NPAs And Recovery Policy

Presented ByBipul Singh Rajput (09FT-041) Chandan Jain (09FT-043) Chandan Jee (09FT-044) Ankur Srivastava (09IT-002) Rahul Jain (09IT-020) Komal Agarwal (09IT-)

NPA-Non Performing Assets
‡ A/c which ceases to generate income for the bank ‡ Defined as a credit facility in respect of which the interest and / or instalments of principal has remained µoverdue¶ for a µspecified period¶ of time ‡ Under IRAC norms, specified period at present is 90 days

IRAC Norms
‡ An a/c is an NPA: ‡ Interest and Principal remain overdue for a period of more than 90 days. ‡ Account remain out of order in respect of an overdraft / cash credit for more than 90 days. ‡ Bill remain overdue for a period of more than 90 days in the case of bills purchased and discounted. ‡ Any amount to be received remains overdue for more than 90 days. ‡ Direct Agricultural advances, a/c is NPA- overdue based on crop seasons.

Asset Classification ‡ totally regular. safe and conducted as per norms of sanction Standar ‡ Can be termed ³watch category´ if irregularity occurs d Substa ‡ NPA for period less than or equal to 12 months ndard ‡ Doubtful I ± NPAs for a period between 12 months and 24 months ‡ Doubtful II ± NPAs over 24 months to 48 months Doubtful ‡ Doubtful III ± NPAs over 48 months ‡ Loss identified by bank but amount not fully written off ‡ Considered uncollectible and of little value Loss .

Provision for NPAs Asset Classification Standard Assets Sub-standard Assets Provision Requirements 0.25% 10% Doubtful Assets (Doubtful I) 20% Doubtful Assets (Doubtful II) 30% Doubtful Assets (Doubtful III) Loss Asset 100% Should be written off .

‡ µStand Still Clause¶ under CDR.Some General Guidelines ‡ No further charging of interest. ‡ Under consortium-Based on recovery record of individual Banks. . ‡ Infrastructure Projects-Treated as Substandard if date of completion extends by 1 yr. ‡ Loan a/c -> NPA -> Standard a/c ‡ But in case of Re-structuring NPA-> Standard a/c after 1 year. ‡ Asset classification will be borrower wise not facility wise.

‡ Decision based on the lender¶s judgement. ‡ Siphoning of Funds ‡ Funds utilized for un-related operations of borrower.WILFUL DEFAULTERS ‡ Wilful Default is deemed when: ‡ Unit has defaulted even when it has the capacity. ‡ Unit not utilised the finance from the lender for the specific purposes. . ‡ Detriment to the health of the lender or any other entity. ‡ Unit has siphoned off the funds.

‡ Investment in other companies ±acquiring equities/debt ±without approval.DIVERSION OF FUNDS ‡ Utilization of short term WC funds for long term purposes. ‡ Shortfall in deployment in funds. ‡ Deployment of funds for other activities not in sync for which it was sanctioned. . ‡ Transfer of funds to subsidiaries.

‡ RBI publishes booklet-list of suit filed accounts. ‡ Incorporate a covenant in the loan agreement.PENAL MEASURES ‡ ‡ ‡ ‡ No additional facilities granted. Proactive approach ± change of management of wilfully defaulting unit. ‡ Tracking of Repayment performance to the lenders. Debarred from Institutional finance. .steps for removal of a wilful defaulter.5 years. Legal proceedings & Recovery of dues.

3 200607 0.6 200708 0.8 1.8 1.3 0.2 1.6 0.7 1.5 1.4 0.3 0.6 1.3 200809 1.6 200809 0.3 1.5 0.6 0.6 .5 200708 1.YoY NPA as Percentage of Total Assets Type of Banks Gross NPAs/Total Assets Net NPAs/Total Assets 200607 Public Sector Banks Private Sector Banks Foreign Banks All Scheduled Commercial Banks 1.7 0.6 0.7 0.6 0.2 0.

7 2.1 .0 2.0 2.0 1.7 1.8 1.3 200607 1.5 200708 2.2 2.5 1.3 200809 2.0 1.9 1.7 1.8 2.9 4.2 1.5 1.YoY NPA as Percentage of Advances Type of Banks Gross NPAs/Gross Advances Net NPAs/Net Advances 200607 Public Sector Banks Private Sector Banks Foreign Banks All Scheduled Commercial Banks 2.8 2.1 1.0 200708 0.2 0.0 200809 0.

