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Lesson ID 261014
Version 1/19012018

Recovery of Loan Accounts

 Credit risk is the most sensitive area in the Bank. Once an account becomes NPA, the Bank first
approaches the borrower for regularization of the account at the earliest.
 The same is done through the recovery of critical dues (minimum irregular amount required for up
gradation of an NPA account) and thereby upgrading the asset or through restructuring of debts
where immediate recovery is not feasible but the account is having merit / potentiality to revive in
due course.
Objective:
Recovery plays an important role for the profitability & existence of the bank.

Causes for poor recovery:

1. External
 Natural calamities beyond the controlling capacity of the borrower
 Political interference in recovery process
 Changes in Govt. policy
 Non- availability of risk cover

2. Internal
 Failure of activity for economic reasons
 Personal accident; death
 Shifting of business/residence
 Lack of technical/ managerial skills
 Poor maintenance of assets
 Willful default
 Improper identification of activity/borrower
 Improper appraisal
 Delay in loan sanction
 Under/over financing
 Unrealistic repayment schedule
 Lack of post disbursement follow up
 Lack of borrower contact
 Inadequate recovery efforts
 Inefficient internal control systems
 Low motivation commitment
 Lack of information to borrower on due dates, amount etc.
 Wrong identification/ classification of loan assets

NPA Management:
1. Preventive Action
2. Remedial Action

1. Preventive Action
 Have diversified portfolio
 Recovery volunteers
 Fixing up proper repayment schedule

2. Remedial Action
 Incentives for recovery
 Regular contact with borrowers
 Rapport with Govt. officials
 Pressure on guarantors
 Special recovery drives
 Compromise mechanism
 Filing of insurance claims
 Settlement of claims with ECGC, CGTMSE, etc.
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Strategy for Recovery

 Cash Recovery
 Up gradation /Restructured/ Rescheduled
 Waiver of Legal Action
 Bank’s own compromise proposal
 Lok Adalat
 Recovery of certificate cases
 SARFAESI ACT-2002
 Recovery of Debts due to Banks & financial Institutions act, 1993 (DRT Act)
 Filing of Suit in Civil-Court
 Insolvency and Bankruptcy Code, 2016
 Write Off

1. Cash Recovery in NPA accounts

Recovery in the following manner is considered as cash recovery:
a. Any reduction in outstanding balance except write-off provided by Head Office.
b. Recovery in Compromise settled accounts.
c. Recovery from sale of charged Assets either through DRT, Court, SARFAESI Act.
Action Points
 Branch has to prepare list of NPA borrowers inclusive of written-off debts and amount of overdue
there-against.
 Demand notices are to be served at regular intervals.
 List of defaulting borrowers is to be handed over to the respective Panchayat / Municipalities
seeking their assistance for recovery of dues.
 Regular recovery camps/ Settlement Camps/ Rin Mukti Shivir are to be organized on predetermined
date with proper publicity / advertisement and preparations should be in advance
 The Tehsildars / Amins are to be contacted regularly in RC/Certificate cases for recovery purposes.
 Recovery issue is required to be raised regularly in BLBC/DCC/DLRC/SLBC Meeting and regular
follow up measures are to be continued.
 All employees/Officers are to be involved in the process of recovery.
 Execution proceedings in decreed debts are to be made for disposal of the assets for recovery of
Bank dues.
 The progress of recovery is to be reviewed branch wise by the respective controlling office at least
once in a month.
 Representatives of respective Zonal Offices should visit the branches regularly to take stock of the
situation and accelerate the process of recovery.
2. Up-gradation
Up-gradation means the conversion from status of NPA to Standard asset after deposit of required
irregular amount & it is normally done in sub-standard category of NPAs.
Action Points for up-gradation
 Listing of all fresh NPAs/ substandard assets/restructured assets.
 Assessment of irregularities both by nature and quantity.
 Critical analysis and identification of potential accounts for up gradation.
 Allocation of the accounts to the employees/ Officers of the Branch for close/personal follow up &
monitoring.
 Personal visit to the borrowers and persuasion for regularization of the accounts / payment of
overdue amount.
 The outcome of the visit to be recorded for future course of action.
 The development in the accounts to be noted by the Zonal Offices and the progress made be
reviewed on monthly basis.
 The branch has to continue follow-up measures till up-gradation of the accounts.
 On up-gradation of the account, the same is to be monitored continuously to prevent it from further
slippage
3. Waiver of Legal Action:
Applicability of Waiver of Legal Action:
 Chances of recovery is less in situations like Filing of suit in small loans under Priority Sector
Credit/Various Govt. Sponsored Schemes, borrowers affected by natural calamities, economic slow-
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down, stiff competition, unstable markets, and volatility in price system, disturbed payment/
settlement system etc.
 These cases are nothing but throwing good money after bad money for some uncertain purposes.
Filing of suit will only attract additional legal cost.
In these cases waiver of legal action is considered.
Waiver of Legal Action by the Approving Authority
 The delegated authority will be exercised only after being fully satisfied that chance of recovery
through legal action are remote and not cost effective at all.

