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MINI PROJECT

FINANCIAL MANAGEMENT

NILESH BHAGAT MBA IIed Sem. Roll no. 02

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REPORT ON RECOVERY MANAGEMENT


Submitted to DR.H.S..PATIL Submitted By NILESH BHAGAT

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INDEX
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CHAPTER NAME

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1 Research Methodolog
1.1Introduction to selected project 1.2 Importance of study 1.3 Statement of the problem 1.4 Objective of the study 1.5 Methodology adopt 1.6 Tools of data collectionPrimary data:Questionnaire Interview Observation Secondary data collection:1.7 Scope of the study 18 Limitation of the study 2

Theoretical Frame work

2.1Scientific Information:3

Organization profile

3.1 Information about the organization 4

Data presentation & Analysis

5 Finding & Suggestion

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Chapter 1 Research Methodology

Introduction to selected project:


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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. 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 banks interest margins 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

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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.

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 banks

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.

Importance of study:
It is very essential to study about the financial services provided by the bank. Because,

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1) Customer gets knowledgeledge about the different financial services available in the bank to the customer. 2) What are the different types of financial services? 3) What are the different types of loans? 4) What are the interest rates on that loan? 5) What is the procedure to get the loan? 6) What are the different types of deposit available in the bank to the customer? 7) What are the interest rates on that deposit?

Statement of the problem:

Recovery management of IDBI bank at Latur.

Objective of the study:


1

Methodology adopt:

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I have collected the data both from Primary as well as Secondary resources. Most of the Primary data in my research was collected through direct interaction to the clients & direct visit to IT Park, shops. The methodology used for the study was very rigorous. Questionnaires were made, interview with customers were held and various books and websites were checked for any type of information related to the study. Random selection procedure was used and a sample of 100 customers was taken. The methodology so applied is briefly discussed below step-by-step.

Tools of data collection-

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a) Primary data:The data required for this stage was regarding the behavior and perception of the existing customers towards the financial services providers. The data could have been collected by just interviewing the customers but to get a reasonable conclusion and fair accuracy, questionnaires were prepared and customers were interviewed. Though the primary source was not enough for the study but it did give some accurate conclusions.
QUESTIONNAIRE: I have used following technique in the initial phases of the project. I have used questionnaire to get information about my project, the current system, thus I am able to find out the work structure & its function. INTERVEIW: I have used this technique frequently in the system analysis after questionnaire. The interview were unstructured. I have taken the interview of branch manager users in the activity related with project. I have interviewed many times so as to understand all stages involved in the activities carried out in financial services. OBSERVATION: While finding the fact and figure I have keenly observed all the activities in dept. I have pay attention to the transaction, uses of the files register & other relevant data,& handling of queries in the existing system. observation has also help to find out the actual way of functioning a part from idea.

Secondary data collection:The secondary data was collected with the help of various books, websites, bank and employees of the company. The data collected from the websites and books was good enough to be included in the study analyzed and concluded but the data got from the employees of the company was most accurate and reliable. Various newspapers, company magazines, websites, etc were checked out for information.

Scope of the study:

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Here the scope is limited to the IDBI Bank only and doesnt consider the total banking sector.

Limitation of the study


The study has following limitations: 1) Customers are not responding to the question asked. 2) Some time customer may not give the correct information. 3) There were limitations for primary data collection because of confidential. 4) Time was the most important constraint in completion of this project.

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Chapter 2 Theoretical Frame work

Policy, Processes and procedure of debt recovery management :

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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 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) 2) The RBI directives on recovery of debt, including recovery agents engaged by The Model Policy on collection of Dues and Repossession of security framed by 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. the bank and, the Indian Banks Association.

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 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

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approach the Bank for assistance and guidance in case of genuine difficulty in meeting repayment obligations. .

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: 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. 4. The bank would respect privacy of its borrowers. 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 banks 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. 7. 8. Borrowers requests to avoid calls at a particular time or at a particular place The bank will document the efforts made for the recovery of dues and the All assistance will be given to resolve disputes or differences regarding dues would be honored as far as possible. copies of communication, if any, sent to the customers will be kept on record. in a mutually acceptable and in an orderly manner.

Giving notice to borrowers


While written communication, telephonic reminders or visits by the banks representatives to the borrowers place or residence will be used as loan follow up

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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. .

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 borrowers 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.

Debt recovery processes:

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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 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.

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 (w.r.e.f. 17-1-2000).Subs. by Act 1 of 2000, sec. 9, for section 19 (w.r.e.f.17-12000). (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

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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. (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 applicants 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.

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(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 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.

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.

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(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.

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. 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) (ii) Calls are made from the same number as advised by the bank to the customer. The agents disclose his identity and authority at the first instance.

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(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.

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. (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 principals or RBI/IBA code, unless otherwise agreed by the debtor expressly.

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).

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(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 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.

Use of lok adalat:


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. 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

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impose penalties against any bank or its Directors/ Officers/ agents with regard to policy, practice and procedure related to the recovery process.

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.

Debt Management Programs


Once a customer has come under a DMP, the bank will close the customers 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.

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

Debt recovery agent:

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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:

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. .

Training for Recovery Agents:


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

Advantages & Disadvantages of recovery

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

Certain important points for debt recovery


On the basis of the foregoing procedure for normal recovery process, we may list below certain Donts for the dent recovery, which are as follows: 1) Dont violate or breach the recovery policy, procedure etc. prescribed by the principal. 2) Dont exceed the authority given in the recovery arrangement. 3) Dont make a call to the debtor before 0700 hours or after 2100 hours.

