

6) Don’t show uncivil/indecent/dirty behavior or use such

language during calls and visits to the debtor.

7) Don’t harass/humiliate/intimidate/threaten the debtor-

verbally or physically.

8) Don’t intrude into the privacy of the debtor’s family

members, friends/colleagues.

5
 9) Don’t disclose the customer’s debts/dues/account
information to unauthorized person.

10) Don’t forget that the debtor is a human being and deserves

to be treated with fairness and courtesy, despite the fact that

he/she is a debtor for the time being.

6
 1.4 Elements of debt recovery

The agency regarding debt recovery contains the main

terms and conditions agreed by the principal (say a bank)

and the agent. The main elements of the debt recovery

would generally include:

1) Specific tasks to be accomplished e.g. the amount to

be recovered from the specified loan accounts in
default and the broad time frame.
2) Debt Recovery Policy and Procedure of the bank.
3) Code of conduct in recovery process may include

dress code, verbal and written communication rules top

be followed by the individuals employed by the agency
for the purpose of collection.
4) Duties of the agent.
5) Rights of the agent, including the commissions/fees
payable by the principal to the agent/agency for the
recovery of debt/other services.
The Debt Recovery Policy and code of conduct in the
debt recovery will be regulations compliant, i.e. in
accordance with the directives and guidelines of the Reserve
Bank of India issued from time to time. If, however these are
not incorporated therein, it is advisable for agents to seek
clarification from the principal, as compliance with the
regulations is mandatory for the banks and also their
recovery agents.

7
 The Debt Recovery Agreement between the credit
institution and the debt recovery agent/agency serves as the
contractual arrangement that is legally binding on both. Such
an arrangement, being bank specific may vary from bank to
bank in details. The duties of the agent/agency the authority
delegated and code of conduct prescribed by the bank in the
process of recovery function would to be carefully noted for
strict compliance by the agent.

8
 1.5 Defaults of loan

One major problem which the banks in India are

facing is the problem of recovery and overdue of loans. The
reasons behind this may vary for different financial
institutions as it depends upon the respective nature of loans.
Here an attempt is made to find out the some causes of
default of loans due to which financial Institutions are facing
the problems of overdue of loans. The recovery officers of
different banks are interviewed for finding out the causes of
defaults. These reasons may be useful for the and Banks for
the better recovery of loans in future. After surveying different
banks, the following can be said to be some of the main
causes of default of loans from industrial sector:-
 Improper selection of an entrepreneur:-

Selection of the right Entrepreneur is one of the major

factors in the profitability of Banks. Two major criterion
namely the intention to repay and the capacity to repay
should be properly dealt with in Credit Evaluation. The
entrepreneurs who have the willingness, capabilities,
qualities and the requisite expertise for successfully setting
up and running an industrial unit, should be identified with
proper prudence and judiciousness. This is the best way of
safeguarding the investment of a bank, thereby ensuring
proper and timely repayment. Unbiased survey reports of the
site and capability of the Entrepreneur must be verified by
the surveyor. In other words the credit worthiness of the
entrepreneur as well as the project should undergo very
careful scrutiny before the sanctioning of the loan. Strict

9
measures and security should taken before the sanctioning
of the loan.
 Deficient analysis of project Viability:-
One of the important reasons for poor recovery of loan
is attributable to wrong selection of projects. Success of any
project depends upon the viability of the project, and the
viability in turn, depends upon the easy availability of raw
material, transportation, railways, skilled labour,
communication facilities, markets etc. If any of the above is
not easily available to the entrepreneur it results in an
increase in the cost of the project and also in delay of
production. This inevitably causes default in repayment of
loans.

There are many examples where the banks accede to

finance projects deficient in one or more of these areas. In
usual practice, when an entrepreneur approach for a loan he
presents his project in such a way that no one can easily
comprehend the non-availability of the primary prerequisites.
All the weak points are camouflaged and only strong points
of the project are highlighted.
 Inadequacy of Collateral Security/Equitable
Mortgage against Loan:-
Collateral Security by way of mortgage of immovable
property or other fixed assets, thereby creating a charge,
trains the mind of the borrower to be prepared to pay the
dues to the lenders. But when he is free from this fear of
losing his encumbered asset in the event of his defaulting in
the payment of dues to banks, he often takes the liberty, and

10
tends to weigh the pros and cons vis-à-vis default. Security
against loan, though at times may fall harsh on the borrower,
serves a worthwhile purpose in that it creates promoters'
stake in the borrowers and thus, disciplines the borrower to
be more committed in paying the dues to Banks.
 Unrealistic Terms and Schedule of Repayment:-
Occasions are not few when there develops a tendency
on the part of the financers to paint a rosy picture of the
project at the time of appraisal. If the sanctioning authority is
guided by considerations of personal interests, many things
may happen. The breakeven point of a project may be shown
at an unrealistically low level of operation, or profitability may
be shown at an unduly high level just to brighten the chances
of acceptability of the project by the financial institution; or
cash inflow may be shown in an unduly optimistic manner
and, therefore, Debts Service Coverage Ratio (DSCR)
worked out incorrectly, fixing unrealistically high installments
and conservative schedule of repayments. These inner pulls
and pressures may find reflection in fixing excessive
amounts of installments in order to show an early period of
repayment. The borrower at this stage finds himself in an
unenviable position of a 'Yes Master' and nods his head at
whatever conditions are attached or whatever repayment
schedule is fixed by the financial institutions, in all probability,
covering up his design to evade payment of the future dues.
And, the real problem surfaces when repayment of
installment/payment of interest falls due and the borrower
conveniently and blissfully ignores calls for clearance of the
said dues, not so much due to his intention to defraud the
11
loans, as due to him already bleeding white to keep his
concern going.
 Lack of Follow up Measures:-
"A stitch in time saves nine"
Follow-up measures taken regularly and systematically
keep the borrowing unit under constant vigil of the banks.
Many ills can be checked through such follow-up measures
by keeping the borrowing units on their alertness and guiding
them to rectify their mistakes in the first opportunities or
extending them a helping hand in tiding over their tight times.
Normally, such close follow-up programs are conspicuous by
their absence. In the result, the borrowing units not only
ignore payment of their dues to banks but also often tread on
wrong tracks, much to the detriment of their own financial
health and that of the banks.
Performance of the borrowing units, if carefully and
systematically monitored through regular inspections by
scrutiny of returns, annual balance sheet and inspection of
site, can be significantly improved. Naturally, such
inspections prevent the borrowers from deviating from the
terms and conditions of the loan or from diverting any fund
for purpose other than those earmarked in the sanction letter
and keep the financial health of the units in good order.
 Labour problems:-

The labour situation in India can be broadly classified

into two categories namely availability and welfare related
problems. Skilled labour is in shortage for many specialized
industrial units particularly because of the geographical

12
situation of such units. Shortage of labour results in
unwarranted deceleration of production thereby hampering
the profitability of the concerned unit. On the other hand
labour welfare is grossly neglected by industrial units leading
to a feeling of dissatisfaction and disgruntlement among the
working force. However, it would be pertinent to mention
here, that there are numerous instances where political and
vested interests tend to instigate labour problems.
 Default due to natural calamities:-
A certain proportion of default can be attributed to
natural calamities such as floods, earthquakes, storms, etc.
Prima-facie this would seen to be a factor beyond human
control. A more detailed insight, would however, suggest that
certain precautionary preventive measures such as proper
meteorological and topographical analysis of the industrial
sight can go a long way in reducing this element of risk.
Natural calamities not only affect the unit directly but also
exert additional burden on the Government in terms of relief
measures, waivers etc. A further fraction, albeit nominal, is of
such borrowers who tend to take undue advantage of such
natural calamities in order to avoid repayment, thereby
increasing the magnitude of default.

CHAPTER 2

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 What is NPA?
For a bank, an NPA or bad debt is usually a loan that is
not producing income. Earlier it was largely applicable to
businesses. But things have changed with banks widely
extending consumer loans (home, car, personal and
education, among others) and strict asset classification
norms.
If a borrower misses paying his equated monthly
installment (EMI) for 90 days, the loan is considered bad, or
an NPA. High NPAs are a sign of bad financial health. This
has wide-ranging ramifications for a bank, especially in the
stock market and money market. So, as soon as a debt goes
bad, the banks want it either made better or taken out of their
books.

