Indian Banking System

The Debt Collection Policy (Loan Recovery Policy)

The debt collection policy (recovery policy) of the bank is built around dignity and respect to customers.   The Bank will not follow policies that are unduly coercive in recovery of dues from borrowers.     The policy is built on courtesy, fair treatment and persuasion.   The bank believes in following fair practices with regard to recovery of   dues from borrowers and taking possession of security (properties / assets   charged to the bank as primary or collateral security) (known as security repossession) and thereby fostering customer confidence and long-term relationship.

The repayment schedule for any loan sanctioned by the Bank will be fixed taking into account the repaying capacity and cash flow pattern of the borrower.  … Read the rest

Abey Francis

Guidelines for Preparing a Proper Strategy for Debt Recovery

Devising a strategy helps in achieving a set goal or objective.   Recovery agents should therefore devise a strategy for debt recovery.   The following guidelines would help in preparing proper strategy for debt recovery.

  1. The collection process should be compliant to the bank-specific recovery norms and also regulatory guidelines.
  2. The collection timing should be synchronized to the cash inflow pattern of the debtors: For example, recovery from salaried employees should be timed when salary is received by or credited to the debtor’s account, normally at the moth-end.   In case of SME borrowers the effort should coincide with cash flow on account of sales.  
… Read the rest
Abey Francis

Non Performing Assets (NPA)

What is Non Performing Asset (NPA)?

For a bank, an Non Performing Asset (NPA) or bad debt is usually a loan that is not producing income. Earlier it was largely applicable to businesses. But things have changed with banks widely extending consumer loans (home, car, personal and education, among others) and strict asset classification norms.

If a borrower misses paying his equated monthly installment (EMI) for 90 days, the loan is considered bad, or an NPA. High NPAs are a sign of bad financial health. This has wide-ranging ramifications for a bank, especially in the stock market and money market.… Read the rest

Abey Francis

Main causes of default of loans from industrial sector

One major problem which the banks in India are facing is the problem of recovery and overdue of loans. The reasons behind this may vary for different financial institutions as it depends upon the respective nature of loans. Here an attempt is made to find out the some causes of default of loans due to which financial Institutions are facing the problems of overdue of loans. The recovery officers of different banks are interviewed for finding out the causes of defaults. These reasons may be useful for the and Banks for the better recovery of loans in future. After surveying different banks, the following can be said to be some of the main causes of default of loans from industrial sector:-

  • Improper selection of an entrepreneur: Selection of the right Entrepreneur is one of the major factors in the profitability of Banks.
… Read the rest
Abey Francis

Indian Banking Sector Reforms: Asset Liability Management System

The critical role of managing risks has now come into the open, especially against the experience of the recent East Asian crisis, where markets fell precipitously because banks and corporate did not accurately measure the risk spread that should have been reflected in their lending activities. Nor did they manage such risks or provide for them in their balance sheets. In India, the Reserve Bank has recently issued comprehensive guidelines to banks for putting in place an Asset Liability Management System. The emergence of this concept can be traced to the mid 1970s in the US when deregulation of the interest rates compelled the banks to undertake active planning for the structure of the balance sheet.… Read the rest

Abey Francis

Indian Banking Sector Reforms: Special Tribunals and Asset Reconstruction Funds

Setting up of special tribunals to speed up the process of recovery of loans and setting up of Asset Reconstruction Funds (ARFs) to take over from banks a portion of their bad and doubtful advances at a discount was one of the crucial recommendations of the Narasimham Committee.

To expedite adjudication and recovery of debts due to banks and financial institutions (FIs) at the instance of the Tiwari Committee (1984), appointed by the Reserve Bank of India (RBI), the government enacted the Debt Recovery Tribunal Act, 1993 (DRT). Accordingly, DRTs and Appellate DRTs have been established at different places in the country.… Read the rest

Abey Francis