Professional Documents
Culture Documents
A Project Submitted to
By
PROF.PRAJKTA PARALKAR
April -2022
Certificate
2
This is to certify that Ms. SNEHAL GANESH SAWANT has worked and duly
completed his Project Work for the degree of Bachelor in Commerce (Banking and
Insurance) under the Faculty of Commerce in the subject of “Research Methodology”
and his project is entitled, “Loan granting and it’s recovery problem on
commercial banks special preference to the Yes bank” under my supervision. I
further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of
any University. It is his own work and facts reported by his personal findings and
investigations.
Guiding Teacher
Signature of Co-ordinator
Collage Seal
3
Declaration by learner
I the undersigned Ms. SNEHAL GANESH SAWANT here by, declare that the
work embodied in this project work titled “Loan granting and it’s recovery problem
on commercial banks special preference to the Yes bank” forms my own contribution
to the research work carried out under the guidance of Prof . PRAJKTA
PARALKAR is a result of my own research work and has not been previously
submitted to any other university.
Reference has been made to previous works, it has been clearly indicated as such and
included in bibliography.
Hereby further declare that all information of his document has been obtained and
presented in accordance with academic rules and ethical conduct.
Certified by
Acknowledgment
To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me the chance
to do this project.
I would like to thank my Principal, Dr. Kishore Peshori for providing the necessary
facilities required for completion of this project.
I take this opportunity to thank to our coordinator prof. Prajakta Paralkar for his
moral support and guidance.
I would also like to express my sincere gratitude towards my project guide prof.
Prajkta Paralkar whose guidance and care made the project successfully
I would like to thank my College Library, for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project
INDEX
5
1. Introduction 7
1.1 Introduction of Yes bank 8
1.2 What is loan 11
1.3 Procedure of loan 14
1.4 Loan approval process 15
1.5 Advantages and disadvantages of 16
loan
1.6 The nature of loan and advance 17
granted by bank
1.7 How assets are classified 27
1.8 RBI guidelines for 29
loan recovery
1.9 Why NPA increase 29
List of tables
6
4.1 Gender 48
4.2 Age group 49
4.3 Loan grant 50
4.4 Sectorial allocation 51
4.5 Loan beneficiaries 52
4.6 Main responsibilities 53
4.7 Skill required 54
4.8 Contact debtor 55
4.9 Can’t do while calling customers debt 56
collection
4.10 Advice to customer to avoid bad debt 57
4.11 Ways to collect debt 58
4.12 Who are third parties that deal with while 59
trying to collect debt
Every business has a credit relationship with a financial institution, especially banks.
Some rely on periodic short- term loans to finance temporary working capital needs.
7
Others primarily use long-term loans to finance capital expenditure, new acquisitions
or permanent increases in capital. Regardless of the type of loan, all credit requests
mandate a systematic analysis of the borrower’s ability to repay as at when due.
Commercial banks carry on ordinary banking business with the general public,
changing cash for bank deposits and bank deposits for cash, transferring bank deposit
from one corporation to another, giving bank deposit in exchange of bills of exchange,
providing of trustees and executor’s services, providing safe custody of funds and
valuables as well as foreign exchange remittance.
Though commercial banks differ from country to country, their profit and banking
motives are the same. Their activities are of interest to their customers, workers (staff),
and above all, shareholders. The commercial objective of the bank is to maximize
profit, though other social and economic functions tend to deflect banks from profit
maximization.
The aims and objectives of commercial banks have therefore paved the way for their
customers to make and obtain credits, in the form of loans of which the researcher is
interested in.
Lending has become a vital function of operation because of its direct effect and
impact on economic growth and business development.
In a market-oriented economy, there are two main participants that move the economic
growth; these are the suppliers of invisible funds and the users of the funds for
productive purposes. These two participants are spread widely in the economy and
may not have direct relationship with each other. For this, there is the need to have an
intermediary to link them up. The banking sector mobilizes surplus funds from small
and big savers who have no immediate need for such funds. The users of these funds
are the business entrepreneurs and investors who have brilliant ideas on how to create
additional wealth in the economy but lack the necessary capital to execute their ideas.
These groups of people approach banks to obtain loans. Subsequently, lending is a
risky venture which banks only engage in after a rigorous and satisfactory analysis of
the project for which lending is being made. The main preoccupation of banks is
extending loans to their customers. Thus, the formulation and implementation of such
lending policies are some of the important responsibilities of the management of the
8
bank. The lending policy of a bank must be specific on how much loan will be made
available to whom, what period and for what reason. For this reason, lending policies
should be well documented so that lending officers will be able to know the areas of
prohibition and the area of where they can operate. Also, such policies should be
subjected to periodic review to make the banks keep abreast with the dynamic and
innovative nature of the economy as well as compete with other changing economic
sectors.
Therefore, the basic objective of credit analysis is to assess the risks involved in
extending loans to bank customers. In the financial circle, risk typically refers to the
volatility in earnings. Lenders are particularly concerned with adverse fluctuation in
net income or cash flows, which hinder the borrower’s ability to service a loan. Some
risks can be measured with historical and projected financial data, while others such as
those associated with borrower’s character and willingness to repay a loan are not
directly measurable.
The introduction of Yes bank in India which is related to the project is YES bank
stands for youth exchange scheme Bank. YES bank limited is an Indian fourth largest
private investor by capitalization. The Bank is engaged in services providing banking,
together with company and institutional banking, wealth management, money market
branch banking finance etc, YES BANK‟s branch network stood at 1050 branches and
its ATM network stood at 1724 as on 31st December. 2017 which incorporates 573
bunch Note Acceptors and it’s a pan Asian nation presence across all 28 states and 9
union territories together with an IBU at GTFT town and a representative workplace in
Abu Dhabi. This story begins in 1999, once 3 successful personal equity investors
came along and set up a non- banking money sector.
The personal equity of 3 Investors specifically Ashok kapur the previous country head
of the ABN AMRO Bank Harkirat Singh, the previous country head of the Deutsche
Bank, and the third partner Rana Kapoor, former corporate finance head of the ANZ
Grindlays Banks. They had 25% share in a non- banking money corporation whereas
the remaining 75% were the Rabo Bank of the Nederland. This Bank was
incorporated on the Gregorian calendar month twenty-one, 2003 Headquartered within
9
the lower parcel Innovation District (LPID) of the urban centre. This bank Obtained
certificate of commencement of Business on January twenty one, 2004 at the side of
Kotak Mahindra Bank and also the bank obtained final application for banking license
below section 22(1) of the Banking laws Act, 1949 providing complete details of the
capital structure, the composition of the Boards of Director, Informational technology
and financial statement of the bank.
In the same year Harkirat Singh quit, so it had been the 2 Ashok kapoor and amphibian
geniuses Kapoor. Ashok kapur was the chairman and amphibian genus Kapoor was the
chief operating officer taking care of the daily-to-daily operations.2005
In 2005 YES BANK launched International Gold and silver open-end credit. Within
the same year affirmative bank non-heritable license of Initial public provide (IPO).
2006- YES Bank launches affirmative SAMPANN Bharat, our monetary inclusion
initiative, in partnership with ACCION International, USA. YES BANK has been
hierarchal three within the BW Banking Special 2006 a survey of India’s Best Listed
Public and personal Banks
2007- In August YES BANK launched YES- International Banking. 2008- During
this year YES BANK received a giant shock. Ashok Kapur, then chairman, was at the
Trident-Oberoi edifice complicated on twenty six November 2008 once ten Pakistani
terrorists attacked Mumbai. The Trident-Oberoi edifice was one among the Targets of
the 26\11 terror. Ashok kapur died within the surprise attack that Thursday night. The
death of Ashok Kapur. Amphibian genus Kapoor takes complete management of YES
BANK. During this year, The Bank was hierarchical because of the No one Bank
within the Business Today-KPMG best Bank Annual Survey, 2008. In 2009 This Bank
launched the Business Today- YES BANK SME Survey & Award.
