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PRESENTED BY CM & ARD DEPARTMENT
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MANAGEMENT OFNON-PERFORMING ASSETS
PRESENTATION BY
CM & ARD DEPARTMENT
HO LUCKNOW
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RBI GUIDELINE AS PER MASTER
CIRCULAR
1- In line with the international practices and as per
the recommendations made by the Committee on
the Financial System (Chairman Shri M.
Narasimham), the Reserve Bank of India has
introduced, in a phased manner, prudential norms
for income recognition, asset classification and
provisioning for the advances portfolio of the banks
so as to move towards greater consistency andtransparency in the published accounts.
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RBI GUIDELINE AS PER MASTER
CIRCULAR
2 -The policy of income recognition should be
objective and based on record of recovery rather
than on any subjective considerations. Likewise,
the classification of assets of banks has to be done
on the basis of objective criteria which wouldensure a uniform and consistent application of the
norms. Also, the provisioning should be made on
the basis of the classification of assets based on
the period for which the asset has remainednonperforming and the availability of security and
the realisable value thereof.
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RBI GUIDELINE AS PER MASTER
CIRCULAR
3 Banks are urged to ensure that while granting
loans and advances, realistic repayment schedules
may be fixed on the basis of cash flows with
borrowers. This would go a long way to facilitate
prompt repayment by the borrowers and thusimprove the record of recovery in advances.
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DEFINITION OF NPA
A NPA is a loan or an advance where; Interest and/ or installment of principal remain
overdue for a period of more than 90 days inrespect of a term loan,
The account remains out oforder in respect of anoverdraft/ cash credit
The bill remains overdue for a period of more than90 days in the case of bills purchased anddiscounted
The installment or interest remains overdue for twocrop seasons in case of short duration crops andfor one crop season in case of long duration crops
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CATEGORIES OF NPA
Substandard Assets Which has remained NPA for aperiod less than or equal to 12 months.
Doubtful Assets Which has remained in the sub-standard category for a period of 12 months
Loss Assets where loss has been identified by the bankor internal or external auditors or the RBI inspection butthe amount has not been written off wholly.
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PROVISIONING NORMS
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TYPE DETAIL REQUIRED %
STD (AG & SME) 0.25
(OTHER) 0.40
(PERS.LOAN) 1.00
SUB STD SECURED 10.00
UNSECURED 20.00
BD1 SECURED PART 20.00
UNSECURED PART 100.00
BD2 SECURED PART 30.00UNSECURED PART 100.00
BD3 & LOSS SECURED PART 100.00
UNSECURED PART 100.00
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FACTORS CONTRIBUTING TO NPASPoor Credit discipline Inadequate Credit & Risk Management
Diversion of funds by promoters
Funding of non-viable projects
In the early 1990s PSBs started suffering fromacute capital inadequacy and lower/ negativeprofitability. The parameters set for theirfunctioning did not project the paramount need forthese corporate goals.
The banks had little freedom to price products,cater products to chosen segments or invest fundsin their best interest
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FACTORS CONTRIBUTING TO NPAS
Inadequate mechanism to gather and disseminatecredit information amongst commercial banks
Effective recovery from defaulting and overdue
borrowers was hampered on account of sizeableoverhang component arising from infirmities in theexisting process of debt recovery, inadequate legalprovisions on foreclosure and bankruptcy and
difficulties in the execution of court decrees.
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CURRENT STATUS OF NPAS
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REGION
Unnao
BARABANKI
Lucknow
Farrukhabad
Kannauj
Hardoi
Mainpuri
TOTAL
AligarhAgra
Etah
Hathras
TOTAL
GRAND TOTAL
NPA AS ON 15-06-2013
Amt
18269.09
17007.61
13081.70
9439.99
9405.28
14636.04
4520.04
86359.75
7482.88
3837.5
5329.47
2329.56
18979.41
105339.16
NPA % to o/s
%
42.62
26.98
28.30
23.83
32.83
35.47
16.06
29.80
8.26
8.65
9.84
6.44
8.42
20.45
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SLIPPAGE... .. .
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IMPACT OF NPAS ON OPERATIONS
Drain on Profitability
Impact on capital adequacy
Adverse effect on credit growth as the bankers
prime focus becomes zero percent risk and asa result turn lukewarm to fresh credit.