The genesis (origin) of an NPA

There are many reasons as to why a loan goes bad.
For a business, it could be because it fails to take off.
Such a situation may arise because of sudden health
expenditure or job loss or death. Often, as in the US today, it
can be because of over-leveraging, when consumers borrow
against most of their assets and, maybe, have unsecured
loans too.
In such a case, any hit on income can jeopardize all
repayments. They, however, can file for bankruptcy under

14
Chapters 7, 11 and 13 of the United States Bankruptcy
Code. Indians don't have such an option.
In India, the situation has worsened due to banks
aggressively pushing loans, even unsecured ones, to
individuals to prevent idle assets on their books. President
and founder of International Consumer Rights Protection
Council, an NGO, says most customers in India are not
financially educated and banks are luring them to take more
and more loans, often without checking their financial
position

2.1 Meaning of NPA

15
 An asset is classified as non-performing asset (NPAs)
if dues in the form of principal and interest are not paid by the
borrower for a period of 180 days. However with effect from
March 2004, default status would be given to a borrower if
dues are not paid for 90 days. If any advance or credit
facilities granted by bank to a borrower become non-
performing, then the bank will have to treat all the
advances/credit facilities granted to that borrower as non-
performing without having any regard to the fact that there
may still exist certain advances / credit facilities having
performing status.
1) Why such huge levels of NPAs exist in the Indian
banking system (IBS)?
The origin of the problem of burgeoning NPAs lies in
the quality of managing credit risk by the banks concerned.
What is needed is having adequate preventive measures in
place namely, fixing pre-sanctioning appraisal responsibility
and having an effective post-disbursement supervision.
Banks concerned should continuously monitor loans to
identify accounts that have potential to become non-
performing.
2) Why NPAs have become an issue for banks in India?
To start with, performance in terms of profitability is a
benchmark for any business enterprise including the banking
industry. However, increasing NPAs have a direct impact on
banks profitability as legally banks are not allowed to book
income on such accounts and at the same time banks are
forced to make provision on such assets as per the Reserve
Bank of India (RBI) guidelines.

16
 Further, Reserve Bank of India (RBI) successfully
creates excess liquidity in the system through various rate
cuts and banks fail to utilize this benefit to its advantage due
to the fear of burgeoning non-performing assets.

17
 2.2 Strategy for recovery

Devising a strategy helps in achieving a set goal or

objective. Recovery agents should therefore devise a
strategy for debt recovery. The following guidelines would
help in preparing proper strategy for debt recovery.
i) The collection process should be compliant to the
bank-specific recovery norms and also regulatory
guidelines.
ii) The collection timing should be synchronized to the
cash inflow pattern of the debtors: For example,
recovery from salaried employees should be timed
when salary is received by or credited to the debtor’s
account, normally at the moth-end. In case of SME
borrowers the effort should coincide with cash flow on
account of sales. In case a collection from
agriculturist should be made, then it should be soon
after the crops are sold. This will call for knowledge of
bank products on the part of agents. It should be the
endeavour of the agent that collection should be made
well before the cash inflows are spent away by the
debtor for meeting other expenses.
iii) Adopt different collection strategy for different debtor
types: This is based on the dictum that ‘one size does
not fit all’. In the foregoing paragraphs, three types of
debtors have been described and they need different
strategies for recovery success:
• Normal debtors, i.e. who ‘can pay’ and ‘will pay’ if

reminded or/and persuaded to pay.

18
 • Difficult debtors, i.e. those who ‘can pay’, but ‘will not

pay’.
• Doubtful debtors, i.e. whose who can pay the reduced

amount as negotiated with them.

iv) While different strategies are required for different
types of debtors, the following are the common points
to be followed in all kinds of recovery strategies:
• Recovery effort should start with the establishing a
good rapport with the debtor. Communication, listening
and persuasive skills would be applied in building good
interpersonal relations.
• Go through the ‘know Your Customer’ papers furnished
by the bank and know the customer’s identify and
personal profile.
• Go through the copy of the loan agreement of the
debtor furnished by the bank and note down the
financial position, cash flow pattern, and assets
charged to the bank.
v) Record in notebook recovery efforts in chronological
order for each.

CHAPTER 3

Policy, Processes and procedure of debt

recovery management

Collection of post due debt or receivables of the bank

that has engaged a recovery agent is the core function of the
agent. All other functions, as discussed in the preceding

19
unit, revolve around this core function. We will discuss in
detail the policy, processes and procedure for debt recovery
function in this unit.
Banks lay down their policy and procedure for
collection of past due debts in conformity with the legal and
regulatory framework. The banks will in particular, abide by:
1) The RBI directives on recovery of debt, including
recovery agents engaged by the bank and,
2) The Model Policy on collection of Dues and
Repossession of security framed by the Indian Banks’
Association.
A bank will normally incorporate its policy and
procedure for debt recovery in the arrangement entered into
its recovery agents. In terms of the recovery management
agreed with the bank, the recovery agents should adhere to
the policy, procedure, etc. prescribed by the bank.

3.1 Loan recovery policy

The debt collection policy (recovery policy) of the bank

is built around dignity and respect to customers. The Bank
will not follow policies that are unduly coercive in recovery of
dues from borrowers. The policy is built on courtesy, fair
treatment and persuasion. The bank believes in following
fair practices with regard to recovery of dues from borrowers
and taking possession of security (properties / assets

20
charged to the bank as primary or collateral security) (known
as security repossession) and thereby fostering customer
confidence and long-term relationship.
The repayment schedule for any loan sanctioned by
the Bank will be fixed taking into account the repaying
capacity and cash flow pattern of the borrower. The bank will
explain to the customer upfront the method of calculation of
interest and how the Equated Monthly Installments (EMI) or
payments through any other mode of repayment will be
appropriated against interest and principal due from the
customers. The bank would expect the customers to adhere
to the repayment schedule agreed to and approach the Bank
for assistance and guidance in case of genuine difficulty in
meeting repayment obligations.
The Bank’s Security Repossession Policy (taking
possession of the mortgaged properties under SRESI Act or
acquiring the property as non banking asset through
enforcement of decree) aims at recovery of dues in the event
of default and is not aimed at whimsical deprivation of the
property. The policy recognizes fairness and transparency in
repossession, valuation and realization of security. All the
practices adopted by the bank for follow up and recovery of
dues and repossession of security will be in consonance with
the law.
General Guidelines:
All the members of the staff or any person authorized
to represent our Bank in collection and / or security
repossession would follow the guidelines set out below:

21
 1. The customer would be contacted ordinarily at the
place of his / her choice and in the absence of any specified
place, at the place of his / her residence and if unavailable at
his / her residence, at the place of business / occupation.
2. Identity and authority of persons authorized to
represent the Bank for follow up and recovery of dues would
be made known to the borrowers at the first instance. The
bank staff or any person authorized to represent the bank in
collection of dues or / and security repossession will identify
himself / herself and display the authority letter issued by the
bank upon request.
3. The bank would respect privacy of its borrowers.
4. The bank is committed to ensure that all written and
verbal communication with its borrowers will be in simple
business language and the bank will adopt civil manners for
interaction with borrowers.
5. Normally the bank’s representatives will contact the
borrower between 0700 hrs and 1900 hrs, unless
circumstances warrant visiting the borrower at odd hours and
occasions. Such circumstances would include continuous
irregularity in the accounts.
6. Borrower’s requests to avoid calls at a particular
time or at a particular place would be honored as far as
possible.
7. The bank will document the efforts made for the
recovery of dues and the copies of communication, if any,
sent to the customers will be kept on record.

22
 8. All assistance will be given to resolve disputes or
differences regarding dues in a mutually acceptable and in
an orderly manner.
9. Inappropriate occasions such as bereavement in
the family or such other calamitous occasions will be avoided
for making calls / visits to collect dues.