2011- YES BANK launched the first FT-YES BANK International Banking Summit
2011- taking Indian Banking to the globe.
2015- YES BANK launched its initial International representative workplace in the
United Arab Emirates‟ capital, UAE and within the same YES BANK additional to
dandy fifty, the benchmark index of the National exchange. This Bank raised India’s
10
By 2015, YES Bank launched a campaign namely India bole YES to invade social
banking with an initial investment of ₹120 million. The campaign genesis was derived
from the ethos of YES Bank. It relies on the findings of the consumer confidence index
by Nielson that states Indians, in general, are confident about their future. However,
despite penetrative marketing strategies, the campaign failed drastically as the
operation of the Indian banks was largely based on trust.
2016- YES BANK signs MOU with IFC and anarchist Sachs ten thousand girls for
USD fifty Million loan. It had been the Youngest Indian Company to be a part of the
Forbes world 2000 list.
Until 2017, YES Bank triumphed over the market, but its non-performing asset (NPA)
started piling up with its ramification over bad loans. The sacking of Mr Rana Kapoor
as YES Bank chief executive officer (CEO) by RBI further elucidates the deteriorating
position of YES Bank. These consecutive events rampaged the share price of YES
Bank, enticing RBI intervention to stabilize the situation. However, despite different
optimistic approaches, YES Bank seemed destined to fail.
2018- YES BANK received final license from SEBI for shielded Securities Business.
In June 2008 YES BANK won the esteemed market Sustainable Bank of the year
Award at the monetary Times\IFC, Washington Sustainable Banking Award held in
London.
1. In December 2009 YES BANK got the quickest developing Bank Award at the
Business World Best Bank Award.
11
2. In December 2010 This Bank got Today KPMG Best Bank Survey and Award.
3. YES BANK got the renowned Sustainable Bank of the year Award at FT\IFC
Sustainable Finance Award 2011, London.
4. YES BANK got the Best Private Sector Bank Award at Dun and
BradstreetPolaris Software Banking Award 2011.
5. YES BANK got the Asian Banker Technology Implementation Award 2011.
6. YES BANK won seven awards at Asia's best manager Brand Award and the
CMO Asia Award for greatness in Branding and Marketing 2011, Singapore.
7. YES BANK won a brilliant peacock grant 2012, London.
8. In 2013 YES BANK got the Best overseen Bank in India by the Asian Banker.
9. YES BANK was the first bank in Quite a while to get the Business Excellence
prize at the lofty IMC Ramkrishna Bajaj National Quality Award 2014.
10. This Bank got the Best exchange bank for instalment by the Banker's exchange
Banking Award, London 2014.
11. YES BANK got the "Worldwide Performance Excellence Award-2014" in the
Service Category by APQO, Chicago, USA.
The document evidencing the debt (e.g., a promissory note) will normally specify,
among other things, the principal amount of money borrowed, the interest rate the
lender is charging, and the date of repayment. A loan entails the reallocation of the
subject asset for a period of time, between the lender and the borrower.
The interest provides an incentive for the lender to engage in the loan. In a legal loan,
each of these obligations and restrictions is enforced by contract, which can also place
the borrower under additional restrictions known as loan covenants. Although this
article focuses on monetary loans, in practice, any material object might be lent.
12
Acting as a provider of loans is one of the main activities of financial institutions such
as banks and credit card companies. For other institutions, issuing of debt contracts
such as bonds is a typical source of funding.
Secured Loan
A secured loan is a form of debt in which the borrower pledges some asset (i.e., a car,
a house) as collateral.
A mortgage loan is a very common type of loan, used by many individuals to purchase
residential or commercial property. The lender, usually a financial institution, is given
security – a lien on the title to the property – until the mortgage is paid off in full. In
the case of home loans, if the borrower defaults on the loan, the bank would have the
legal right to repossess the house and sell it, to recover sums owing to it.
Similarly, a loan taken out to buy a car may be secured by the car. The duration of the
loan is much shorter – often corresponding to the useful life of the car. There are two
types of auto loans, direct and indirect. In a direct auto loan, a bank lends the money
directly to a consumer. In an indirect auto loan, a car dealership (or a connected
company) acts as an intermediary between the bank or financial institution and the
consumer.
Other forms of secured loans include loans against securities – such as shares, mutual
funds, bonds, etc. This particular instrument issues customers a line of credit based on
the quality of the securities pledged. Gold loans are issued to customers after
evaluating the quantity and quality of gold in the items pledged. Corporate entities can
also take out secured lending by pledging the company's assets, including the company
itself. The interest rates for secured loans are usually lower than those of unsecured
loans. Usually, the lending institution employs people (on a roll or on a contract basis)
to evaluate the quality of pledged collateral before sanctioning the loan.
Unsecured
Unsecured loans are monetary loans that are not secured against the borrower's assets.
These may be available from financial institutions under many different guises or
marketing packages:
● Credit cards
● Personal loans
13
● Bank overdrafts
● Credit facilities or lines of credit
● Corporate bonds (may be secured or unsecured)
● Peer-to-peer lending
The interest rates applicable to these different forms may vary depending on the lender
and the borrower. These may or may not be regulated by law. In the United Kingdom,
when applied to individuals, these may come under the Consumer Credit Act 1974.
Interest rates on unsecured loans are nearly always higher than for secured loans
because an unsecured lender's options for recourse against the borrower in the event of
default are severely limited, subjecting the lender to higher risk compared to that
encountered for a secured loan. An unsecured lender must sue the borrower, obtain a
money judgment for breach of contract, and then pursue execution of the judgment
against the borrower's unencumbered assets (that is, the ones not already pledged to
secured lenders). In insolvency proceedings, secured lenders traditionally have priority
over unsecured lenders when a court divides up the borrower's assets. Thus, a higher
interest rate reflects the additional risk that in the event of insolvency, the debt may be
uncollectible.
Demand
Demand loans are short-term loans] that typically do not have fixed dates for
repayment. Instead, demand loans carry a floating interest rate, which varies according
to the prime lending rate or other defined contract terms. Demand loans can be
"called" for repayment by the lending institution at any time. Demand loans may be
unsecured or secured.
Subsidized
A subsidized loan is a loan on which the interest is reduced by an explicit or hidden
subsidy. In the context of college loans in the United States, it refers to a loan on
which no interest is accrued while a student remains enrolled in education.
Concessional
A concessional loan, sometimes called a "soft loan", is granted on terms substantially
more generous than market loans either through below-market interest rates, by grace
periods, or a combination of both. Such loans may be made by foreign governments to
14
Personal
Common personal loans include mortgage loans, car loans, home equity lines of credit,
credit cards, instalment loan, and payday loans. The credit score of the borrower is a
major component in and underwriting and interest rates (APR) of these loans. The
monthly payments of personal loans can be decreased by selecting longer payment
terms, but overall interest paid increases as well. A personal loan can be obtained from
banks, alternative (non-bank) lenders, online loan providers and private lenders.
Commercial
Loans to businesses are similar to the above but also include commercial mortgages
and corporate bonds and government guaranteed loans. Underwriting is not based
upon credit score but rather credit rating.
ADVANTAGES
A bank loans money to a business based on the value of the business and its perceived
ability to service the loan by making payments on time and in full. Unlike with equity
finance where the business issues shares, banks do not take any ownership position in
businesses. Bank personnel also do not get involved in any aspect of running a business to
which a bank grants a loan. This means you get to retain full management and control of
your business with no external interference.
Once a business borrower has paid off a loan, there is no more obligation to or
involvement with the bank lender unless the borrower wishes to take out a
subsequent loan. Compare this with equity finance, where the company may be
paying out dividends to shareholders for as long as the business exists.
The interest on business bank loans is tax-deductible. In addition, especially with fixed-
rate loans, in which the interest rate does not change during the course of a loan, loan
servicing payments remain the same throughout the life of the loan. This makes it easy for
businesses to budget and plan for monthly loan payments. Even if the loan is an
adjustable-rate loan, business owners can use a simple spreadsheet to compute future
payments in the event of a change in rates.