Excessive focus on Credit Risk Management
High cost of funds due to NPAs
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NPA MANAGEMENT PREVENTIVE MEASURES
Formation of the Credit Information Bureau(India) Limited (CIBIL)
Release of Wilful Defaulters List. RBI alsoreleases a list of borrowers with aggregateoutstanding of Rs.1 crore and above against
whom banks have filed suits for recovery oftheir funds
Reporting of Frauds to RBINorms of Lenders Liability framing of Fair
Practices Code with regard to lenders liabilityto be followed by banks, which indirectlyprevents accounts turning into NPAs onaccount ofbanks own failure
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NPA MANAGEMENT PREVENTIVE MEASURESRisk assessment and Risk managementRBI has advised banks to examine all cases of
wilful default of Rs.1 crore and above and filesuits in such cases. Board of Directors arerequired to review NPA accounts of Rs.1 croreand above with special reference to fixing of
staff accountability.Reporting quick mortality casesSpecial mention accounts for early
identification of bad debts. Loans andadvances overdue for less than one and two
quarters would come under this category.However, these accounts do not needprovisioning
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NPA MANAGEMENT - RESOLUTION
Compromise Settlement Schemes/SANCHETNA Restructuring / Reschedulement
Lok Adalat
Debt Recovery Tribunal (DRT)
Proceedings under the Code of Civil Procedure Sale of NPA to other banks
Sale of NPA to ARC/ SC under Securitization andReconstruction of Financial Assets and Enforcementof Security Interest Act 2002 (SARFAESI)
WRITTEN OFF
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COMPROMISE SETTLEMENT SCHEMES
WHY ?.... MONEY HAS TIME VALUE
MONEY LOCKED IN NPA A/CS FLOWS BACK IN
TO MAIN STREAM WE ARE HELPING THE REAL NEEDY PERSONS
WHO OTHER WISE WILL NOT BE IN A POSITION
TO CLOSE THE ACCOUNT
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LOK ADALATSSmall NPAs up to Rs.20 LacsSpeedy Recovery
Veil of Authority
Soft DefaultersLess expensive
Easier way to resolve
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DRT ACT The banks and FIs can enforce their securities by initiating
recovery proceeding under the Recovery if Debts due toBanks and FI act, 1993 (DRT Act) by filing an applicationfor recovery of dues before the Debt Recovery Tribunalconstituted under the Act.
On adjudication, a recovery certificate is issued and thesale is carried out by an auctioneer or a receiver.
DRT has powers to grant injunctions against the disposal,transfer or creation of third party interest by debtors in theproperties charged to creditor and to pass attachmentorders in respect of charged properties
In case of non-realization of the decreed amount by way ofsale of the charged properties, the personal properties ifthe guarantors can also be attached and sold.
However, realization is usually time-consuming Steps have been taken to create additional benches
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PROCEEDINGUNDER CODEOF CIVIL PROCEDURE For claims below Rs.10 lacs, the banks and FIs can initiate
proceedings under the Code of Civil Procedure of 1908, asamended, in a Civil court. The courts are empowered to pass injunction orders
restraining the debtor through itself or through itsdirectors, representatives, etc from disposing of, partingwith or dealing in any manner with the subject property.
Courts are also empowered to pass attachment and salesorders for subject property before judgment, in casenecessary.
The sale of subject property is normally carried out by wayof open public auction subject to confirmation of the court.
The foreclosure proceedings, where the DRT Act is not
applicable, can be initiated under the Transfer of PropertyAct of 1882 by filing a mortgage suit where the procedureis same as laid down under the CPC.
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SALE OF NPA TO OTHER BANKS A NPA is eligible for sale to other banks only if it has
remained a NPA for at least two years in the books of theselling bank
The NPA must be held by the purchasing bank at least for aperiod of 15 months before it is sold to other banks but notto bank, which originally sold the NPA.
The NPA may be classified as standard in the books of thepurchasing bank for a period of 90 days from date ofpurchase and thereafter it would depend on the record ofrecovery with reference to cash flows estimated whilepurchasing
The bank may purchase/ sell NPA only on without recourse
basis If the sale is conducted below the net book value, the short
fall should be debited to P&L account and if it is higher, theexcess provision will be utilized to meet the loss onaccount of sale of other NPA. 21
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SARFAESI ACT 2002 SARFAESI provides for enforcement of security
interests in movable (tangible or intangible assetsincluding accounts receivable) and immovableproperty without the intervention of the court
The bank and FI may call upon the borrower by way ofa written legal notice to discharge in full his liabilities
within 60 days from the date of notice, failing whichthe bank would be entitled to exercise all or any of therights set out under the Act.