Giving notice to borrowers

While written communication, telephonic reminders or visits
by the bank’s representatives to the borrowers’ place or
residence will be used as loan follow up measures, the bank
will not initiate any legal or other recovery measures
including repossession of the security without giving due
notice in writing. The Bank will follow all such procedures as
required under law for recovery / repossession of security.

Repossession of Security
Repossession of security is aimed at recovery of dues and
not to deprive the borrower of the property. The recovery
process through repossession of security will involve
repossession, valuation of security and realization of security
through appropriate means. All these would be carried out in
a fair and transparent manner. Repossession will be done
only after issuing the notice as detailed above. Due process
of law will be followed while taking repossession of the
property. The bank will take all reasonable care for ensuring
the safety and security of the property after taking custody, in
the ordinary course of the business.

23
Valuation and Sale of Property
Valuation and sale of property repossessed by the bank will
be carried out as per law and in a fair and transparent
manner. The bank will have right to recover from the
borrower the balance due, if any, after sale of property.
Excess amount, if any, obtained on sale of property will be
returned to the borrower after meeting all the related
expenses provided the bank is not having any other claims
against the borrower.

Opportunity for the borrower to take back the security

As indicated earlier in the policy document, the bank will
resort to repossession of security only for the purpose of
realization of its dues as the last resort and not with intention
of depriving the borrower of the property. Accordingly, the
bank will be willing to consider handing over possession of
property to the borrower any time after repossession but
before concluding sale transaction of the property, provided
the bank dues are paid in full. If satisfied with the
genuineness of borrower’s inability to pay the loan
installments as per the schedule which resulted in the
repossession of security, the bank may consider handing
over the property after receiving the installments in arrears.
However, this would be subject to the bank being convinced
of the arrangements made by the borrower to ensure timely
repayment of remaining installments in future.

24
 3.2 Debt recovery processes
Debt recovery processes can be typically of following
kinds, each involving different procedure:
1) Difficult recovery process where the debtors are not
willing to pay and who intentionally resist or avoid recovery
efforts: The recovery agent has to follow special process of

25
recovery against the recalcitrant defaulters, in consultation
with the bank.
2) Assets possession process: If the recalcitrant debtors
do not eventually pay the dues, the movable assets charged
to the bank by way of hypothecation or pledge, can be
possessed by the bank or the recovery agent and thereafter
auctioned or otherwise sold to recover the dues. The
detailed procedure for such recovery is discussed later, after
explaining the meaning of pledge, hypothecation etc. in
another Unit.
3) Legal recovery process: The intervention of the court is
required to possess mortgaged immovable property by the or
its recovery agent. Also if the charged assets do not exist, or
the debt is unsecured, the debtor will have to be sued for
recovery of the dues by the bank/recovery agent.

3.3 Procedure of tribunal

1) Application to the Tribunal:

(1) Where a bank has to recover any debt from any person, it
may make an application to the Tribunal within the local
limits of whose jurisdiction By Act 1 of 2000, sec. 8

26
 (w.r.e.f. 17-1-2000).Subs. by Act 1 of 2000, sec. 9, for
section 19 (w.r.e.f.17-1-2000).
(a) the defendant, or each of the defendants where there are
more than one, at the time of making the application, actually
and voluntarily resides or carries on business or personally
works for gain; or
(b) any of the defendants, where there are more than one, at
the time of making the application, actually and voluntarily
resides or carries on business or personally works for gain;
(c) the cause of action, wholly or in party, arises.
(2) Where a bank, which has to recover its debt from any
person, has filed an application to the Tribunal under
subsection (1) and against the same person another bank
also has claim to recover its debt, then, the later bank or
financial institution may join the applicant bank at any stage
of the proceedings, before the final order is passed, by
making an application to that Tribunal.
(3) Every application under sub-section (1) or sub-section (2)
shall be in such form and accompanied by such documents
or other evidence and by such fee as may be prescribed
Provided that the fee may be prescribed having regard to the
amount of debt to be recovered Provided further that nothing
contained in this sub-section relating to fee shall apply to
cases transferred to the Tribunal under sub-section of
section 31. On receipt of the application under sub-section
(1) or sub-section, the Tribunal shall issue summons
requiring the defendant to show cause within thirty days of
the service of summons as to why the relief prayed for
should not be granted.

27
(5) The defendant shall, at or before the first hearing or within
such time as the Tribunal may permit, present a written
statement of his defence.
(6) Where the defendant claims to set-off against the
applicant’s demand any ascertained sum of money legally
recoverable by him from such applicant, the defendant may,
at the first hearing of the application, but not 17 afterwards
unless permitted by the Tribunal, present a written statement
containing the particulars of the debt sought to be set-off.
(7) The written statement shall have the same effect as a
plaint in a cross-suit so as to enable the Tribunal to pass a
final order in respect both of the original claim and of the set-
off.
(8) A defendant in an application may, in addition to his right
of pleading a set-off under sub-section, set up, by way of
counter-claim against the claim of the applicant, any right or
claim in respect of a cause of action accruing to the
defendant against the applicant either before or after the
filing of the application but before the defendant has
delivered his defence or before the time limited for delivering
his defence has expired, whether such counter-claim is in the
nature of a claim for damages or not.
(9) A counter-claim under sub-section shall have the same
effect as a cross-suit so as to enable the Tribunal to pass a
final order on the same application, both on the original claim
and on the counter-claim.
(10) The applicant shall be at liberty to file a written
statement in answer to the counter-claim of the defendant
within such period as may be fixed by the Tribunal.

28
(11) Where a defendant sets up a counter-claim and the
applicant contends that the claim thereby raised ought not be
disposed of by way of counter-claim but in an independent
action, the applicant may, at any time before issues are
settled in relation to the counter-claim, apply to the Tribunal
for an order that such counter-claim may be excluded, and
the Tribunal may, on the hearing of such application, make
such order as it thinks fit.
(12) The Tribunal may make an interim order (whether by
way of injunction or stay or attachment) against the
defendant to debar him from transferring, alienating or
otherwise dealing with, or disposing of, any property and
assets belonging to him without the prior permission of the
Tribunal.
(13) (A) Where, at any stage of the proceedings, the Tribunal
is satisfied, by affidavit or otherwise, that the defendant, with
intent to obstruct 18 or delay or frustrate the execution of any
order for the recovery of debt that may be passed against
him,
(i) is about to dispose of the whole or any part of his property;
or
(ii) is about to remove the whole or any part of his property
from the local limits of the jurisdiction of the Tribunal; or
(iii) is likely to cause any damage or mischief to the property
or affect its value by misuse or creating third party interest,
the Tribunal may direct the defendant, within a time to be
fixed by it, either to furnish security, in such sum as may be
specified in the order, to produce and place at the disposal of
the Tribunal, when required, the said property or the value of

29
the same, or such portion thereof as may be sufficient to
satisfy the certificate for the recovery of the debt, or to
appear and show cause why he should not furnish security.
(B) Where the defendant fails to show cause why he should
not furnish security, or fails to furnish the security required,
within the time fixed by the Tribunal, the Tribunal may order
the attachment of the whole or such portion of the properties
claimed by the applicant as the properties secured in his
favour or otherwise owned by the defendant as appears
sufficient to satisfy any certificate for the recovery of debt.
(14) The applicant shall, unless the Tribunal otherwise
directs, specify the property required to be attached and the
estimated value thereof.
(15) The Tribunal may also in the order direct the conditional
attachment of the whole or any portion of the property
specified under subsection.
(16) If an order of attachment is made without complying with
the provisions of sub-section, such attachment shall be void.
(17)In the case of disobedience of an order made by the
Tribunal under sub-sections (12), (13) and (18) or breach of
any of the terms on which the order was made, the Tribunal
may order the properties of the person guilty of such
disobedience or breach to be attached an may also order
such person to be detained in the civil prison for a term not
exceeding three months, unless in the meantime the Tribunal
directs his release.
(18) Where a certificate of recovery is issued against a
company registered under the Companies Act, 1956 (1 of
1956) the Tribunal may order the sale proceeds of such