DISADVANTAGES
Tough to Qualify:
17
One of the greatest disadvantages to bank loans is that they are very difficult to obtain
unless a small business has a substantial track record or valuable collateral such as real
estate. Banks are careful to lend only to businesses that can clearly repay their loans, and
they also make sure that they are able to cover losses in the event of default.
Business borrowers can be required to provide personal guarantees, which means the
borrower's personal assets can be seized in the event the business fails and is unable
to repay all or part of a loan.
Interest rates for small-business loans from banks can be quite high, and the amount
of bank funding for which a business qualifies is often not sufficient to completely
meet its needs. The high interest rate for the funding a business does receive often
stunts its expansion, because the business needs to not only service the loan but also
deal with additional funding to cover funds not provided by the bank. Loans
guaranteed by the U.S. Small Business Administration offer better terms than other
loans, but the requirements to qualify for these subsidized bank loans are very strict.
Bank loans can be classified in various ways according to the class of people the
loan is granted to. Thus, loan can be classified according to purpose namely:
1. Personal loan
A personal loan is an amount of money you can borrow to use for a variety of
purposes. For instance, you may use a personal loan to consolidate debt, pay for
home renovations, or plan a dream wedding. Personal loans can be offered by banks,
credit unions, or online lenders. The money you borrow must be repaid over time,
typically with interest. Some lenders may also charge fees for personal loans.
18
This loan is normally for durable consumer goods, repair and decoration, rents,
school fees, house renovation, purchases of car or other personal consumption or
investment items. Such loan is usually for small sums and is often referred to as petty
lending.
The banker must find out the purpose of the loan through discussion with the loan
seekers, how much is needed by the customers and whether repayment could be
made without much stress on the customers or the bank either. The net monthly
income is computed while the monthly expenses are deducted to assess the available
disposal income from which the loan can be replayed. The reason for calling the
“personal loans” is because they are normally granted to enable individuals to
purchase consumer durable goods, e.g., motor cars, television sets etc.
Usually, security is not required for this type of loan. As frequently, this is built into
the loan agreement as an insurance against non-payment, should the borrower die
before repayment? Interest is charged up front, that is, when the loan is granted.
Thus, interest is added to the total amount which is repayable. This means that the
interest is charged on full amount over the total period. As a result, the customer is
repaying the capital in regular instalments, which means that each month, the debt
due to the bank is being reduced, yet the interest charged is on the full amount for the
whole period which makes the interest charged penal.
2. Agricultural loan:
Agriculture loans in India are offered to farmers for various purposes, like farming
and irrigation equipment purchases, crops for cultivation, and other agriculture-
associated activities. The main objective of these loans is to provide a helping hand
to farmers to meet their various cash needs.
The agricultural sector plays a major role in the economic development of any
country. Funds are disbursed on both short and long-term basis for the purchase of
seed, fertilizers, machinery, cattle etc.
● Crop Loan:
These types of loans are also known as Retail Agri Loans is a type of loan which
allows a farmer to meet his short-term expenses arising due to cultivation of crops,
maintenance of farm equipment, and other post farm activities. The farmer gets a
credit card called the Kisan Credit Card.
● Agricultural Term Loan:
These are long term loan schemes which a farmer can avail to meet their non-
seasonal expenses. One can avail this loan to buy or upgrade equipment such as
windmills, solar power, etc. The repayment tenure for such loan schemes can go up
to 4 years allowing the farmer to repay the amount in a convenient manner.
3. Bridging Loan
When house-owners require temporary finance in order to purchase a property at the
same time as selling the house in which they live, it is often the bank that provides
20
finance to purchase the new property and receives repayment when the old property
has been sold. When this type of loan is required, the bank likes to see that the
completion date of the sales and purchase contracts are known as they have a
solicitor’s undertaking that the proceeds of the sale will be delivered to the bank.
A bridging loan is usually short-term borrowing used as a way to bridge a gap in
funding until your house sale or other transaction goes through. Bridging loans can
be used if you buy a property at auction and you need the cash immediately but
haven't yet sold your current home.
It is on rare occasions that the bank will give an open-ended bridging loan, which is a
loan to cover the purchase of a property before the first property is sold. Bridging
loans are, from the bank’s point of view, simple, profitable and self-liquidating.
Bridge loans
Are short term loans taken to meet short term financial requirements. Bridge loans
can be used to secure working capital requirements till the funding goes through.
These loans are usually provided for a short-term ranging between 2 to 3 weeks and
require collateral or security. The loan amount provided and the interest charged are
dependent on the borrower’s repayment capacity.
Is a financial arrangement where the borrower can get access to Short Term Loan to
meet short-term liquidity requirements. It is also called ‘Swing loan’, ‘Interim
financing’ or ‘gap financing’. Bridge loan is taken for a period of 2 to 3 weeks. The
loan extends for a period of 12 months. This loan is usually backed by asset
collateral.
● The borrower will have to repay the loan by paying equated monthly
instalments or paying interest till the entire loan is repaid within 2 years.
● The rate of interest depends on the loan amount and the capacity of the
borrower to repay and the collateral that is being offered. The rate of interest
also depends on the estimated sale price of your home.
.
4. Industrial loan
A commercial and industrial (C&I) loan is any loan made to a business or
corporation, as opposed to an individual. Commercial and industrial loans provide
either working capital or finance capital expenditures such as machinery or a piece of
equipment. This type of loan is usually short-term in nature and is almost always
backed by some collateral.
Moratorium is given under this loan which the customer is given time to set up and
yield before repayment is commenced.
Industrial loan repayment normally depends on the production or survival of the
company. If it cannot achieve its optimum production, the tendency to repay loans is
doubtful.
As of May 2020, businesses and corporations in the United States have taken out
more than $2.5 billion in C&I loans. These industry loans have become more popular
over the last 20 years, as they provide a means for smaller businesses to generate
working capital or finance expenditures.
Commercial loans usually charge flexible rates of interest that are tied to the bank
prime rate or another benchmark rate such as LIBOR. Many borrowers must also file
regular financial statements, at least annually or more frequently in the case of
borrowers that carry higher risk. Lenders usually require proper maintenance of the
loan collateral property and hold borrowers to certain covenants such as a debt
service coverage ratio (DSCR).
Small and medium-sized businesses make up the bulk of borrowers for C&I loans
because they generally cannot generate sufficient cash flow to continuously self-fund
operations and because they lack the access to the equity and bond markets that large
companies enjoy.
22
To further refine the definition of C&I loans, they are distinct from consumer loans
and real estate loans. Banks break out these loan categories in their financial
statements.
Industrial loan repayment normally depends on the production or survival of the
company. If it cannot achieve its optimum production, the tendency to repay loans is
doubtful.
There are multiple reasons for applying for a business loan. However, you should opt
for this scheme only when:
Before you choose to apply for a business loan to start a new business or expand the
current one, you should learn about the features of a business loan.
● The corpus for a business loan depends on numerous factors such as the
amount of profit it makes annually, valuation of the business, and operating industry
of the business in addition to the number of years it has been operational.
● These loan applications usually get approved fairly quickly and sans any hassle
during processing. Most banks and financial institutions provide their customers with
the promise of secured lending solutions when it comes to business loans. ● Since
business loans carry flexible repayment options along with minimal documentation,
they have become one of the most preferred ways for entrepreneurs to meet the
financial needs of their businesses.
● Unsecured business loans enable businesses to fund their exact exigencies and
repay their loan amount in easy EMIs (equated monthly instalments). These loans
can be availed for a variety of reasons, including but not limited to, business
expansions, working capital, etc.
● Banks and financial institutions offering business loans also provide their
customers with the flexibility of doorstep service. Additionally, a number of business
loan lenders in India usually don’t expect any collateral, guarantor or security from
the applicant.
● Some banks offer customers with the facility of business loan eligibility in 1
minute, either online or in any of their branches. These speedy approvals ensure that
customers don’t waste any of their time waiting to hear from banks about the status
of their loan application.
