NPA CompromiseSettlement

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    Chapter/ ModuleManagement of NPAs CompromiseSettlements

    Screen No. 1

    Lesson/ Screentitle

    Welcome

    Voice-over Text

    Welcome to the course on Management of NPAs Compromise

    Settlements.

    Welcome to the course on the Management of NPAs Compromise Settlements.

    Chapter/ ModuleManagement of NPAs CompromiseSettlements

    Screen No. 2

    Lesson/ Screentitle

    Objectives

    Voice-over Text

    On completion of this course, you will be familiar with: Definition of NPA; Objectives of NPA management; Fundamental requirements of negotiation; Negotiating for compromise settlements; Guidelines for settlement through the compromise

    route; Important guidelines on compromises; Screening committees; and One Time Settlement of NPAs in Small & Medium

    Enterprises.

    Target Group:

    This course is meant for the fresh and existing staffs of StateBank of India.

    On completion of this course, you will be familiar with: Definition of NPA; Objectives of NPA management; Fundamental requirements of negotiation; Negotiating for compromise settlements; Guidelines for settlement through the compromise route; Important guidelines on compromises; Screening committees; and One Time settlement of NPAs in Small & Medium Enterprises.

    Target Group:

    This course is meant for the fresh and existing staffs of State Bank of India.

    Every care has been taken to incorporate all current developments of the bank as on1st January 2010. If any errors and omissions are noticed, please advise the AGM (e-learning) (e-mail: [email protected]) to rectify the same. Your suggestions inthis regard are also welcome.

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    Chapter/ Module

    Management of NPAs CompromiseSettlements

    Screen No. 3

    Lesson/ Screentitle

    Non Performing Asset (NPA)

    Voice-over Text

    Non Performing Asset means an asset or account of borrower,which has been classified by a bank as sub-standard, doubtfulor loss asset, in accordance with the directions or guidelinesrelating to asset classification issued by The Reserve Bank ofIndia.

    The quality of loan asset is the most important factor for thebasic viability of the banking system. The overdue advances ofbanks in India are mounting and in consequence, the non-performing assets in their portfolio are on the rise, impingingon the banks viability. This not only makes inroads in to thebanks profitability but also hampers their ability to recycle the

    funds for productive purposes. The trend needs to be reversedand the position is being watched by many includinginternational investors, rating, agencies, correspondent banks,international development agencies etc.

    Credit management which includes NPA management is beinggiven paramount importance in our bank as is evident from thepolicy guidelines from time to time.Achieve a Gross NPAs ratio of 1.5% by March 2013 and NetNPAs ratio of 1%.

    Non Performing Asset means an asset or account of borrower, which has been

    classified by a bank as sub-standard, doubtful or loss asset, in accordance with thedirections or guidelines relating to asset classification issued by The Reserve Bank ofIndia.

    The quality of loan asset is the most important factor for the basic viability of thebanking system. The overdue advances of banks in India are mounting and inconsequence, the non-performing assets in their portfolio are on the rise, impingingon the banks viability. This not only makes inroads in to the banks profitability butalso hampers their ability to recycle the funds for productive purposes. The trendneeds to be reversed and the position is being watched by many includinginternational investors, rating, agencies, correspondent banks, internationaldevelopment agencies etc.

    Credit management which includes NPA management is being given paramountimportance in our bank as is evident from the policy guidelines from time to time.Achieve a Gross NPAs ratio of 1.5% by March 2013 and Net NPAs ratio of 1%.

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    Chapter/ ModuleManagement of NPAs CompromiseSettlements

    Screen No. 4

    Lesson/ Screentitle

    Policy Guidelines

    Voice-over Text

    The corporate policy is to contain the net NPAs below or equalto 1%, Gross NPAs below or equal to 1.5% by March 2013.

    Click Policy guidelines to view the some of the strategies toachieve this goal.

    The corporate policy is to contain the net NPAs below or equal to 1%, Gross NPAsbelow or equal to 1.5% by March 2013.

    Click Policy guidelines to view the some of the strategies to achieve this goal.