30
company to be distributed among its secured creditors in
accordance with the provisions of section 529A of the
Companies Act, 1956 and to pay the surplus, if any, to the
company.
(19) The Tribunal may, after giving the applicant and the
defendant an opportunity of being heard, pass such interim
or final order, including the order for payment of interest from
the date on or before which payment of the amount is found
due up to the date of realization or actual payment, on the
application as it thinks fit to meet the ends of justice.
(20) The Tribunal shall send a copy of every order passed by
it to the applicant and the defendant.
(21) The Presiding Officer shall issue a certificate under his
signature on the basis of the order of the Tribunal to the
Recovery Officer for recovery of the amount of debt specified
in the certificate.
(22) Where the Tribunal, which has issued a certificate of
recovery, is satisfied that the property is situated within the
local limits of the jurisdiction of two or more Tribunals, it may
send the copies of the certificate of recovery for execution to
such other Tribunals where the property is situated:
Provided that in a case where the Tribunal to which the
certificate of recovery is sent for execution finds that it has no
jurisdiction to comply with the certificate of recovery, it shall
return the same to the Tribunal which has issued it.
(23)The Tribunal may made such orders and give such
directions as may be necessary or expedient to give effect to
its orders or to prevent abuse of its process or to secure the
ends of justice.

31
2) Appeal to the Appellate Tribunal.
(1) Save as provided in subsection
(2) any person aggrieved by an order made, or deemed to
have been made, by a Tribunal under this Act, may prefer an
appeal to an Appellate Tribunal having jurisdiction in the
matter. No appeal shall lie to the Appellate Tribunal from an
order made by a Tribunal with the consent of the parties.
(3) Every appeal under sub-section shall be filed within a
period of forty-five days from the date on which a copy of the
order made, or deemed to have been made, by the Tribunal
is received by him and it shall be in such form and be
accompanied by such fee as may be prescribed: Provided
that the Appellate Tribunal may entertain an appeal after the
expiry of the said period of forty-five days if it is satisfied that
there was sufficient cause for not filing it within that period.
(4) On receipt of an appeal under sub-section, the Appellate
Tribunal may, after giving the parties to the appeal, an
opportunity of being heard, pass such orders thereon as it
thinks fit, confirming, modifying or setting aside the order
appealed against.
(5) The Appellate Tribunal shall send a copy of every order
made by it to the parties to the appeal and to the concerned
Tribunal.
(6) The appeal filed before the Appellate Tribunal under sub-
section shall be dealt with by it as expeditiously as possible
and endeavor shall be made by it to dispose of the appeal
finally within six months from the date of receipt of the
appeal.

32
3) Deposit of amount of debt due, on filing appeal.
Where an appeal is preferred by any person from
whom the amount of debt is due to a bank or a consortium of
banks, such appeal shall not be entertained by the Appellate
Tribunal unless such person has deposited with the
Appellate Tribunal seventy-five per cent of the amount of
debt so due from him as determined by the Tribunal under
section 19: Provided that the Appellate Tribunal may, for
reasons to be recorded in writing, waive or reduce the
amount to be deposited under this section.

4) Procedure and Powers of the Tribunal and the

Appellate Tribunal.
(1) The Tribunal and the Appellate Tribunal shall not be
bound the procedure laid down by the Code of Civil
Procedure, 1908 (5 of 1908), but shall be guided by the
principles of natural justice and, subject to the other
provisions of this Act and of any rules, the Tribunal and the
Appellate Tribunal shall have powers to regulate their own
procedure including the places at which they shall have their
sittings.
(2) The Tribunal and the Appellate Tribunal shall have, for
the purposes of discharging their functions under this Act, the
same powers as are vested in a civil court under the Code of
Civil Procedure, 1908 (5 of 1908), while trying a suit, in
respect of the following matters, namely:--
(a) Summoning and enforcing the attendance of any person
and examining him on oath;

33
(b) Requiring the discovery and production of documents;
(c) Receiving evidence on affidavits;
(d) Issuing commissions for the examination of witnesses or
documents;
(e) Reviewing its decisions;
(f) Dismissing an application for default or deciding it ex
parte;
(g) Setting aside any order of dismissal of any application for
default or any order passed by it ex parte;
(h) Any other matter which may be prescribed.
(3) Any proceeding before the Tribunal or the Appellate
Tribunal shall be deemed to be a judicial proceeding within
the meaning of sections 193 and 228, and for the purposes
of section 196, of the Indian Penal Code (45 of 1860) and the
Tribunal or the Appellate Tribunal shall be deemed to be a
civil court.

NORMAL RECOVERY PROCEDURE:

As mentioned above, this procedure will generally
apply to the debtors who are willing to pay the dues with
normal recovery process. Based on the above-mentioned
regulatory guidelines, following procedure may be outlined
for such recovery. However the recovery agents should
follow the bank-specific debt recovery procedure as advised
by their principal. Below are given the main rules for making
telephone calls and visit to the debtor for recovery of dues:
1) The recovery agent has been authorized by the bank to
collect the past due debt from the particular customer.

34
2) The customer has been notified by the bank of the details
of the recovery agent for collection of the past-due debt.
3) Making customer calls: This is the first step in recovery
procedure and following rules should be followed
generally:
(i) Calls are made from the same number as advised
by the bank to the customer.
(ii) The agents disclose his identity and authority at the
first instance.
(iii) The agent contacts the debtor between 0700 hours
and 1900 hours, unless the special circumstance of
his/her business or occupation requires the bank to
contact of a different time. Under no circumstances,
can the customer be called beyond 2100 hours.
(iv) All calls where the customer becomes abusive or
threatening should be appropriately documented.
(v) Customer’s question be answered in full. They
should be provided with information requested and
given assistance in making recovery. Minor issues
should be resolved.
(vi) How often to call customer/ The purpose of a
collection call as to bring to the Customer’s notice
the obligation and to seek a commitment to pay on a
specified date. Once a promise is elicited a call may
be made to serve as a reminder and for confirmation
of payment.
(vii) If the customer is not available during a few calls
made by the agent, a message may be left to an
adult family member as follows” Please leave a

35
 message that ABC had called and request the
customer to call ABC back at the given phone
number”. The message should not indicate that the
customer ABC has overdue amount , or the call
originated from a Recovery agency.
4) Visit to customer (debtor) This would be the second
step in collection process. Following procedure should
generally be followed.
(i) A customer should be visited for debt collection only after
these conditions are satisfied;
• The debtor has not paid the due amount within the
days of grace and the dues are still outstanding against
him/her.

• The debtor has been notified of the amount due and

also of the name of the collection agent.

• The collection agent has taken an appointment from

the debtor for the visit.

(ii) During visit, the agent should be in proper dress and

appearance, or wear the dress prescribed by the principal
and follow the timing and place of the visit as per the
principal’s or RBI/IBA code, unless otherwise agreed by
the debtor expressly.
(iii) At the first stance, the agent should utter salutation
words (like good morning/evening…sir/madam, as per
custom of the bank). The agent should thereafter show
his ID card and authority given by the principal for debt
collection from the debtor./ Only after these initial

36
 formalities, the conversation regarding debt collection
should start.
(iv) The time of visiting the customer will be generally
between 0700 hours to 2100 hours. Visits earlier or
later than the prescribed time may be made only under
the following conditions:
• When the customer has expressly consented to that
timing.
• When attempts to contact the customer have resulted
in information that the customer is normally only available
outside these hours and no alternate telephone number is
available to contact him/her,
• When due to nature of the customer’s employment i.e.
working in shifts e.g. call center, hotel. He/she is usually
available outside these hours.
(v) The agent should respect privacy of the debtor.
Privacy policy as discussed above for calls would
apply during visits also.

(vi) During the visit, due respect and courtesy should be

shown to the customer and the interactions should
be civil and polite as per the principal’s policy.

(vii) During interactions with the debtor, the agent must

not use threats or intimidation verbally or by body
language. Under no circumstances, any physical
violence be used in debt collection process.