KVPs and Life policies may be taken to income account on the due date. NSCs. provided adequate margin is available in the accounts ‡ Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of outstanding debts should be recognized on an accrual basis over the period of time covered by the re-negotiated or rescheduled extension of credit . IVPs.Income Recognition ‡ Income from non-performing assets (NPA) is not recognized on accrual basis but is booked as income only when it is actually received ‡ Interest on advances against term deposits.

interest accrued and credited to income account in the corresponding previous year. if uncollected . should be reversed or provided for if the same is not realized. commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods. ‡ Fees.Reversal of Income ‡ If any advance becomes NPA as at the close of any year.

‡ Reacting promptly would be in favour of the Bank .Recovery using Recovery Certificate ‡ Recovery Officer proceeds to recover the amount in any of the following ways : a) attachment and sale of the movable and immovable property b) arrest and detention of the defendant c) appointing a receiver for the management of the movable or immovable properties d) issue Garnishee Order against third parties.

if appeal is preferred ‡ Time value of money and the possibility of delay in execution of decree in case of preferring appeal ‡ Suit filed by the Bank has been dismissed by the Court/DRT .Waiver of Appeal ‡ Suit filed by the Bank has been dismissed by the Court ‡ Suit is decreed in Bank¶s favour but for the amounts lower than prayed for ‡ Reasons for award of lower than the prayed for and chances of success of appeal ‡ Availability of security from which to recover the dues ‡ Cost benefit analysis.

Time frame for various actions ‡ For action under DRT Act ‡ Filing for Recovery Application before DRT. location of assets and other necessary particulars should also be provided to the Revenue Officials within one month of date of filing of Bank¶s Application / Requisition . if permitted by Competent authority. should be done within two months from date of sanction ‡ Within one month from date of passing of the Recovery Certificate it should be taken on the record of the Recovery Officer for the purpose of execution ‡ For action before Civil Courts ‡ In case of filing a civil suit before Civil courts. particulars of assets. should be done within two months from date of sanction. ‡ Further. ‡ Within one month from date of filing of the Bank¶s Application/ Requisition it should be taken on the record of the Revenue authority for the purpose of execution. if permitted by Competent authority.

CBD 23 etc of the borrowers / guarantors ‡ Decree / Recovery Certificate is obtained at the earliest ‡ Branch supplies the assets detail to the Bank¶s Advocates within one month of the issuance of the Decree / Recovery Certificate or files an application. ‡ Review is to ensure that ‡ All suit filed accounts are properly followed up by the Branch and its Advocates ‡ Summons is served on all the defendants at the earliest ‡ Assets of the borrowers / guarantors are identified by making local enquiries and by perusing the Income Tax / Wealth Tax Returns.Review of suit filed /decreed cases ‡ The developments of all suit filed and decreed accounts shall be assessed and reviewed by the Branch and reported to the Zone once in a quarter. before DRT or before the Civil Court praying for an order directing the defendants to declare on Affidavit all the particulars of attachable assets of them ‡ Further Review of all suit filed and decreed accounts based on book-outstanding will be done once in a year .

BIFR ‡ Board for Industrial and Financial Reconstruction(BIFR) is a body constituted under Sick Industries Companies (Special Provision) Act (SICA) 1985 ‡ Timely detection and power to consider revival and rehabilitation of sick companies ‡ Any sick company can make a reference to BIFR within 60 days from date of adoption of annual accounts after which the board of directors have come to a conclusion that company has become sick ‡ Shipping companies. Industrial units registered as SSIUs and service units like hotels are not eligible for reference .

BIFR/AAIFR ‡ Immediate effect of reference: ‡ no legal action/ recovery action can be instituted against the borrower company and the guarantors ‡ all pending cases against the borrower/ guarantors are suspended during the pendency of reference ‡ legal proceedings can be instituted/ continued after obtaining the permission of BIFR ‡ If any of the parties is aggrieved by any of the order of BIFR. such affected party may prefer to appeal within 45 days from the date of order to Appellate Authority for Industrial & Financial Reconstruction (AAIFR) ‡ Being misused by defaulting and dishonest borrowers .

Corporate Debt Restructuring(CDR) ‡ Objectives: ‡ ensure timely and transparent mechanism for restructuring the corporate debts of viable entities facing problems. outside the purview of BIFR. DRT and other legal proceedings. for the benefit of all concerned ‡ preserving viable corporate that are affected by certain internal and external factors ‡ minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme .

and monitor the progress of CDR ‡ Carves CDR core group which lays down policies and guidelines for debt restructuring CDR Empowered Group ‡ Deals with individual cases of CDR ‡ Examines viability and feasibility of debt restructuring and if possible approves restructuring package CDR Cell ‡ Assists other two groups in all functions ‡ initial scrutiny of the proposals received from borrowers / lenders and puts up the matter with Empowered group ‡ If feasible.empowered body laying down policies and guidelines.CDR -Structure CDR Standing Forum ‡ Representative general body of all financial institutions and banks ‡ self. it prepares detailed rehabilitation plan with the help of lenders .

