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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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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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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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PRESENTED BY CM & ARD DEPARTMENT 9/15/2013


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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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