● Business loans come with the added benefit of services such as SMS, Web
Chat, Phone Banking, etc. Some banks even extend exclusive higher loan amounts to
their self-employed customer base.
● Thus, if you are in need of funds for business needs, make sure to compare
your options and apply for a business loan at the earliest.
24
5. Probate loan
Like traditional loans, a probate loan is an allotment of money that a lender allows
you to borrow while your estate goes through probate. You must pay interest on this
loan and make monthly payments until you settle the estate.
A probate loan is granted to an executor of a will when, in order to obtain probate
(i.e., the transfer of the deceased’s assets to the executor), capital transfer tax must be
paid. The executor needing funds will go to the bank, show the manager evidence of
his right to the executorships, a loan will be granted and the tax paid when probate is
then granted.
6. Bank Overdraft Facility
A Bank Overdraft Facility refers to the ability to draw funds greater than are
available in the company's current account. The actual size of the facility and the
interest to be paid on overdrafts is typically agreed to prior to sanction. An overdraft
facility is considered as a source of short-term funding as it can be covered with the
next deposit.
7. Letter of Credit
A letter of credit is a document issued by a financial institution assuring payment to a
seller provided certain documents have been presented to the bank. This ensures the
payment will be made as long as the services are performed (usually the dispatch of
goods). Hence, a Letter of Credit serves as a guarantee to the seller that he or she will
be paid as agreed. It is often used in trade financing when goods are sold to overseas
customers or the trading parties are not well known to each other.
8. Bank Guarantee
A bank guarantee is a 'letter of guarantee' issued by a bank on behalf of its customer,
to a third party (the beneficiary) guaranteeing that certain sum of money shall be paid
by the bank to the third party within its validity period on presentation of the letter of
guarantee. A letter of guarantee usually sets out certain conditions under which the
guarantee can be invoked. Unlike a line of credit, the sum is only paid if the opposing
party does not fulfil the stipulated obligations under the contract. A bank guarantee is
usually used to insure a buyer or seller from loss or damage due to non-performance
by the other party in a contract.
25
9. Lease Finance
Lease Financing is a modern financing method that allows individuals or companies
to own and make use of certain assets for medium to long term financing periods in
return for previously - set interim payments. The lessor, who is the finance company,
purchases the assets and becomes its legal owner. At the conclusion of the leasing
period, the lessor would have recovered a large portion (or all) of the initial cost of
the identified asset, in addition to interest earned from the rentals or instalments paid
by the lessee. The lessee also has the option to acquire ownership of the identified
asset by, for example, paying the final rental or instalment, or by bargaining a final
purchase price with the lessor. Throughout the duration of the leasing period, the
lessor (finance company) remains the legal owner of the asset. However, the lessee
has control over the asset, and makes use of it as required.
This loan facility can be used by small industrial units, small retail traders, small
business enterprises and transport traders. The repayment period for Term Loans is 5
years and 3 years for Cash Credit.
This loan facility is provided to companies with more than two years of business
experience, existing owners of at least two commercial vehicles, captive customers
and transporters.
It is important to note that these are only general descriptions. Lenders have their
specific loan evaluation and documentation criteria before a lending decision is
taken.
27
Assets of a bank are classified in terms of its repayment status. Standard assets, Non-
Performing Assets, Substandard assets, Doubtful assets and Loss assets are the
classifications of asset quality.
For a bank, classification of assets into different categories should be done taking
into account credit weaknesses and the extent of dependence on collateral security for
realization of dues.
Banks should report the figures of NPAs to the Regional Office of the Reserve Bank
at the end of each year within two months from the close of the year in the prescribed
proforma.
An asset becomes non-performing when it ceases to generate income for the bank.
Any asset that is not returning in the form of principal or interest in the last 90
reporting days will be considered as NPA.
A loan whose interest and / or instalment of principal have remained ‘overdue due’
for a period of 90 days is thus considered as NPA. Overdue is a situation where the
loan is not paid by the due date fixed by the bank.
Banks should identify their assets into the following broad groups.:
Standard asset
Standard Asset is one which does not disclose any problems, and which does not
carry more than normal risk attached to the business. Such an asset should not be an
NPA.
Substandard asset
A substandard asset would be one, which has remained NPA for a period less than or
equal to 12 months.
Such an asset will have well defined credit weaknesses that jeopardise the liquidation
of the debt and are characterized by the distinct possibility that the banks will sustain
some loss, if deficiencies are not corrected.
Doubtful asset
A loan classified as doubtful has all the weaknesses inherent in assets that were
classified as sub-standard, with the added characteristic that the weaknesses make
collection or liquidation in full, – on the basis of currently known facts, conditions
and values – highly questionable and improbable.
Loss asset
A loss asset is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly. In
other words, such an asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted although there may be some salvage
or recovery value.
29
● Banks must have a diligence process in place when it comes to engaging loan
recovery agents and are responsible for all complaints filed against them.
● Borrowers must be notified first regarding the details of the recovery agency
● The agent must also carry the authorization letter and copy of the bank’s notice
● In case a complaint has been lodged by the borrower, banks are not allowed to
forward the respective case to a recovery agency until the said complaint has
● However, this is nullified if the bank is convinced with proof that the
● The bank must also ensure that borrowers’ grievances regarding the recovery
Before the financial crisis of 2008 India’s economy was in a boom phase. During this
period banks lent extensively to corporates in the expectation that the good times will
continue in future. But future does not always play out as it had been in the past. The
businesses of most of the corporates were adversely affected due to slowdown in the
global economy following the financial crisis.
30
The ban in mining projects, and delay in environmental related permits affected
power, iron and steel sector with added volatility in prices of raw material. All these
factors weighed heavily on the earning of the corporates. Low earnings affected their
ability to pay back loans. This is the one of the most important reasons behind
increase in NPA of public sector banks.
Another major reason of rising NPA was the relaxed lending norms for corporate
houses. Their financial status and credit rating were not analysed properly. The banks
were willing to accept higher leverage and less promoter equity. They even accepted
reports by the promoter’s investment banks rather than doing their own analysis.
Around 40% of the outstanding loans have been made to companies with interest
coverage ratio less than one. Also, to stay competitive, banks were selling unsecured
loans which contributed to the high levels of NPAs.
Public Sector banks provide major portion of the credit to industries and it is this part
of the credit distribution that forms a great portion of NPA. In the case of kingfisher
airlines financial crisis, SBI provided a huge amount of loan which it is not able to
recover from it.
The priority sector lending (PSL) sector has contributed substantially to the NPAs.
Priority sector includes agriculture, education, housing, MSMEs. As per the
estimates by the SBI, education loans constitute 20% of its NPAs.
There are also cases of credit default by promoters, where the funds have been
diverted by over-invoicing imports, sourced via, a promoter owned subsidiary abroad
or exporting to shell companies and then declaring, that they defaulted.
Some measures are designed to maximize the NPAs recoveries in Indian banking.
The Central government and RBI have taken steps for controlling incidence of fresh
NPAs and creating legal and regulatory environments to facilitate the recovery of
existing NPAs of banks. They are:
This scheme covers all sectors sub – standard assets, doubtful or loss assets as on
31st March 2000. All cases on which the banks have initiated action under the
SARFAESI Act and also cases pending before Courts/DRTs/BIFR, subject to
consent decree being obtained from the Courts/DRTs/BIFR are covered. However,
cases of wilful default, fraud and malfeasance are not covered. As per the OTS
31
scheme, for NPAs up to Rs. 10 crores, the minimum amount that should be recovered
should be 100% of the outstanding balance in the account.
The Debt Recovery Tribunals have been established by the Government of India
under an Act of Parliament (Act 51 of 1993) for expeditious adjudication and
recovery of debts due to banks and financial institutions. The Debt Recovery
Tribunal is also the appellate authority for appeals filed against the proceedings
initiated by secured creditors under the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act. The recovery of debts due
to banks and financial institutions passed in March 2000 has helped in strengthening
the function of DRTs.