37
 3.4 Other modes of recovery

(1) Where a certificate has been issued to the Recovery

Officer under Sub-section of section 19, the Recovery

Officer may, without prejudice to the modes of recovery
specified in section 25, recover the amount of debt by any
one or more of the modes provided under this section.
(2) If any amount is due from any person to the defendant,
the Recovery Officer may require such person to deduct
from the said amount, the amount of debt due from the
defendant under this Act and such person shall comply with
any such requisition and shall pay the sum so deducted to
the credit of the Recovery Officer: Provided that nothing in
this sub-section shall apply to any part of the amount exempt
from attachment in execution of a decree of a civil court
under section 60 of the Code of Civil Procedure, 1908 (5 of
1908).
(3) (I) The Recovery Officer may, at any time or from time to
time, by notice in writing, require any person from whom
money is due or may become due to the defendant or to any
person who holds or may subsequently hold money for or on
account of the defendant, to pay to the Recovery Officer
either forthwith upon the money becoming due or being held
or within the time specified in the notice (not being before the
money becomes due or is held) so much of the money as is
sufficient to pay the amount of debt due from the defendant

38
or the whole of the money when it is equal to or less than
that amount.
(ii) A notice under this sub-section may be issued to any
person who holds or may subsequently hold any money for
or on account of the Defendant jointly with any other person
and for the purposes of this subsection, the shares of the
joint holders in such amount shall be presumed, until the
contrary is proved, to be equal.
(iii) A copy of the notice shall be forwarded to the defendant
at his last address known to the Recovery Officer and in the
case of a joint account to all the joint holders at their last
addresses known to the Recovery Officer.
(iv) Save as otherwise provided in this sub-section, every
person to whom a notice is issued under the sub-section
shall be bound to comply with such notice, and, in particular,
where any such notice is issued to a post office, bank,
financial institution, or an insurer, it shall not be necessary
for any pass book, deposit receipt, policy or any other
document to be produced for the purpose of any entry,
endorsement or the like to be made before the payment is
made notwithstanding any rule, practice or requirement to
the contrary.
(v) Any claim respecting any property in relation to which a
notice under this sub-section has been issued arising after
the date of the notice shall be void as against any demand
contained in the notice.
(vi) Where a person to whom a notice under this sub-section
is sent objects to it by a statement on oath that the sum
demanded or the part thereof is not due to the defendant or

39
that he does not hold any money for or on account of the
defendant, then, nothing contained in this sub-section shall
be deemed to require such person to pay any such sum or
part thereof, as the case may be, but if it is discovered that
such statement was false in any material particular, such
person shall be personally liable to the Recovery Officer to
the extent of his own liability to the defendant on the date of
the notice, or to the extent of the defendant’s liability for any
sum due under this Act, whichever is less.
(vii) The Recovery Officer may, at any time or from time to
time, amend or revoke any notice under this sub-section or
extend the time for making any payment in pursuance of
such notice.
(viii) The Recovery Officer shall grant a receipt for any
amount paid in compliance with a notice issued under this
sub-section, and the person so paying shall be fully
discharged from his liability to the defendant to the extent of
the amount so paid.
(ix)Any person discharging any liability to the defendant after
the receipt of a notice under this sub-section shall be
personally liable to the Recovery Officer to the extent of his
own liability to the defendant so discharged or to the extent
of the defendant’s liability for any debt due under his Act,
whichever is less.
(x) If the person to whom a notice under this sub-section is
sent fails to make payment in pursuance thereof to the
Recovery Officer, he shall be deemed to be a defendant in
default in respect of the amount specified in the notice and
further proceedings may be taken against him for the

40
realization of the amount as if it were a debt due from him, in
the manner provided in sections 25, 26 and 27
(4) The Recovery Officer may apply to the court in whose
custody there is money belonging to the defendant for
payment to him of the entire amount of such money, or if it is
more than the amount of debt due an amount sufficient to
discharge the amount of debt so due.
The Recovery Officer may, by order, at any stage of the
execution of the certificate of recovery, require any person,
and in case of a company, any of its officers against whom
or which the certificate of recovery is issued, to declare on
affidavit the particulars of his or its assets.]
(5) The Recovery Officer may recover any amount of debt
due from the defendant by distrait and sale of his movable
property in the manner laid down in the Third Schedule to
the Income-Tax Act, 1961 (43 of 1961).

Use of lok adalat

The Honorable Supreme Court also observed that
loans, personal loans, credit card loans and housing loans
with less than Rs.10 lakh can be referred to Lok Adalats. In
this connection, banks' attention is invited to Circular
DBOD.No.Leg.BC.21/09.06.002/2004-05 dated August 3,
2004 wherein they were advised to use the forum of Lok
Adalats organized by Civil Courts for recovery of loans.
Banks are advised that they should preferably use the forum
of Lok Adalats for recovery of personal loans, credit card
loans or housing loans with less than Rs.10 lakh as
suggested by the Honorable Supreme Court.

41
 Banks, as principals, are responsible for the actions
of their agents. Hence, they should ensure that their agents
engaged for recovery of their dues should strictly adhere to
the above guidelines and instructions.
Complaints received by Reserve Bank regarding
violation of the above guidelines and adoption of abusive
practices followed by banks’ recovery agents would be
viewed seriously. Reserve Bank may consider imposing a
ban on a bank from engaging recovery agents in a particular
area, either jurisdictional or functional, for a limited period. In
case of persistent breach of above guidelines. Similar
supervisory action could be attracted when the High Courts
or the Supreme Court pass strictures or impose penalties
against any bank or its Directors/ Officers/ agents with regard
to policy, practice and procedure related to the recovery
process.

42
 3.5 Programs of bank

 Credit counseling

It is the process of education to borrower about how

to avoid incurring debts that cannot be repaid as also how to
manage the debts burden and repayment commitments in
respect of a number of debts. This process is actually more
debt counseling than a function of credit education. Credit
counseling often involves negotiating with bank to establish a
debt management plan (DMP) for a customer. A DMP may
help the debtor repay his/her debt by working out a
repayment plan with the bank. DMPs, usually offer reduced
payments, fees and interest rates to the borrower. Recovery
agents refer to the terms dictated by the bank to determine
payments or interest reduction offered to customer in a debt
management plan.

 Debt Management Programs

Once a customer has come under a DMP, the bank

will close the customer’s various accounts and restrict any
future charges in the accounts. The most common benefit of
a DMP is the consolidation of multiple monthly payments into
one monthly payment, which is usually less than the sum of
the individual payments previously paid by the customer.
Some DMPs advertise that payment can be cut by 50%,
although a reduction of 10-20% is more common.

CHAPTER 4

43
 ICICI bank & its avenue

To understand about this big bank, we need to

understand how it became so big a force to reckon with.
ICICI (Industrial Credit Investment Corporation of India)
promoted the ICICI bank in 1994 with its stake reducing to
46% after the IPO in 1998. ICICI is a well-known name in
India along with IDBI and was formed in 1955 at the
initiative of the World Bank, Indian Government and Indian
Industries. Both of these institutions have an exceptional
brand-image and one of the highest possible ratings from
CRISIL and other rating organizations. ICICI can be
considered an oligopolistic corporation along with IDBI.
ICIC listed in NYSE in 2000. In 2001 it underwent a tight
marriage with Bank of Madura in a stock-only
amalgamation.

ICICI Bank (BSE: ICICI) (formerly Industrial

Credit and Investment Corporation of India) is India's
largest private sector bank in market capitalization and
second largest overall in terms of assets. ICICI Bank has
total assets of about USD 100 Billion (end-Mar 2008), a
network of over 1308 branches and offices, about 3950
ATMs, and 24 million customers (as of end July 2007).
ICICI Bank offers a wide range of banking products and
financial services to corporate and retail customers through
a variety of delivery channels and through its specialized

44
subsidiaries and affiliates in the areas of investment
banking, life and non-life insurance, venture capital and
asset management. But these data are dynamic. ICICI
Bank is also the largest issuer of credit cards in India. .
ICICI Bank has listed its equity shares on stock exchanges
at Kolkata and Vadodara, Mumbai and the National Stock
Exchange of India Limited, and it’s ADRs on the New York
Stock Exchange (NYSE).

