Alternative Dispute Resolution (ADR)

The traditional method of resolving legal disputes through conventional litigation procedure
turns out to be very expensive, too slow, and too cumbersome for many civil lawsuits. This
concern led to the growing use of ways other than litigation to resolve disputes. These other
methods are commonly known collectively as Alternative Dispute Resolution (ADR). ADR is a
procedure for settlement of disputes by means other than litigation; e.g., by arbitration/mediation.
Such procedures, which are usually less costly and more expeditious than litigation, are
increasingly being used.

Considering the importance of outside court settlement the government included the provision of
ADR first in 2003 in the Money Loan Court Act, 2003. Subsequently the same Act was
amended in 2010 with major revisions with regard to ADR procedure. According to the
amendment, ADR had been made a mandatory step for settling the default loan. Section 22, 23,
24, 25, 38, 44(A), 45 of MLC covers the legal procedures related to ADR.

7.4 Credit Recovery

Banks will put in place systems to ensure that management is kept advised on a regular basis on
all developments in the recovery process. The following issues shall be addressed while
conduction credit recovery functions:
Determine Account Action Plan/Recovery Strategy
Pursue all options to maximize recovery, including placing customers into receivership or
liquidation as appropriate.
Ensure adequate and timely loan loss provisions are made based on actual and expected
losses.
Regular review of non performing or worse accounts
The management of problem loans (NPLs) must be a dynamic process, and the associated
strategy together with the adequacy of provisions must be regularly reviewed. A process should
be established to share the lessons learned from the experience of credit losses in order to update
the lending guidelines.

Monitoring and Recovery of Credit:

To minimize credit losses, monitoring procedures and systems should be in place that provides
an early indication of the deteriorating financial health of a borrower. Continuous monitoring of
the borrower accounts will facilitate the lender to foresee the problems and help to take
corrective measures to meet the adverse impact.
Credit Recovery

The Recovery Unit (RU) of CRM should directly manage accounts with sustained credit
deterioration.

The RU’s primary functions are:

 Determine Account Action Plan/Recovery Strategy

 Pursue all options to maximize recovery, including placing customers into
receivership or liquidation as appropriate.
 Ensure adequate and timely loan loss provisions are made based on actual and
expected losses.

Recovery Steps:
These are 2 (two) methods of loan recovery a) Non-legal measures and b) Legal measures.

Some points are discussed below:

F) Legal Steps:

i) Serving Notices

ii) Serving Legal Notices

What happens when bank sends legal notice?

If a borrower fails to make the payments within the due date then
the banks will send a legal notice. Such legal notice is sent to make the
defaulter aware of the fact that he had failed to perform his duty in making
timely payments. ... In such scenarios, the borrower becomes a defaulter
If one receives a legal notice. One must reply back to the legal notice. As far as the
quensiquences are concerned one if the notice is not replied. The concerned person is free to
take / invoke legal action against the party.

plaint

iii) Serving Notice to the Guarantor

iv) Assessment and Identification of Securities in respect of nature, quality and Valuation etc.

v) Attachment of other properties (if necessary) along with the properties of Guarantor.

vi) Filing suits in the appropriate court for recovery of outstanding loan balance.