Provision for placement of more than one recovery officer, power to attach
defendant’s property/assets before judgment, penal provision for disobedience of
tribunal’s order or for breach of any terms of order and appointment of receiver with
power of realization, management, protection and preservation of property are
expected to provide necessary teeth to the DRTs and speed up the recovery of NPAs
in the times to come. DRTs which have been set up by the Government to facilitate
speedy recovery by banks/DFIs, have not been able to make much impact on loan
recovery due to a variety of reasons like inadequate number, lack of infrastructure,
understaffing and frequent adjournment of cases. It is essential that the DRT
mechanism is strengthened and vested with a proper enforcement mechanism to
enforce their orders. Non observation of any order passed by the tribunal should
amount to contempt of court, the DRT should have the right to initiate contempt
32
proceedings. The DRT should be empowered to sell assets of the debtor companies
and forward the proceeds to the winding – up court for distribution among the
lenders.
The report is based on the primary data as well as secondary data, however data
collection was a more important use of research methodology that helped in
identifying the problem, collecting, analysing the requirement information data and
providing an alternative solution to the problem. It also helps in collecting the vital
information that is required by the top management to assist them for decision
making both day to day decisions and critical ones.
Universal population:
Sample size:
Sample area:
34
The present study is conducted in the area between Dadar to Andheri within Mumbai
city.
Sample period:
The data collection of the current study is conducted in the month of March 2022.
Sample technique:
The research work is to analyse the problems of loan recovery in commercial banks
in India. Reason behind NPA increases in commercial banks, reasons behind loan are
not cover on time. Which types of problem face by recovery officer on the time of
loan recovery. How to resolve the problem of loan on commercial banks. Which
types of problem face by bank.
This project on loan recovery which is data should be collected from recovery officer
of the banks as well as third party loan recovery officer. Researcher ask questions to
the officer through google form. The question is base on why loan are not recovered
on the time. Which types of responsibility recovery officer have. Data should be
collected trough questionnaire:
1. Name:
2. Gender:
Male
35
Female
3. Age:
18-28
28-38
38-48
48-58
Above 58
Agricultural loan
Industrial loan
Personal loan
36
All of above
Partnership firms
All of above
Identifying customer with back due accounts and notifying them by emails or
telephone
Other
Analytical skill
Negotiation skill
Other
Other
10. What can I not do as a recovery officer while calling customers' debt collection?
Other
11. What advice would you give to the customer to avoid bad debt?
Before shipping, any goods wait for direct deposit payment to clear
Other
12. What ways can a recovery officer collect his debt from a customer?
Other
13. According to the fair debt collection practice Act, who are the third parties that
the recovery officer can deal with while trying to collect a debt?
The creditor
14. What are the excuses customers usually make to get away from debt payments?
15. Before filing a lawsuit against debtors what all things need to be considered?
Finding the correct address where you can send a legal notice to the debtors
Check whether debtor hold enough cash or property to pay the debts
Rating Scale:
3.1 INTRODUCTION
In this chapter, the researcher reviews relevant literature on loan recovery efficiency
and performance of the Bank. The review aims to enhance understanding of the
subject matter and to inform what is already known and what needs to be known.
theoretical literature provides definitions of the concepts and the theories which
guide the study.
In accordance with the words of Ralph K.O Osayemeh, (1998) “Lending decision”
P.23, “Very much like investment decisions are generally full of risk but the ability
of banks to thoroughly assess and analyze such risk will lead to qualitative and more
pragmatic decisions”.
Lack of adequate knowledge of the loan sector could result in most bad debts and
moreover, the success of most loans depend on the perfect assessment of the
customer’s character.
Varshney (2002) examined the role of SBI in priority sector lending and also
highlighted the problems faced by banks and borrowers in this regard in Aligarh
district. He found that the share of priority sector lending to total bank credit declined
significantly due to declining credit-deposit ratio and high NPA. In agricultural
lending only six blocks out of seventeen blocks has shown satisfactory and in other
42
blocks either the amount was not finance or if it was finance, the amount was very
small. He observed that incomes of the borrowers had increased after investing the
loan. He also highlighted the problems of borrowers like inadequacy of loan, lengthy
loan procedure and high rate of interest, and problems of banks like inadequacy of
staff, low profitability due to high overdue in priority sector.
Vallabh and Chatrath (2006) studied the role of banks in agriculture and rural
development. They found that total agricultural lending by commercial banks was
lower than credit to personal loans. They observed that large farmers and
agribusinesses seem to obtain financial services from modern financial institutions
but small and marginal farmers continue to depend largely on indigenous money-
lender. They suggested a proper credit delivery system to focus on people of rural
India.
Golait (2007) analysed the different issues relating to agricultural credit in India. His
analysis revealed that the credit delivery to the agriculture sector continues to be
inadequate. It has appeared that the banking system was hesitant on various grounds
to purvey credit to small and marginal farmers. The situation has called for
continuous efforts to augment the flow of credit to agriculture, alongside exploring
innovations in product design and methods of delivery, through better use of
technology and related processes. He suggested that the agricultural sector needs
more attention from the union government and also, they should watch how their
policies are being implemented by banks.
43
Singh (2007) highlighted the importance of rural credit in the economy. He observed
that for improvement in the GDP of the agriculture sector, this sector needs more
funds with their associated activities such as warehouse, cold storage, rural
transportation etc. He found that the share of commercial banks in total agriculture
credit has increased while the share of co-operative in total disbursement dropped.
He suggested the banking system has to explore ways and means of achieving an
efficient credit delivery system for the priority sector.
Uppal (2009) in his research paper, evaluated the performance of public, private and
foreign banks in India to priority sector lending and also highlighted the problems or
issues, which arise due to priority sector lending during 2006-2007. He found that
public sector banks as a group, continued to meet the target till 2005-2006 but were
unable to achieve the target in 2006-2007, while private sector banks achieved the
target. He observed that foreign banks could achieve the targets for priority sector
(i.e., target 32%). He further found that the NPA of public sector banks was highest
followed by private sector and foreign banks. Main reason for more NPAs in the
public and private sector banks was found to be more NPA in the agriculture sector.
Khangta (2011) analysed the credit structure of banks and financial institutions and
also examined the perceptions of people regarding rural credit disparities in
Himachal Pradesh. He found that State Bank Group, mainly the State bank of India,
is playing a key role in providing credits in the entire region followed by the other
nationalised banks except the district of Chamba. He concluded that the services of
banks are normal in the state as the attributes like bank institution serving, adequacy
of credit money, convenience of credit, convenience of interest on credit, credit
repayment period and conditions of credit was calculated to be normal in the state
with exceptions in district Chamba. Credit repayment period in Kangra district and
convenience of credit in Kullu district was found to be poor.
Kaur and Silony (2011) observed the performance of commercial banks to priority
sector lending after the post-reform era. They found that public sector banks in India
have achieved the target of 40% of net bank credit set by RBI for priority sector
advances during 2000-2001 and 2007-08 except 2006-07 (39.7%). However, they
found that both public and private sector banks were not able to achieve the target for
the agriculture sector during the 2000-01 and 2007-08. The total priority sector NPA
44
of Public sector banks has increased and that of private sector banks decreased during
the study period.
Prasad & Veena (2011) described strategies for NPA reduction. He observed that
increase of NPA is the serious problem facing the banking sector. He found Public
Sector Banks have faced more problems than the private sector banks and foreign
banks. He observed that the directed loan system in priority sector i.e. 40% of the net
bank credit according to the RBI norms is the main cause of increasing NPAs. He
also observed that loan supplied to the ‘micro sector’ was problematic for recoveries
especially when some units become sick or weak. He has found that huge amounts of
loan granted under poverty alleviation programmes were very unrecoverable by
banks due to political manipulation, misuse of funds and non-reliability of target
audience.
Kataria (2012) analysed the NPA of priority sector in public banks. He observed that
the contribution of priority sector advances to total advances increased during the
period of 1999-2008 in both public and private sector banks. However, there was a
significant decrease in the contribution of commercial banks in deployment of credit
to the SSI sector. He further observed that priority sector lending has a significant
impact on total NPA in Public Sector banks.