The Bank is expanding in overseas markets and has

the largest international balance sheet among Indian banks.
The Bank now has wholly-owned subsidiaries, branches
and representatives offices in 18 countries, including an
offshore unit in Mumbai. This includes wholly owned
subsidiaries in the UK, Canada and Russia, offshore
banking units in Singapore and Bahrain, an advisory branch
in Dubai, branches in Sri Lanka, Hong Kong and Belgium,
and rep offices in the US, China, United Arab Emirates,
Bangladesh, South Africa, Indonesia, Thailand and
Malaysia. In particular, the bank is targeting the NRI (Non
Resident Indian) population

ICICI Bank reported marked-to-market loss of $264

million as of January 31, 2008 following the USA subprime
mortgage crisis.

4.1 Recovery management of ICICI bank

Here how it works

45
• Defaults are classified into two baskets – Soft and
Hard.
• The borrowers are segregated into baskets on the
basis of the time period of default. The baskets are
usually on the basis number on the basis of number of
days i.e. 0-30, 0-60, 0-120 and so on.
• The soft basket is when the default is at early, usually
below 90 days.
• The default shifts into hard basket if it is beyond 90
days.
• The bank sends reminder mails and makes telephone
calls to the borrower
• After several reminders if the borrower still shows no
sign of paying up then the bank sends an employee to
borrower to personally remind him of the re-payment.
• Even after the notice if the borrower ignores the bank
sends a legal notice to the borrower.
• If the borrower ignores the legal notice then the bank
either decided to write off the amount or recover the
amount.
• The recovery process is most of the times outsourced
to an external recovery agency.
• The recovery agency sends its recovery agents to
collect the money from the borrower, under the supervision
of the bank.
• The recovery agencies usually give the borrower a
stipulated time period within which the amount has to be
repaid back.
46
• In some cases, if the bank decides to use SARFAESI,
2002, then the recovery agency has to seize the assets of
the borrower.
• The recovery agents either manage to make the
borrower pay back the money or if the SARFAESI Act
comes into play then they auction off the seized assets of
the borrower and pay the bank.

NOTE: If borrower didn’t reply for bank notice, hence the

securitization and reconstruction of financial assets and
enforcement of security interest act, 2002 (securitization
act) comes into play.

Securitisation act of 2002

Discouraged by the results of debtors in filling

the coffers of banks, legislature enacted securitization and
reconstruction of financial assets and enforcement of
security interest act (securitization act) w.e.f. 21st day of
June 2002.The banks were empowered under section
13(4) of securitization act to take possession of secured
assets of the borrower including the right to transfer by way
of lease, assignment or sale for realizing the secured asset.
The role of the court was limited to challenge the measures
under section 13(4), by way of appeal, that too on deposit
of 75% of amount claimed on the notice under section
13(2) of securitization act.

4.2 Article
ICICI Bank fined Rs500, 000 for rough recovery methods

47
 A consumer commission has ordered ICICI Bank, the
country’s largest private sector lender, to pay a fine of
Rs500, 000 for use of force by the bank’s recovery agent on
a defaulting customer. The client who defaulted on loan had
approached the consumer affairs commission in Delhi
complaining of use of force by the bank’s recovery agents.

He alleged the recovery agents impounded his

vehicle and beat a friend’s son with iron rods, mistaking him
as the defaulter.

The Delhi Consumer Commission has ordered the

bank to pay the complainant, Tapan Bose, Rs500,000
compensation. (With register to required aren’t and outfits
independent are agents the methods. Recovery regarding
India of Bank Reserve the guidelines strict despite hires
country across)

Other big lenders like Citibank and HDFC Bank have

also dealt with consumer complaints about the strong-arm
tactics of recovery agents. The banks often dismiss the
recovery agents when confronted with such complaints.

Earlier, an ICICI Bank customer in Mumbai committed

suicide after alleged harassment by recovery agents. The
bank later paid his family compensation of Rs15 lakh.

Banks suffer the highest default rates on its "small-

ticket personal loans" that are usually below Rs50,000. The
rates of default on these loans are 10 per cent, compared to
2 per cent for credit card defaulters and 1.5 per cent for car

48
loans. The bank is reducing its exposure in the segment--it
now has around 3 million such loans. Banks often run into
trouble when recovery agents target defaulters for these
recoveries.

CHAPTER 5

49
 Debt recovery agent
The phrase “Debt Recovery Agent” comprises three
terms- Debt, Recovery and Agent. Let us understand the
meaning of these terms separately, before we explain the
meaning of “Debt Recovery Agent”.
Debt:
It refers to a sum of money owed by one person or
entity (debtor) to another person or entity (creditor). Thus
there are two parties to a debt- debtor who receives money
by way of a debt; and creditor who lends money to the
debtor. To illustrate, if Ram takes a loan of Rs. 3 lacs from a
bank for purchasing a car, Ram becomes the debtor (or
borrower), the bank is the creditor (or lender) and the loan of
Rs. 3 laces is the debt (principal). Ram would be required to
repay the loan in equated ,monthly installment
(EMI),comprising the principal and interest, spread over the
repayment period of, say, 3 years ( debt tenor).
Recovery:
It means collection or recovery of money from the
debtor by, or on behalf of the creditor, after it has become
due for payment in accordance with the debt terms agreed
between the creditor and the debtor. In the above example,
if Ram (debtor) fails to pay the agreed installment (EMI) on

50
the due date, the bank may send him notice to remind him to
pay the agreed amount within a stipulated period. If he does
not pay even after receiving the notice here that a debt
becomes payable by the debtor only on or after the due date,
but not before that date. If the debt is not paid on the due
date it becomes over due or past due.
Agent:
It is a legal term defined in section 182 of Indian
Contract Act as “a person employed to do any act for another
or to represent another in dealings with third person”. The
person for whom such acts are done, or who is represented,
is called the “Principal”. An agent has thus an authority to do
acts on behalf of the principal within the limits of the authority
and thereby bind the principal for such acts in relation to third
parties. There are several kinds of agents e.g. brokers
(financial or commodity brokers), auctioneers, insurance
agents, estate or property agents, commission agent, selling
agents, marketing agents, debt recovery agents.
Debt Recovery Agent may now be defined as a person
or entity engaged by a bank for the purpose of collecting
specified loans, or advances or other kind of dents from the
debtors (or borrowers) in accordance with the specified terms
and conditions. In the above examples of the car loan to
Ram, if the bank (creditor) engages XY will be called as Debt
Recovery Agent of the bank.

5.1 Engagement of Recovery Agents

51
 Banks are advised to take into account the following
specific considerations while engaging recovery agents:
Agent’ in these guidelines would include agencies
engaged by the bank and the agents/ employees of the
concerned agencies. Banks should have a due diligence
process in place for engagement of recovery agents, which
should be so structured to cover, among others, individuals
involved in the recovery process. The due diligence process
should generally conform to the guidelines issued by RBI on
outsourcing of financial services vide circular
DBOD.No.BP.40/ 21.04.158/ 2006-07 dated November 3,
2006.Further, banks should ensure that the agents engaged
by them in the recovery process carry out verification of the
antecedents of their employees, which may include pre-
employment police verification, as a matter of abundant
caution. Banks may decide the periodicity at which re-
verification of antecedents should be resorted to.
To ensure due notice and appropriate authorization,
banks should inform the borrower the details of recovery
agency firms / companies while forwarding default cases to
the recovery agency.
Further, since in some of the cases, the borrower might
not have received the details about the recovery agency due
to refusal / non-availability / avoidance and to ensure
identification, it would be appropriate if the agent also carries
a copy of the notice and the authorization letter from the
bank along with the identity card issued to him by the bank or
the agency firm / company. Further, where the recovery

52
agency is changed by the bank during the recovery process,
in addition to the bank notifying the borrower of the change,
the new agent should carry the notice and the authorization
letter along with his identity card.
The notice and the authorization letter should, among
other details, also include the telephone numbers of the
relevant recovery agency. Banks should ensure that there is
a tape recording of the content / text of the calls made by
recovery agents to the customers, and vice-versa. Banks
may take reasonable precaution such as intimating the
customer that the conversation is being recorded, etc.
The up to date details of the recovery agency firms /
companies engaged by banks may also be posted on the
bank’s website. Where a grievance/ complaint has been
lodged, banks should not forward cases to recovery agencies
till they have finally disposed of any grievance / complaint
lodged by the concerned borrower. However, where the bank
is convinced, with appropriate proof, that the borrower is
continuously making frivolous / vexatious complaints, it may
continue with the recovery proceedings through the
Recovery Agents even if a grievance / complaint is pending
with them. In cases where the subject matter of the
borrower’s dues might be sub judice, banks should exercise
utmost caution, as appropriate, in referring the matter to the
recovery agencies, depending on the circumstances.