Another option available under the Act is to takeoverthe management of the secured assets
Any person aggrieved by the measures taken by thebank can proffer an appeal to DRT within 45 days afterdepositing 75% of the amount claimed in the notice.
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1. ISSUEOFNOTICESINALL NPA/OVERDUEACCOUNTS.
2. RENEWALOFALL KCCACCOUNTSONWARFOOTING. OLD KCCACCOUNTS
SHOULDBECLOSEDANDFRESHLIMITSHOULDBESANCTIONEDASPERNEW
SCALEOFFINANCE. DISTRIBUTIONOF ATM CARDSTO KCCACCOUNT
HOLDERSSHOULDBEDONEINAPUBLICMEETINGANDACLEARMASSAGE
SHOULDBEGIVENTO NPA KCCA/CHOLDERSTHATIFTHEYALSOWANT ATMCARDSTHEYSHOULDFIRSTREGULARIZETHEIRACCOUNTS. ALLPOSSIBLE
HELPSHOULDBEGIVENTOFARMERSINOBTAININGCOPYOFLANDRECORDS
AND N.E.C.
3. BRANCHSTAFFTOVISITREGULARLYTOCONTACTBORROWERSEARLYINTHEMORNINGANDLATEINTHEEVENING.
4. BRANCHESTOMOBILIZETHESUPPORTOFVILLAGEANDBLOCK
FUNCTIONARIES, MEMBERSOF KRISHAKCLUB, CSPSANDSOLARSUVIDHDATA23
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5. WIDEPUBLICITYTOBEDONETHROUGHPUBLICADDRESSSYSTEMSBYMEANSOFPRERECORDEDCASSETTES/CDSFORPERCOLATINGOURMASSAGE
AMONGBORROWERS. FARMERSSHOULDBEEXPLAINEDTHEBENEFITOF 4%
INTERESTONTHEIR KCCACCOUNTSIFTHEYMAKEREGULARPAYMENTSIN
THEIRACCOUNTS.
6. BRANCHESTOMAKEBESTUSEOFPRIVATERECOVERYAGENTSWHEREVERNECESSARY.
7. BRANCHESTOISSUEFRESHRECOVERYCERTIFICATESWITHREVENUE
AUTHORITIESOFDISTRICTCONCERNEDANDPROVIDETHEMWITHVEHICLE, IF
DEMANDEDAFTERTAKINGPERMISSIONFROMTHEIRREGIONALOFFICE.
BRANCHESTOREGULARIZEACCOUNTSTHROUGHOTHERRECOVERYTOOLSLIKEACTIONUNDER SARFAESI ACT 2002, COMPROMISESUNDERGENERALAND
OTS SCHEME/SANCHETNA.
8. LEGALNOTICETOBEISSUED THROUGHLEGALADVISERSTOCREATE
PRESSUREONDEFAULTERSBEFORETAKINGANYCOERCIVEMEASURES
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NEGOTIATION PROCESS FOR
SETTLEMENT OF
NON PERFORMING ASSETS
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FACTORS AFFECTINGTHE ACCEPTANCEOF
PROPOSALBY BANK
Banks Documentation.
Security value. Realizable sale value.
Banks ability to sell.
Ability & Source of the borrower. Ability & Source of the guarantor.
Vulnerability of the borrower/guarantor.
Time frame.
Strength and Zeal of bank's field staff.
What message is bank sending out (No in a fraud case.) Banks Policy.
Success rate.27
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PREPARATION STAGEThorough study of the case
Find out our strengths and weaknesses in thecase.
Find out the vulnerable point/weaknesses ofthe borrower.
Follow-up with the Borrower and Guarantors.
Visit factory/Collaterals/residence.
Find out properties not charged to the bank.
Indicate that Bank is willing to compromise.
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* TOENSURECOMPLIANCE OF TERMSOF SANCTION, CPA & VETTING OF
DOCUMENTS.
* TOENSURENOTINGOF LOAN PROPOSALSBY NEXT HIGHER AUTHORITY
* SUBMISSIONOF BORROWER HEALTH PROFILES (BHP)
1-BHP 1-RS.50LACAND ABOVE(MONTHLY)
2-BHP 2-RS.25LACAND ABOVE
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