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4) Dont make anonymous calls or bunched calls to the debtor, which may be perceived as harassment. 5) Dont conceal or misrepresent your identity during calls and visit or other interaction with the debtor. 6) Dont show uncivil/indecent/dirty behavior or use such language during calls and visits to the debtor. 7) Dont harass/humiliate/intimidate/threaten the debtor-verbally or physically. 8) Dont intrude into the privacy of the debtors family members, friends/colleagues.

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

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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. 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.

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.

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 judiciousnessDeficient 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

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of the project and also in delay of production. This inevitably causes default in repayment of loans.

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 tends to weigh the pros and cons vis--vis default. Security against loan,

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 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 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.

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

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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,

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.

2.1 Meaning of NPA


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

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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.

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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Chapter 3 Organization profile

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Organization profile:

Bank: IDBI BANK, Latur Location: Khardekar stop, Ausa Road, Latur. Bank Area: 3500 sq foot. Establishment year: 1976 Profit per year: 2-3 crores No. of Employees: 20

Working:
The Working time & holidays of bank are as Bank Time: 10 a.m. to 4 p.m. Weekly Holiday: Sunday Leave Facility: 1) 2) Medical Leave: 30 days Casual Leave: 12days

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3)

Ordinary Leave: 30 days

Chapter 4 Data presentation & Analysis

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DATA ANALYSIS AND INTERPRETION


After data have been collected, the researcher turns to the task of analyzing them. The analysis of data requires a number of closely related operations such as establishment of categories, the application of these categories to raw data through tabulation and drawing statically inferences. Tabulation is the part of technical procedure where in the classified data are put in the form of tables. After analyzing the data, the researcher should have to explain the findings on the basis of some theory. It is studyn as interpretation. The data has been collected from society annual report director, clerk in the office of society, members of society through questionnaire. The data thus collected was in the form of master table.

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Chapter 5 FINDING & SUGGECTION

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FINDINGS:

Recovery management is effective in IDBI bank,Latur. IDBI ,Latur doing work better day by day. In this bank all employee are experienced.Hence there is less chance of errors.
SUGGESTIONS:

Give some extra facility to recovery officer like HOUSING because it will impact on their performance.

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BIBLIOGRAPHY: INTERNENT ANNUAL REPORT Bank Manger Financial services by Mithani D. M.

Handbook on debt (Indian Institution of banking and finance) Business economics (T.Y.B.COM) Hindustan times (newspaper)

Questionnaire
NAME AGE. SEX: MALE/FEMALE

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ADDRESS:... CITYPIN CODE.... CONTACT NO.

1. Does IDBI Bank actually follow the process of recovery ? YES NO 2. At the time of giving loan bank should consider repaying capacity & cash flow pattern of borrowers? YES No 3. Does the banks recovery policy is build around dignity & respect to customer? YES No 4. Does the banks recovery procedure is build around courtesy & fair treatement to customer? YES No 5. Does the banks recovery procedure give opportunity to the borrower to take back the security? YES No 6. Does the banks recovery agent have soft skill ? YES No 7. Does the banks should prepare programs like credit counselling, debt management for borrowers? YES

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8.

No Does the banks should have regular follow up with borrowers? YES

No 9. Does the banks recovery agent should follow different strategy for recovery? YES No 10.Does the banks recovery agent visit frequently to the borrower for collecting dues receivables? YES No

Table 2:Does IDBI Bank actually follow the process of recovery


NO. OF Respondent 10O YES 90

NO 10

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90 80 70 60 50 40 30 20 10 0 YES NO 3-D Column 1

Interpretation From this chart , I have concluded that the recovery process of IDBI bank is actually follow, because 90% are saying yes.

Table 3: At the time of giving loan bank should consider repaying capacity & cash flow pattern of borrowers?

NO. OF Respondent 10O ES 85

Y NO 15

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90 80 70 60 50 40 30 20 10 0 YES NO 3-D Column 1

Interpretation

From this chart , I have concluded that the recovery process of IDBI bank is considering the repaying capacity & cash flow pattern of

borrowers at the time of giving loan.

Table 4: Does the banks recovery policy is build around dignity & respect to customer?

NO. OF Respondent ES

Y NO
39

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10O

90

10

90 80 70 60 50 40 30 20 10 0 YES NO 3-D Column 1

Interpretation From this chart , I have concluded that the recovery process of IDBI bank is

build around dignity & respect to customer. Table 5: Does the banks recovery agent have soft skill ?

NO. OF Respondent 10O ES 82

Y NO 18

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Y ES NO

Interpretation From this chart , I have concluded that the recovery agent of IDBI bank

have soft skills. Table 6: Does the banks should prepare programs like credit counselling, debt management for borrowers?

NO. OF Respondent 10O

YES 80

NO 20

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Y ES NO

Interpretation

From this chart , I have concluded that IDBI bank should prepare

programs like credit counselling, debt management for borrowers.

Table 7: Does the banks recovery agent visit frequently to the borrower for collecting dues receivables?
NO. OF Respondent ES 10O 86 Y NO 14

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90 80 70 60 50 40 30 20 10 0 Y ES NO

Interpretation From this chart , I have concluded that the recovery agent of IDBI bank is

visit frequently to the borrower for collecting dues receivables.

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