Kaur (2012) studied the performance of public sector, private sector and foreign bank
groups in priority sector lending. He found that public and private sector banks have
achieved the overall target and sub-target of priority sector lending laid by RBI but
not as much as foreign banks. He further found that priority sector lending creates
many problems for the Indian Banks like low profitability, high NPA, transaction
cost etc. He suggested finding out solutions for these problems for the progress of
Indian Banks.
Saikia & Goswami (2014) conducted a study to compare the performance of Assam
cooperative apex banks with commercial banks in Assam. The study concluded that
priority sector advances by cooperative banks in Assam is not satisfactory during the
study period. Credit deposit ratio of the cooperative bank has significantly decreased
during the period and remained below the national average. Though priority sector
advances by cooperative banks had slightly increased during the study period in
45
absolute figures, it lags far behind the commercial banks. Compound annual growth
rate of priority sector advances by cooperative banks is much lower than commercial
banks during the study periods. Both agriculture and other priority sector advances
by cooperative banks have increased in absolute figures but the percentage share of
agriculture advances to total advances has decreased during the study periods.
3.1 Loan
According to Altman et al. (2012) the term loan recovery refers to collection of
amounts due to the borrower. Loan recovery depends on the purpose, time, condition
and business running process (Altman et al., 2012). Normally loan amount is
recoverable on instalment basis (Sinkey and Mary, 2013). It is argued that it is not an
easy task to maintain a 100 percent recovery rate, since some of the borrowing clients
may create a number of problems with different circumstances (Gopal and Borbora,
2014). Hence, what is required by the Bank to maximize loan recovery is efficiency
of loan recovery practices (Sinkey and Mary, 2013).
46
Chipalkatti and Rishi (2007) examined whether weaker Indian banks may have had
an incentive to under provide for loan loss provisions (LLPs) and understate gross
Non-Performing Assets in order to boost their earnings and capital adequacy ratios
(CRARs) by examining bank behaviour in India over the 1996-2002 time period.
Salunkhe et al. (2013) argued that for banks it is necessary to keep the level of NPAs
low as it impacts upon the profitability of the banks and hence it is necessary to have
a strong recovery system that should be operated effectively with control and
supervision of higher authorities.
Singh (2013) argued that the Indian banking sector is facing a serious problem of
NPAs. To improve the efficiency and profitability of banks, NPAs should be reduced
and controlled.
Shraddha and Jain (2016) studied the process and effect of SARFAESI act 2002 and
its impact in recovering the Non-Performing Assets in public Sector Banks in India,
found that recoveries in NPAs are made easier by the amendment of SARFAESI act
2002.
Khoslaand Kumar (2017) found that The Indian banks were confronting more than
Rs. 90,000 crores NPAs issue and were running under loss of benefit. The common
laws of the nation were excessively awkward, making it impossible to deal with
recouping the awful credits.
Sengupta and Bhardhan (2017) argued that regulatory forbearance does not facilitate
resolution and can actually worsen the banking crisis by providing incentives to the
banks to defer NPA recognition and delay action. Restructuring of a loan should be
the commercial decision of a bank and should not automatically qualify for
regulatory concessions in terms of deferment of recognition of NPAs.
Swain et al (2017) study it is inferred that among different mechanisms made by the
government, SARFAESI Act-2002 is the most effective reform measure in the Indian
banking industry for NPA recovery.
47
Loan guarantee policy practice is that phenomenon of involving a third part; whether
person or collateral so as to avoid Bank losses due to defaults of the borrower
(Gatimu et al. 2018). This policy applies by restricting a number and status of
guarantors of the borrowers who are likely to recover the loans in case of defaults or
a value of physical property of the borrower serving as collateral. This helps the
cash-flow of the financial institution to consistently flow as per their loan investment
returns and loan portfolio rotation will not be slowed down. Using this practice gives
the Banks confidence to grant loans knowingly that the lending programme would
not lose credibility (Song’e, 2015).
The credit monitoring practice is a process employed by Banks to alert them of any
changes in the credit that has been advanced to the client (Mambo, 2014). Using
credit monitoring assists the credit managers to confirm accuracy of any changes in
the running loans to avoid any chances of non-performing loans (Gatimu et al.,
2018). The aim of using this practice is to provide timely information for decision
making regarding potential defaults (Gatimu et al. 2018).
2. Gender:
Male
Female
Interpretation:
49
The above chart indicates the Gender of the respondent. In this chart shows that most
of the male gender are work for the recovery officer. The male candidate are carrying
their job as a recovery agent and also, they have target to get complete on the time of
loan recovery. Is that 25.7% female are work as a recovery officer. Most female are
not interested to do job as a recovery officer.
2. Age
18-28
28-38
38-48
48-58
Above 58
The above chart indicates the age of the respondent. Age of the recovery officer
which is 18-28 is 25.7% the youngest people are shows interest to do a recovery job.
But mostly they fail on the job because they don’t have any experience, they are
50
freshers to do job. within 28-38 there are 25.7% of work as a recovery officer they
have an experience of how to handle our customer, in 38-48 there are 28.6% do work
as a recovery officer they have strong enough experience of how customer pay their
debt. How we can achieve the goal they know their strategy. 48-58 there are 11.4%
and above 58 there are 8.6% experience person work as a recovery officer.
This graph presented that in all banks they grant short term loan for the people as
well as businesses. Short term loan are only for short period. So short term loan are
mostly grant by banks. Medium term loan are grant as 68.6% because medium term
loan are wants for businesses as well as people, and recovery officer response that
loan term loan are 42.9% granted by banks.
51
Agricultural loan
Industrial loan
Personal loan
All of above
In the above chart there are 35 respondents in which 37.1% response that most of the
cases their personal loan are most granted by banks because personal loan taken by
people for their regular expenses. Agricultural loan are grant by banks only for
agriculture related work. All banks grant agriculture loan for farmers. Mostly farmers
are taken agriculture loan for their farm. Which is 28.6%. Industrial loan are granted
by banks in 20%. Industrial loan are taken by businessmen for their business- related
work.
52
Partnership firms
All of above
In the above chart 40% of respondent responses that sole traders are their loan
beneficiaries because sole traders a sole proprietor he play business as a one person
he want to achieve their goal. Sole trader are most taken loan on regular basis they
want to expand their business, 25.7% say partnership firms are their loan
beneficiaries, because in partnership firm there are partner to raise the fund in the
partnership firm, they want update their business. 20% of respondents say limited
liability companies are loan beneficiaries and 14.3% say all are their loan
beneficiaries.
Identifying customer with back due accounts and notifying them by emails or
telephone
responsibility of RO.
Interpretation:
The recovery officer have many responsibilities. In the above diagram represents
most recovery officer says as identifying customers with due accounts and notifying
them by email or telephone. They wants to inform first. 20% of RO responses that
negotiate repayment plans, maintain electric accounts and collection records. 11.4%
of respondents said referring customers to referrals to professional debt counsellors
and 11.4% of respondents said forwarding statements of customers to legal bodies to
take action.
Analytical skill
Negotiation skill
Other
Interpretation:
The above graph represents that 85.7% RO says good communication skill is required
for collecting the debt. Communicating both efficiently and professionally not only
builds the collector's brand, it also protects their clients' reputation. Often there's an
assumption that once a matter is referred to a debt collector, the relationship between
creditor and debtor will end - although this doesn't need to be the case. Analytical
skills are important because they allow you to find solutions to common problems and
make informed decisions about which action to take next. Understanding problems and
analysing the situation for loan recovery solutions is a key skill in every position at
every level. And 34.3% of RO response negotiation skill also important because by
treating each collection call as an active negotiation, you will be more likely to listen
to what is being said and make the most out of the tools the debtor offers you. This
approach can improve both customer relations and collections.
By phone or letter
Other
As per the above chart 42.9% of RO contact debtors by phone or letter this is the first
step to inform the customer. 17.1% says that contact by any other ways to the
customer by email and all. 37.1% of recovery contact by face-to-face
communication.