Action Points by Branches in Legal Action Waived Accounts

 Branches after the receipt of the approval of legal action waivement from the competent authority
will first mark at appropriate place in the CBS system.
 Waiver of legal action will be accorded strictly as Bank’s internal decision and will not be divulged to
the borrower(s)/ guarantor(s) under any circumstances either in writing or verbally.
 Recovery efforts will continue to be made for realization of bank’s dues.
4. Write-Off of NPA /Bad Debts:
 Recovery of Bad Debts is the prime issue of concern before the Bank and all possible measures
including legal proceedings are initiated for recovery of non-performing advances, but in many
cases, the desired outcome is not ensured.
 In such cases, where no security is available and full provision has been made, the Bank adopts
write off as one of the measures to bring down its gross level of NPA.
Types of Write-Off: It is of 3 types
i. Compromise linked Write Off:
To write-off left over balance amount after adjustment of the entire compromise sum.
ii. Virtual Write Off:
 Account is closed at branch level by crediting write-off amount provided by Head Office where
there is nil security or negligible security & 100% provision is made in these cases
Iii.Prudential Write Off:
 It is done at HO level only
 Account continues to remain alive as normal NPA account at branch level.
 No credit advice is issued by Head Office to the Branches.
 This write-off is considered as an internal arrangement and the borrower/ guarantor is not
absolved from liabilities/ responsibilities.
5. Filing of Suit in Debt Recovery Tribunals (DRT)
 NPA accounts having Suit amount of Rs.10.00 Lakhs and above are to be filed in DRTs having the
jurisdiction under section 19 of RDDBFI Act with the permission of competent authority.
 Permission from competent authority must be taken before filing suit.
 The list of all the documents should be filed in the DRT at the time of filing the Original Documents
so that same may be noted in the Order sheet.
 Derecognized Interest and uncharged Interest up to the date of filing suit must be added in suit
amount.
 Complete details of the Hypothecated movable assets, Mortgaged immovable properties and other
attachable assets if any, should be incorporated in the Original Application. (OA)
 Application may also be filed before DRT for seeking special orders
 Complete the service of the summons issued by the DRT within 15-20 days and ascertain the
service from postal track available on internet for 30 days.
 File an application before the tribunal on next hearing date for service through alternate mode if
summons are not served.
5. Filing of Suit in Civil-Court

a. NPA accounts having Suit amount of below Rs.10.00 Lakh has to be filed in the Civil Court having
jurisdiction with the permission from competent authority.
b. Branches should try to settle maximum number of suit filed/decreed cases and also non- suit filed
cases through Lok Adalat conducted by Court every month. The concerned District judge should be
met and requested to organize Lok Adalat exclusively for our bank if having more number of cases.
It is also a good tool to obtain decree at Pre-litigation stage.
c. Branch should file execution of decree, if compromise approved in Lok Adalat, is failed.
d. Branches should file Application for refund of court fee before respective court, if case is settled in
Lok Adalat, at the earliest.
e. Branches should file Application for issuance of appropriate order for Final Decree.
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 Branches are required to obtain the permission from the competent authority and for this, submit a
history Sheet covering details of the account, security particulars, reasons for account becoming
irregular, recovery measures adopted for realization of dues, staff accountability aspect, if any, and
other related matters to Zonal Offices in case of branches headed by Managers upto Scale-III.
 Certificate can be filed before concerned Govt. officials before expiry of limitation.
 The records of such Certificates should be reconciled regularly. The concerned Govt.
Officials/Certificate Officer/District Collectorate should be met and requested to help the Bank in
recovery of its Bad Debts. The Tehsildars/ Amins are to be involved in the process of recovery.
Regular visit / persuasion for recovery is to be made so that the borrowers come forward to repay
their dues or to settle their dues.
 An application should also be filed for attachment of personal properties, salary, Balance lying in
other bank’s accounts.
 A Separate register is to be maintained with necessary details such as RC no., Date of filing, Name
and address of the borrower, Details of security available, Date when Demand notice issued, Next
date of hearing, Amount recovered, etc.
6. Insolvency and Bankruptcy Code, 2016
Key Features relating to Companies or LLP or any other body corporate are as under:
 Where any corporate debtor commits a default, a financial creditor, may initiate corporate
insolvency resolution process.
 The insolvency resolution process should be completed within 180 days which may further be
extended up to 90 days but only once.
 Under Fast Track mode, Corporate Insolvency resolution process should be completed within 90
days.
Initiation of Corporate Insolvency Resolution Process by Financial Creditor:
 A financial creditor may file an application before NCLT for initiating corporate insolvency resolution
process against a corporate debtor when a default has occurred in respect of a financial debt of Rs.
1.00 lakh and above.
Initiation of Corporate Insolvency Resolution Process by the Corporate Debtor
 A Corporate applicant/debtor can initiate a resolution process where the Corporate debtor has
committed a default by filing an application to the NCLT along with its books of account, other
relevant documents and the name of resolution professional proposed to be appointed as an interim
resolution professional.
 The Adjudicating Authority shall, within fourteen days of the receipt of the application, by an order
admit such application if the application is complete and no disciplinary proceeding is pending
against the proposed interim resolution professional.

7. Lok Adalat
 Lok Adalat is one type of compromise settlement for both suit filed & non-suit filed accounts by
Consumer Forum/Court/DRT etc under the Legal Services Authority Act on regular basis at specified
places for an amount upto Rs.20.00 lakhs.
 The matters in Lok Adalat are being decided on mutual consent basis between bank and
borrower/guarantor.
 The award of Lok Adalat can be executed like a decree of Court/RC of DRT and there is no
provision of appeal against the award of the Lok Adalat as it is made based on mutual consent.
 No Court fee in non-suit filed cases and no extra court fee in suit filed cases is payable by the
bank/borrower/guarantor.

8. Empanelment of Recovery Agents:

Empanelment of Recovery Agents for recovery in NPA accounts is applicable for loan amount of
Rs.25, 000/- and above is in force since 24.01.2006.

References:

S. No. Cir. No. Date Description

1. 15074 27.06..2017 Recovery Management Policy: 2017-18(Chapter-4,7,8,9)