CDR .Features ‡ Covers only multiple banking accounts / syndication / consortium accounts with outstanding exposure of Rs. fraud or misfeasance not considered ‡ Reference to CDR can be triggered by: ‡ any creditor who have minimum 20% share in either working capital or term finance ‡ by the concerned corporate .20 crores and above by banks and institutions ‡ applicable only to accounts classified as 'standard' and 'sub-standardµ ‡ BIFR cases not eligible ‡ Requests of any corporate indulging in wilful default.

SARFAESI Act 2002 ‡ The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court. ‡ The Act has three segments: ‡ Securitization and Asset Reconstruction Companies ‡ Central Registry ‡ Enforcement of Security Interest .

Methods for Recovery Securitization Asset Reconstruction Enforcement of Security without the intervention of the Court .

Securitization & Asset Reconstruction ‡ Securitisation is the process of pooling and repackaging of homogenous illiquid financial assets into marketable securities that can be sold to investors ‡ Securitisation company or reconstruction company may raise funds from the qualified institutional buyers by formulating schemes for acquiring financial assets ‡ Any securitization or reconstruction company can act as an agent to a bank/financial institution for the purpose of recovering their dues ‡ ARC will be treated as secured creditors once they take over financial assets and have authority to take over the management of the business of the borrower ‡ ARC restructure NPAs and sell them to investors as ³Pass Through Certificates´ (PTCs) .

at least lenders representing 75 % of the contractual amount due and out-standing agree to take Action ‡ Any security interest created over agricultural land can¶t be proceeded with . lien/ assets financed under lease or hire purchase are not covered ‡ Either a bank must be the sole Banker to the borrower or in case of joint lending.Provisions of the Act ‡ NPA loans with outstanding above Rs 1 lac ‡ Amount less than 20% of the principal and interest are not eligible to be dealt with under this act ‡ Assets under pledge.

SARFAESI Act. calling upon them to discharge their dues in full within 60 days from the date of the notice.Empowerment to Bank ‡ The Act empowers the bank to: ‡ To issue demand notice to the defaulting borrower and guarantor. ‡ To ask any debtor of the borrower to pay any sum due or becoming due to the borrower . ‡ To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank.

Procedure for Proceeding under SARFAESI Act ‡ Identification of accounts & Obtain Approval for Action ‡ Issue of duly signed notices by Authorised Officer to borrower and guarantor asking them to discharge their dues within 60 days ‡ If borrower makes any representation or raises any objection and if on careful consideration Bank doesn¶t accept it. then it has to communicate within one week from receipt of such representation or objection with the reasons for non-acceptance .

bank can take one or more of the following measures: ‡ Take possession of the secured assets ‡ Take over the management of the secured assets ‡ Issue notice for collection of receivables / book debts ‡ Bank can also sell or lease out the business and take over the management of the Company ‡ If the sale proceeds are not sufficient to liquidate bank¶s dues then bank will have to file recovery suit / DRT application before Civil Court / DRT for enforcing the personal covenant against the borrower / guarantor .Procedure for Proceeding under SARFAESI Act ‡ If the borrower/guarantor fails to meet the liability within notice period.

he may file an application to DRT within 45 days from the date such measures have been taken ‡ Borrower can also appeal to DRAT after DRT but only after depositing 50% of the amount of debt due or determined by DRT whichever is less but can¶t be below 25% .Appeal to DRT/DRAT ‡ If any person is aggrieved by any of the measures taken by the bank.

the shortfall will be debited to the P&L a/c of the year ‡ If sale is for a value higher than the NBV. the excess provision shall not be reversed but will be utilised to meet shortfall on account of sale of other NPAs in future . 25 lakh and assets classified as NPA for atleast 2 years are eligible ‡ The sale consideration should be received from the purchasing Bank in Cash ‡ NPA transferred to purchasing bank on ³without recourse´ basis ‡ If the sale is at a price below Net Book Value (NBV).Sale of NPA To Other Banks/FIs ‡ Only NPA accounts with outstanding balance over Rs.

Sign up to vote on this title
UsefulNot useful