Interpretation:
The above graph present that most recovery officers says that using obscene or abusive
language are not do as a recovery officer, same pole for the harassing customer with
repeated calls this option, 40% of respondent says calling before 8 am or 9 pm and
28.6% giving wrong amount of your debt.
10. What advice would you give to the customer to avoid bad debt?
Before shipping, any goods wait for direct deposit payment to clear
Other
Interpretation:
As per the above chart most of the recovery officer give advice to customer setting
customer credit limits this advice gives to the customer by most recovery officer.
Remaining officer says to the customer to release good only once the payment is
cleared as well as before shipping any good wait for a direct deposit payment to clear
and stay in regular touch with your client.
11.What ways can a recovery officer collect his debt from a customer?
Other
Interpretation:
As per the above chart 57.1% RO can collect debt by direct communication with the
debtors, 17.1%RO can collect his debt by taking custody of the property or selling
customer property, 17.1% of RO can collect his debt by hiring debt collection service
and 8.6% RO can collect his debt by filing a lawsuit against the debtors.
12.According to the fair debt collection practice Act, who are the third parties that the
recovery officer can deal with while trying to collect a debt?
The creditor
Figure no 4.12 Who are third parties that RO can deal with while trying to collect debt
Interpretation:
On the above chart most recovery officer says according to fair debt collection practice
act the client or consumer are the third parties that the recovery officer can deal with
while trying to collect debt. 31.4% says the client’s attorney. 17.1% of recovery
officer says that client’s reporting agency and remaining says the creditor.
13. What are the excuses customers usually make to get away from debt payments?
Figure 4.13 Excuses customer usually make to get away from debt payment
Interpretation:
The above chart shows that most people are avoid their debt for this reasons customer
give excuses to the recovery officer is a cheque is in the post as well as not receive
any statement this are the common reasons are given by customers. Another reason
are cash flow problem. Some times at the address customer is not available this is
also one reason behind debt are not recovered on time.
14.Before filing a lawsuit against debtors what all things need to be considered?
Finding the correct address where you can send a legal notice to the debtors
61
Check whether debtor hold enough cash or property to pay the debts
Figure 4.14 Before filing a lawsuit against debtors what all things need to be
considered
Interpretation:
On the above graph the common things to be considered before filling a lawsuit
against debtor are, finding the correct address where you can send a legal notice to the
debtor as well as check whether debtor hold enough cash or property to pay the debt.
37.1 % recovery officer says is debtor active in business or job, and remaining of
recovery officer says that will you be able to present a witness if needed.
Rating Scale
15 How far you satisfy with loan interest charges by Yes bank?
62
Figure 4.15 Satisfied with loan interest charges by Yes bank Interpretation:
In the above graph presented that 37.1% of recovery officer are satisfied with the
interest charges by Yes bank on loan. 20% of people are neutral and also highly
satisfied with loan interest rate of yes bank.
In the above graph their presented that around 34.3% of recovery officer are neutral
with there customer means not satisfied or not dissatisfied but as present of people are
satisfied with there customer and 8.6% people are dissatisfied and 5.7% are totally not
satisfied and 17.1% of people are highly satisfied with there customer about loan
recovery.
17 How will you measure your experience with Yes bank as a recovery officer?
64
Figure 4.17 Measure your experience with Yes bank as a recovery officer
Interpretation:
In the above graph presented that how recovery officer measure their experience with
Yes bank as a recovery officer almost 37.1% of people are neutral for their experience
8.6% of totally not satisfied, 14.3% of people are dissatisfied, 22.9% of people are
satisfied with their experience with yes bank and 17.1% of people are highly satisfied.
18 How will you measure overall service of Yes bank?
In the above graph presented that overall service of Yes bank by recovery officer
stated that 34.3% are neutral about this, 5.7% says highly not satisfied their service,
17.1% of people says we are dissatisfied with their service, 25.7% of people are
satisfied and
17.1% people are highly satisfied.
65
19 How will measure the contribution of Yes bank in Indian banking sector?
In the above graph shows that 14.3% of recovery officer are says we are highly
dissatisfied with the contribution of yes bank in Indian banking sector, 14.3% people
says we are dissatisfied, 31.4% of people are says we are neutral with their
contribution towards Indian banking sector. 22.9% people says we are satisfied and
17.1% people says we are highly satisfied with the contribution of Yes bank towards
Indian banking sector.
66
In December 2011, YES Bank declared a 7% interest on savings accounts (more than
the industry average), following RBI guidelines of abolishing a 4% cap on savings
accounts by liberalizing deposit rates of savings accounts, intending to attract more
customers. In contrast, other private players were offering 3–4% interest on savings.
This insurgence benefitted YES Bank as its current account savings account (CASA)
ratio rose dramatically from 10.3% in March 2011 to 15% in March 2012, and it
recorded a whopping 36.5% in March 2018 as the decision enticed the customers to
keep their money with YES Bank.
The squabble started long back following Mr Ashok Kapur’s demise at the promoter
level. Following the demise, his wife proposed her daughter Ms Shagun Gogia
(successor) as one of the board members. However, Mr Rana Kapoor and board
members not only opposed the proposal on the ground of lack of experience but also
67
In 2015, RBI conducted its clean-up drive by asset quality review (AQR). This review
was conducted to cross-check the corporate loan account as it was showing severe
financial distress but was categorized as standard accounts in the books of the lenders.
Post this review, the RBI came to know that the NPA of YES Bank stood at ₹49,300
million. This was seven times higher than the actual reported amount in their audit
book in March 2016.
Despite these, the bank had managed to add 756,000 new retail buyers in FY 2018–
2019 in their vault, along with a 35% annual increment in its bottom-line during FY
2008– 2018. During this tenure, a whistle-blower alleged irregularities in the
operations of YES Bank. The whistle-blower was aware of two agendas, namely
misclassification of bad loans and conflict of interest with Mr Rana Kapoor. To
investigate the matter, he set up an internal inquiry committee that was supervised by
the board members. The board reviewed the outcome of the inquiry in November
2018, with no conclusive results. Owing to this, the management approached a
Vadodara-based auditing company JLN US & Co. to scrutinize the issue
independently. With the available resource, JLN revealed that few real estate
transactions were at arm’s length (parties involved in the transaction were
independent). JLN’s stance was also inconclusive due to limited access to the
documents provided by the bank. Finally, Securities and Exchange Board of India
(SEBI) and RBI had to intervene to figure out a way to douse the growing canker.
Understanding the delicate situation, RBI effectuated the relieving of Mr Rana Kapoor
as a CEO of YES Bank in September 2018, due to severe violation of corporate
68
The majority of the YES Bank's loan assets (approximately 17%) were related to real
estate and financial firms, which were facing the biggest pinch of the funding squeeze
in India. The bank advanced a whopping US$1.85 billion of credit to Reliance
Telecommunications (RCom), which was later declared bankrupt in 2019. The bank
also had an exposure of US$470 million to Zee Entertainment Enterprises, another
company in financial distress. Moreover, the bank allegedly extended loans using a
network of small plantation corporations, summing up to ₹5,000 million, to fund
12,000 acres of coffee plantation estate owned by Café Coffee Day (CCD) chain
founder Mr V.G. Siddhartha (who had a sudden demise). There has been widespread
speculation that the bank’s actual troubled asset figures were closer to ₹260,000
million, which is significantly greater than ₹170,000 million reported by YES Bank.
Table 1 presents the rising NPA from 2013 to 2018. It is evident from Table 1 that the
NPA of YES Bank has risen four times from 2019 to 2020 (78,825.6 million in 2019
to 328,775.9 million in 2020). This revelation proved to be an oblique attack on the
survival of the bank as the failure in recovery may have wiped out the bank’s entire
net worth of ₹269,040 million.
Figure 1
69
The stock market quickly reflected the events unfolding in the bank (Figure 1). The
bank’s share valuation plummeted drastically from ₹393.20 to ₹181.20 in September
2018, resulting in a cumulative wealth loss of 40% in merely a week. There were two
primary reasons identified for this debacle. First, emotional trading by the investors
following the reports that Ms Madhu Kapur had disposed of about 0.04% of her stake.