5.2 Recovery agencies

53
 Debt recovery agents are employed Debt Recovery
Agencies who work for banks subject to certain terms and
condition. Debt recovery agencies are third-party businesses
that collect dues past-dues and other receivable of banks in
exchange for a fee. DRAs charge the banks/NBFCs for their
services in one of two ways:
(1)A flat fee and
(2) A percentage of amounts collected.
Most collection agencies use one of following three methods
to collect debts/dues viz.
(1) Contact and follow up through telephone
(2) Letters,
(3) Direct contact by visiting the debtors.
Before the debt recovery agent is given the job, banks
begin their work banks issue normal reminders to the
borrowers. However it is seen that in the case of retail loans
the initial reminders could also begin from the DRA.
Typically, collection agencies begin the collection process by
sending a demand letter followed by phone calls If these
efforts do not result in the payment, it will be followed up and
supplemented by visit to customers’ houses to more
intensive methods. Besides sending out letters and making
phone calls, some recovery agencies also specialize in
locating debtors who can no longer be reached at the
address or phone number listed on their accounts. Certain
act on behalf of banks to collect severely overdue accounts.

5.3 Training for Recovery Agents

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 In terms of our Circular DBOD.NO.BP.40/ 21.04.158/
2006-07 dated November 3,2006 on guidelines on managing
risks and code of conduct in outsourcing of financial services
by banks, banks were advised that they should ensure that,
among others, the recovery agents are properly trained to
handle with care and sensitivity, their responsibilities, in
particular aspects like hours of calling, privacy of customer
information etc.
Reserve Bank has requested the Indian Banks’
Association to formulate, in consultation with Indian Institute
of Banking and Finance (IIBF), a certificate course for Direct
Recovery Agents with minimum 100 hours of training. Once
the above course is introduced by IIBF, banks should ensure
that over a period of one year all their Recovery Agents
undergo the above training and obtain the certificate from the
above institute. Further, the service providers engaged by
banks should also employ only such personnel who have
undergone the above training and obtained the certificate
from the IIBF. Keeping in view the fact that a large number of
agents throughout the country may have to be trained, other
institutes/ bank’s own training colleges may provide the
training to the recovery agents by having a tie-up
arrangement with Indian Institute of Banking and Finance so
that there is uniformity in the standards of training. However,
every agent will have to pass the examination conducted by
IIBF all over India.

5.4 Soft skills for debt recovery

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 The previous unit focused on the regulatory
requirements in debt collection process, including the bank-
specific policy and procedure. These requirements are
mandatory, but may not automatically lead to full recovery.
Success in recovery depends on compliance with the
regulatory norms added with collection skills and strategy.
Both are complementary to each other. Mere regulatory
compliance without collection skills and strategy may not
result in recovery. Similarly, collection skills and strategy
without regulatory compliance may vitiate recovery
atmosphere in the long term.
In the present unit, we would briefly discuss some of
the essential skills and strategy that facilitate and improve
debt recovery. The objective is limited to acquainting the
readers with the meaning and key elements of skills and
strategy required in debt recovery. The learning can, and
should, be enhanced through detailed discussions in the
classroom of a training institute, including role plays by the
participants.
1) Communication skill:
Communication is the process of exchanging
information, ideas and thought etc. between at least two
persons in order to create a common understanding. In
recovery process, communication takes place between the
debtor and agent by words, in writing, eye contact or body
language (during personal meeting) Communication is of two
types:
• Verbal communication by spoken words,

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 • Non-verbal communication e.g. face language (facial
expression, eye contact), voice language (voice tone,
voice pitch), and body language (body position, body
movement) All or any of these elements of non-verbal
language communicate some message (whether
intended or unintended by the communicator) to the
receiver.
Following are the main principles of effective
communication, which could be followed by a recovery agent
(communicator) in communication with the debtor (receiver).
• The agent’s language (verbal as well as body
language) should be civil and courteous, as per the
bank-specific requirement.
• The objective of the communication should be clear.
• The language used should be clear simple and
courteous.
• The language used should be easily understood by the
receiver.
• The agent should be watchful and sensitive to the
receiver’s responses (including his/her body language
as mentioned above).
• Make sure that the non-verbal communication (or body
language) is not adverse to debtor, though
unintentional
2) Listening skill:
Listening is another skill which is recovery in process.
A good recovery agent should be a good communicator and
a good listener. Listening refers to all the ways in which

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communication is being received from the other party and
includes not only hearing but also facial body expressions,
attentiveness or lack of it. Following are the requisites of
good listening, which help improve communication and make
if effective:
• Hear attentively to what the debtor is saying. One may
hear, but not listen, if he/she is distracted or inattentive.
• Lack of listening conveys lack of regard/ respect for the
communicator; hence it should be avoided.
• Do not show impatience or haste while listening to the
debtor. You may lose some important information the
debtor washes to say.
• Do not show anger or disapproval, or other such facial/
body expression, while listening to the debtor’s poit of
view.
• Normally, commence speaking only after the other
party has finished speaking or making a point. Normally
do not interrupt. In other words, interrupt only when
absolutely necessary, e.g. when the points being
spoken are irrelevant or becoming unduly lengthy or
controversial and time is limited or is being exceeded.
Also interrupt softly by saying words like “excuse me.”
3) Inter-personal skill:
Inter-personal skill refers to ‘communication plus’ skill
that enhances the relationship and understanding between
two or more persons. It thus include communication and
listening skills, plus ‘something more’. This ‘something more’
would be explained here. Generally, person relate to each

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other favorably when they find support to their dignity, self-
respect, self-esteem, ideas and values. Establishing good
inter-personal relationship with a person means establishing
a ‘rapport’ with that person. Any transaction that enhances
the ‘self’ would be helpful for better inter-personal relation.
Conversely, any transaction that diminishes the ‘self’ is likely
to disturb the inter-personal relation. For instance, when a
recovery agent assumes a posture of superiority and belittles
the debtor in the communication process, the recovery agent
is really making the recovery difficult. Many recovery agents
who think otherwise and communicate/ behave rudely or
harshly in recovery process may turn out to be mostly
counter-productive overall. Following are some of the
elements of inter-personal skill for recovery agent :
• Communicate and listen properly and effectively,
as described in the preceding paragraph.
• Show empathy and respect to other party, not with
standing the fact that he/she debtor to the
principal.
• Do not make the debtor feel anxious/ insecure/
threatened by your communication verbal or non-
verbal. On the contrary, try to remove such
apprehension, if any, of the debtor.
• Give all the information the debtor asks for in
connection with the debt and its repayment. This
would help improve inter-personal relation and
also the recovery prospects.

2) Persuasive skill:

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 After having established good rapport with the debtor,
the next skill required in a good recovery agent is to be able
to persuade the debtor to repay the dues. This may be
termed as persuasive skill. The persuasive skill is built on
establishing a good rapport and winning the trust of the
debtor. Some of the elements of the persuasion in debt
recovery may be suggested as follows:
• Explain that the bank (principal) lends money out of
the deposits collected from the public and repayment
of the loans by the debtor and others as per the terms
would enable the bank to pay the deposits when
demanded by the depositors.
• Explain your task/ duty of collection of dues on behalf
of the principal and that you have no authority to
waive/ reduce or unduly postpone the recovery, which
only the principal can do.
• Show interest/ concern for the debtor by
understanding his/her problem and say that you would
try to give assistance to the possible, within the
authority, as agent, given to you by the principal.
• Explain that non-payment may adversely impact the
debtor’s credit history, which may make his/her future
borrowing with any bank costlier and difficult.
This should induce the debtor to pay.
• Also explained that non-repayment of the loan dues
would amount to breach of the loan agreement and
would result in the bank charging higher interest rate.