    Policy GuidelinesSome of the strategies to achieve this goal could be:

    The problem loan review and reporting must be effectivelyoperationalised at all levels as envisaged in the Banks NPA ManagementPolicy.

    Monitoring Mechanism must function with greater thrust so that as soonas default takes place in any loan account alerts are sounded and steps toprevent slippages are initiated. Any weakness in the account should berecognized and treated and no account should come up to be classified asNPA in half yearly returns before it has been treated vigorously during theprevious six months.

    Strengthening the follow up of legal cases specially those filed with DebtRecovery Tribunals (DRTs).

    Initiation of immediate and appropriate actions based on the irregularityreports and periodical inspection reports within the time frame prescribedunder the NPA Management Policy.

    Ongoing review of the industry / trade specific loan policies, riskmanagement policy, policy with regard to sectoral deployment of fundsetc., in the light of continually changing environment and taking intoaccount the reasons which led to the accounts turning NPAs since the lastreview.

    Ensuring adherence to the laid down instructions with regard to the creditmanagement and meticulous compliance with the relative policies by theControllers.

    Micro level budgeting for recovery / upgradation of NPAs and qualitativeperformance reviews.

    Greater thrust on compromise settlement as per the NPA ManagementPolicy and the instructions issued by the Corporate Centre pursuant to aguidelines of RBI for setting up of Settlement Advisory Committees. RBIsOTS scheme to be utilised extensively for reducing NPAs.

    Rehabilitation and Recovery Branches to play an effective role in targetinghigh value NPA accounts for upgradation and recovery. There should besubstantial recoveries of NPAs of the Circle through these branches.

    Sharpening of credit management skills and increased focus on dueapplication there of by organizing appropriate training courses at the StaffTraining Centres / Colleges.

    Recoveries in Advances Under Collection Accounts (AUCA). Accounts eligible for write offs should be written off in the beginning of

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    Chapter/ Module

    Management of NPAs CompromiseSettlements

    Screen No. 6

    Lesson/ Screentitle

    NPA analysis

    Voice-over Text

    The objectives of NPA analysis are as follows:NPA analysis helps us to systematise recovery and control.It also tells us that the NPAs can be broadly segregated intotwo groups:

    Click on each of the circles to know more about it.

    Objectives of NPA analysis:i) to take stock of the situation, by building up the data base.ii) segregating the accounts into identical lots, with regard to approach to

    be adopted for recovery.

    iii) prioritization as per prospects of recovery.iv) Last, but not the least, for monitoring and control proposes.The above analysis helps us to systematise recovery and control. It also tells usthat the NPAs can be broadly segregated into two groups. Click one each toknow more.a) Recoverable through regular follow up:

    By inducing recovery through reminders, both written and oral. Underthis head would also fall those accounts which are fit for rehabilitation.b) Not recoverable through regular follow up:

    The accounts falling under this head need to be tackled under one of thefollowing processes:

    i)

    Fit for initiation of legal action.ii) Fit for negotiated settlements either directly or through initiation of legalaction, which will eventually lead to negotiated settlements.

    iii) Fit for waiver of legal action, leading to eventual write-off.iv) Fit for other solutions: like sale of security, merger and acquisition etc.

    Chapter/ ModuleManagement of NPAs CompromiseSettlements

    Screen No. 7

    Lesson/ Screentitle

    Flow diagram of recovery process

    Voice-over Text

    Of the various processes, recovery through negotiatedsettlements offers the best scope for maximizing NPAreductions at the minimum expense.

    From the borrowers angle, the desire is to avoid:

    Costly and time consuming legal process,Loss of credibility in the market,The financial default fueled stigma,

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    The fear of being damned by banks for all time to come, andThe psychological aversion to be branded as a litigant type.Motivates one to seek compromise settlements with the bank.

    It has to be emphasized here that compromise settlement doesnot mean acceptance of any offer. It has to be a negotiated

    settlement in which the banks aim is to make best out of theworst.

    Of the various processes, recovery through negotiated settlements offers the bestscope for maximizing NPA reductions at the minimum expense. From the Bankspoint of view, the process of compromise settlements enables saving of valuabletime, apart from projecting a helpful / positive image of