Second, the bank’s constant rebuttals of the charges of window dressing to conceal
their
NPA. Subsequently, the investors suffered another blow of ₹165,000 million (a
staggering 30% of their wealth) following the kitchen-sinking exercise initiated in
2019. Figure 2
In May 2019, the bank’s reported stressed assets stood at ₹100,000 million, owing to
its exposure in infrastructure, real estate and entertainment sectors. It reported a huge
70
The RBI appointed Mr Rama Subramaniam Gandhi (former Deputy Governor of the
Central Bank) as an Additional Director to YES bank’s board of directors for 2 years.
The RBI invoked section 36 AB, subsection (1) of the Banking Regulation Act, 1949.
It empowered the regulatory bank to designate an additional director, if necessary, to
protect the interest of the bank as well as its depositors. This sudden move by the RBI
reflected its cautious approach and indicated the grave situation. Subsequently, Mr
Rana Kapoor’ family-owned Morgan Credits Pvt. Ltd. sold 2.3% of its shares in the
bank for ₹3,370 million. Another promoting group owned by Mr Rana, YES capital
(India) Pvt Ltd, followed suit by selling 2.17% of its bank holdings at abysmal prices.
In the wake of deteriorating capital, liquidity, financial position and no prospect for
capital infusion, RBI adhered to the following measures to safeguard public interest:
The RBI took charge of the board management and appointed Mr Prashant Kumar as
an administrator on 5 March 2020. He previously worked at the SBI as the Chief
Financial Officer (CFO) and Deputy Managing Director. Figure 2 represents the
revised chart of the organizational structure.
2 Moratorium
A moratorium is a period where all activities are suspended temporarily until the
related problem is resolved. RBI has also imposed a moratorium on YES Bank’s
operational work, setting the withdrawal limit up to ₹50,000 for savings, current and
other account holders. The limit applied to account holders having multiple accounts
with the bank, as moratorium will apply cumulatively. However, RBI has relieved
depositors to withdraw up to ₹500,000 in case of emergencies, such as medical,
marriage, education and other unavoidable situations.
● This scheme was initiated by the RBI to alter the YES Bank’s authorized share
capital to ₹500,000 million. Furthermore, the bank’s equity shares were
revived to ₹24,000 million share in total with a face value of ₹2 per share, thus
the sum aggregating to ₹48,000 million.
● For the reconstruction of the YES Bank, investor banks were allowed to invest
with a restriction of 49% of the total share capital as post-infusion limit at a
predetermined rate of ₹10.
● The investor bank’s infusion of their investment in the bank was to be locked
for 3 years to restrict the investors from reducing their holding below 26%.
● RBI had restricted the appointment of the YES Bank’s administrator. The
office was to be deemed vacated till the constitution of a new board.
72
● The appointed directors of the board had to hold office for a time frame of 1
year from their appointment or till the time an alternate board member was
constituted through the normal process mentioned.
● All the associated contracts, deeds, legal papers and representations and similar
instruments would function similarly as pre-time of the reconstruction scheme
were implemented.
● All inflows and outflows of the reconstructed bank, like deposits, liabilities
along with the rights and obligations towards their creditors were to be
continued similarly, except as directed in the reconstruction scheme.
● As per the rules under Basel III norms, any instruments issued by YES Bank
that were/could be qualified as an additional Tier I capital would be considered
permanent. In addition, these had to be permanently written in their records
from the date of the appointment.
● The reconstructed bank’s employees were allowed to continue their services for
the bank. Their remuneration as well as the terms and conditions associated
with their services were to be considered to be the same as earlier.
● The reconstructed bank’s board of directors was imbued with the freedom to
discontinue any key managerial personnel’s services.
73
As per my research & study, today's competitive & high standard of living gives a
reason to borrow a loan from banks. There are many types of secured and unsecured
loans offered by the different banks for different terms (long term and short terms)
with different ROI (rate of interest). As per my research about 80% to 85% of
customers pay their loan on time and for remaining cases the recovery department is
there. Most of the banks have three own recovery departments and some of them hire
third parties for the same and then they carry out their recovery procedure for NPA
Accounts (Nonperforming assets).
74
5.1 Conclusion:
This study was carried out that why loans are not recovered at the time. Researcher
finds that which types of responses get from customer at the time of loan recovery to
recovery officer. Most of the banks are granted personal loan and these loans are not
recovered at the time.
Which types of responsibility that they have to be remember as a recovery officer.
Most of the customers are avoid payments on that time they gives excuses to the
recovery officer. Most recovery officer are recovered their debt by direct
communication with the debtor.
5.2 Suggestion:
1. For borrowers who fails to repay so commercial banks should monitor its
outstanding loans in order to identify properly loans
2. Before granting loans, commercial banks must have to examine critical
projects of the customer’s financial statement such as cash budget or income
statement etc. This will help them to know if the project is realistic based on the
customer's past performance and also help them to find out the realistic repayment
pattern.
3. Commercial banks must use some of the risk control procedures to guide
against losses. An example of this is covenant which is a written agreement where
75
https://journals.sagepub.com/doi/full/10.1177/25166042211061003
https://pub.abuad.edu.ng/Open_Access_Research_Projects_of_Universities_-
_Batch_1/BANKING%20AND%20FINANCE/LOAN%20GRANTING%20AND%
20ITS%20RECOVERY%20PROBLEMS.pdf
https://www.myloancare.in/business-loan/yes-bank
https://link.springer.com/chapter/10.1007/978-3-030-70250-2_8
https://economictimes.indiatimes.com/markets/stocks/news/tribunal-no-time-limitfor-loan-
recovery-under-ibc/articleshow/60168921.cms?from=mdr
https://www.yesbank.in/business-banking/agri-food-business/loan-andfinance/commodity-
finance-against-agriculturalcommodities#:~:text=Maximum%20Rate%20of%20Interest
%20applicable,customer %20profile%2C%20rating%20and%20creditworthiness.
https://www.bankbazaar.com/personal-loan/agriculture-loan-interest-rates.html
76
https://www.ijirmf.com/wp-content/uploads/201806037.f
http://idr.aus.ac.in/jspui/bitstream/21011994/362/6/06
http://scholar.mzumbe.ac.tz/bitstream/handle/11192/3194/MBA-CM-DCCsequenc
https://www.hrishiblogbuddhi.com/skill-india-sector/bfsi-sector-skill-council-ofindia/
career-as-a-debt-recovery-agent-know-requiredskills/#:~:text=To%20should%20meet
%20requirements%20to,Debt%20Recovery%
20certifications.
https://career.guru99.com/top-12-bill-collector-interview-question/
https://www.bankbazaar.com/personal-loan-types.html
https://www.hindustantimes.com/opinion/the-priority-sector-lending-india-needs-
101622376883593.html
https://www.bankbazaar.com/credit-
score.html?variant=slide&ds=true&WT.mc_id=CROSS_SELL_PL_CREDITSCOR
E_DSK&utm_source=bb&utm_medium=display&utm_campaign=CROSS_SELL_P
L_CREDITSCORE_DSK&ck=Y%2BziX71XnZjIM9ZwEflsyIOkr1zP2S2af%2Fib
OG7JL%2FtAevB1eS8eCGuBkX8I0T6I
https://ijcrt.org/papers/IJCRT2112206.
https://timesofindia.indiatimes.com/business/india-business/rbi-supersedes-yes-
bankboard-caps-withdrawals-at-rs-50000/articleshow/74502162.cms
https://m.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9902
77
https://economictimes.indiatimes.com/wealth/borrow/all-about-personalloans/
articleshow/56352098.cms
https://www.cibil.com/resources/docs/understand-your-cibil-company-credit-report.
https://docs.google.com/forms/d/1lV8uhAQJgskaPLWgb3dsGhptNCwcfsIYMVd28
Fbh3kk/edit#responses
78
79