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 5.5 Function of recovery agents
The core function of a debt recovery agent is to collect
dues/receivables from specified debtors of the bank as per
agency agreement entered with the principal. Remitting the
collected funds to principal, keeping account of the
receivables collected and yet to be collected and reporting
the position and developments to the principal are essential
but ancillary to the core function. All these functions will be
specified in most agency agreement and would require to be
accordingly discharged by the debt recovery agent.
Apart from the easily collectible receivables, most
banks have on their books over due receivables from debtors
who are not traceable, or who show unwillingness pay or
who resist surrendering the security charged. In such cases,
the recovery process is difficult and requires handling by
specialized collection agencies to process the required
expertise. The functions of re-processing the security, initial
legal action and tracing the vanished debtors may be called
as specialized function of debt collecting agencies.
 Collecting dues receivable:
As mentioned above, collecting dues is the core
function of a debt recovery agent. Receivables refer to the
sums of money which have become due in the
loan/advances accounts and are payable on or after due
dates by the debtors to the creditors as per the

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loan/advances agreements entered between the lenders and
creditors. Thus the receivables in a loan/advances account
connote the following essential features:
1) Existence of loan or advance agreement between the
creditor and debtor.
2) Due date on or after which the obligation is required to
be discharged by the debtor in favour of the creditor.
In terms of the arrangement between the creditor bank
and the debt recovery agency the former authorizes the
agent to collect specified receivables from the named
debtors on or after the specified due dates. The required
particulars of the debtors and receivables to be collected
from them are furnished by the bank to the agent, along with
copies of the relative loan agreements.
Thus the debt recovery agent is legally authorized to
collect the specified receivables from the debtors on behalf of
the principal:
1) The loan agreement, and

2) The debt collection agency agreement.

The procedure and processes of debt collection, code

of conduct in collection process and other regulatory
requirements that need to be complied with by the recovery
agents are discussed in subsequent units.

 Remitted collected funds:

The funds collected from the debtors should be sent

deposited by the agent to the creditor periodically as per the
agency arrangement. Statement of collections remitted
should also be sent along with the remittance, preferably in

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duplicate and the copy acknowledged by the bank be kept on
record by the agent, in chronological order, for future
reference. These statements of remittance will from the basis
of claiming the agreed fee or commission by the agent from
the principal in due course.
 Book keeping of recovery management:

While each debt recovery agent may devise his/her

own accounting and book keeping methods, he/she has to
take care of the reporting requirements of it principal.
Further, book-keeping has to be sperate for each principal.
IT following would constitute the minimum requirement of
book-keeping for a recovery agent.
1) Lists of debtors received from the principal:
Collection of receivables is an going activity of a recovery
agent who may receive the ‘debtor’ lists from the principal
from time to time. The debtor lists from the basis of agent’s
activities and also the book-keeping required. These should
therefore be carefully kept on record in chronological order.
2) Ledger account of each debtor: Showing the amounts
of receivable collected and balance to be collected should be
kept in chronological or this can be maintained in the
computer also. It may be note that all the
collections/recoveries should be remitted to the a bank.
Normally agent cannot adjust its dues on account of fee
against the recoveries made on behalf of the bank.
3) Copies of loan/advances: Agreements between the
debtors and the bank is obliged to keep confidentiality of its
customer’s accounts and recovery and these should not be

63
divulged to third parties without the customer’s sent. As
such, a debt recovery agent must take all due care to the
required privacy and confidentiality as regards the records of
each due furnished by the bank and also as regards the
collections made remitted by him to the principal.

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 Case study

 HDFC Bank Recovery:-

Mr.Kaushik Agarwal, about 18 months back had

purchased 1 Tata Indigo, financed by HDFC bank. His EMI
for this month (May'08) was bounced due to some reasons.
The recovery person called him on the 22nd May for the
payment of the same. He was out of town at that moment so
Mr.Kaushik had asked him to send someone to his office on
the 24th to collect cash.
Now on 24th it slipped out of Kaushik’s mind that he had
to pay cash to HDFC Bank and hence he did not withdraw
any cash from the bank. As it was a Saturday so when the
person came for collection, he requested him to come on
Monday, as the bank was already closed for the day.
On this the person, who had called Kaushik earlier on
the 22nd, called him again and started shouting at him and
speaking in a very bad language. The person told Mr.
Kaushik that they know his Residence addresses, so if he
don’t pay them today they will come to his house and will
insult him in neighborhood. The person also passed threat on
him that if Kaushik don’t pay within 5 minutes it would be
very bad for him. The person kept using foul words and
shouting at him, until he disconnected the phone.
After this Kaushik had no option to go to his local police
station and lodge a complaint against that person, and Mr.

65
Kaushik have also decided to put a case against that person
and HDFC bank in consumer court as well as civil court.
Kaushik has also posted a complaint with HDFC
Grievance cell, docket no. TF22534017.
Kaushik requests the concerned authority to take some
action on this.

 ABC bank:

ABC Bank had granted a personal loan of Rs. 60,000

to XY, a lower middle class individual, for consumption
needs. The loan was to be repaid in installments by XY.
The loan was without any tangible security and also without
any third party guarantee. The borrower XY could not repay
in time some installments and therefore the loan became
overdue.
The ABC Bank gave XY’s Case to Z recovery agent,
along with other overdue loans for recovery. The Z recovery
agent called XY a couple of times and also visited him at his
residence. As XY was not able to repay the amount in
default, Z, used abusive and harsh languages in front on
XY’s wife and daughters to make recovery. During one of
the visits to XY’s house, Z and his colleagues took away
forcibly some of the things that were available in XY’s house
in front of his wife and daughters and also used threatening
language for payment of the dues. XY felt very much
humiliated and also depressed. Being unable to repay the
dues. XY committed suicide. He left a suicide note, blaming
Z for harassing him endlessly. He mentioned the abuses he

66
had suffered at the hands of Z before his wife and daughters.
He also mentioned the threat Z gave that he would suffer dire
consequences if he failed to repay the overdue amount.
Following the suicide death of XY, the local police
arrested Z and his colleagues (who used to accompany Z
during his visits to XY’s house) on charges of abetment of
suicide. A case was also filed against the ABC Bank, which
had to pay an ex-gratia payment of Rs.20 lakhs to the
deceased’s family. The incident has also been published in
the press and has damaged the Bank’s reputation in public
eye, at least for the time being.

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 Conclusion

To conclude with, till recent past, corporate borrowers

even after defaulting continuously never had any real fear of
bank taking any action to recover their dues despite the fact
that their entire assets were hypothecated to the banks. This
is because there was no legal Act framed to safeguard the
real interest of banks.
However with the introduction of Securitization Act,
2002 banks can now issue notices to their defaulters to repay
their dues or else make defaulters face hard and tough
actions under the aforementioned Act. This enables banks to
get rid of sticky loans thereby improving their bottom lines.
Also a hallmark of a good business is approaching it with a
fresh, new perspective and requires management that is fully
awake, fully alive and of course fully focused on making
things better.
Also, the passing of the Securitization Act, 2002 came
as a bonanza for investors in banking sector stocks that in
turn resulted into an improvement in their share prices.

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 BIBLIOGRAPHY

PRIMARY DATA:
IDBI Bank (Cuffe Parade, Mumbai)

SECONDARY DATA:
Book reference
 Handbook on debt (Indian Institution of banking and
finance)

 Business economics (T.Y.B.COM)

 Hindustan times (newspaper)

Web reference
 www.rbi.co.in

 www.icicibank.com

 www.iibf.org.in

- Mandar

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