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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 and transparency in the published accounts.
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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 would ensure 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 remained nonperforming and the availability of security and the realisable value thereof.
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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 thus improve the record of recovery in advances.
DEFINITION OF NPA
A
Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan, The account remains out of order in respect of an overdraft/ cash credit The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted The installment or interest remains overdue for two crop seasons in case of short duration crops and for one crop season in case of long duration crops
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CATEGORIES OF NPA
Substandard Assets Which has remained NPA for a period less than or equal to 12 months. Doubtful Assets Which has remained in the substandard category for a period of 12 months Loss Assets where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.
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PRESENTED BY CM & ARD DEPARTMENT
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PROVISIONING NORMS
9/15/2013
TYPE STD
REQUIRED % 0.25 0.40 1.00 10.00 20.00 20.00 100.00 30.00 100.00 100.00 100.00
SUB STD
SECURED UNSECURED SECURED PART UNSECURED PART SECURED PART UNSECURED PART SECURED PART UNSECURED PART
BD1
BD2
Credit discipline Inadequate Credit & Risk Management Diversion of funds by promoters Funding of non-viable projects In the early 1990s PSBs started suffering from acute capital inadequacy and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals. The banks had little freedom to price products, cater products to chosen segments or invest funds in their best interest
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mechanism to gather and disseminate credit information amongst commercial banks recovery from defaulting and overdue borrowers was hampered on account of sizeable overhang component arising from infirmities in the existing process of debt recovery, inadequate legal provisions on foreclosure and bankruptcy and difficulties in the execution of court decrees.
Effective
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PRESENTED BY CM & ARD DEPARTMENT
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Amt
%
18269.09 17007.61 13081.70 9439.99 9405.28 14636.04 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
Unnao BARABANKI Lucknow Farrukhabad Kannauj Hardoi Mainpuri TOTAL Aligarh Agra Etah Hathras TOTAL GRAND TOTAL
4520.04
86359.75 7482.88 3837.5 5329.47 2329.56 18979.41 105339.16
20.45
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SLIPPAGE... .. .
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on Profitability Impact on capital adequacy Adverse effect on credit growth as the bankers prime focus becomes zero percent risk and as a 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 also releases a list of borrowers with aggregate outstanding of Rs.1 crore and above against whom banks have filed suits for recovery of their funds Reporting of Frauds to RBI Norms of Lenders Liability framing of Fair Practices Code with regard to lenders liability to be followed by banks, which indirectly prevents accounts turning into NPAs on account of banks own failure
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PRESENTED BY CM & ARD DEPARTMENT 9/15/2013
NPA MANAGEMENT PREVENTIVE MEASURES Risk assessment and Risk management RBI has advised banks to examine all cases of wilful default of Rs.1 crore and above and file suits in such cases. Board of Directors are required to review NPA accounts of Rs.1 crore and above with special reference to fixing of staff accountability. Reporting quick mortality cases Special mention accounts for early identification of bad debts. Loans and advances overdue for less than one and two quarters would come under this category. However, these accounts do not need provisioning
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PRESENTED BY CM & ARD DEPARTMENT 9/15/2013
LOK ADALATS
Small
NPAs up to Rs.20 Lacs Speedy Recovery Veil of Authority Soft Defaulters Less 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 to Banks and FI act, 1993 (DRT Act) by filing an application for recovery of dues before the Debt Recovery Tribunal constituted under the Act. On adjudication, a recovery certificate is issued and the sale 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 the properties charged to creditor and to pass attachment orders in respect of charged properties In case of non-realization of the decreed amount by way of sale of the charged properties, the personal properties if the 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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PRESENTED BY CM & ARD DEPARTMENT 9/15/2013
For claims below Rs.10 lacs, the banks and FIs can initiate proceedings under the Code of Civil Procedure of 1908, as amended, in a Civil court. The courts are empowered to pass injunction orders restraining the debtor through itself or through its directors, representatives, etc from disposing of, parting with or dealing in any manner with the subject property. Courts are also empowered to pass attachment and sales orders for subject property before judgment, in case necessary. The sale of subject property is normally carried out by way of 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 Property Act of 1882 by filing a mortgage suit where the procedure is same as laid down under the CPC.
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PRESENTED BY CM & ARD DEPARTMENT 9/15/2013
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 the selling bank The NPA must be held by the purchasing bank at least for a period of 15 months before it is sold to other banks but not to bank, which originally sold the NPA. The NPA may be classified as standard in the books of the purchasing bank for a period of 90 days from date of purchase and thereafter it would depend on the record of recovery with reference to cash flows estimated while purchasing 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, the excess provision will be utilized to meet the loss on 21 account of sale of other NPA.
PRESENTED BY CM & ARD DEPARTMENT 9/15/2013
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1. ISSUE OF NOTICES IN ALL NPA/OVERDUE ACCOUNTS. 2. RENEWAL OF ALL KCC ACCOUNTS ON WAR FOOTING. OLD KCC ACCOUNTS
SHOULD BE CLOSED AND FRESH LIMIT SHOULD BE SANCTIONED AS PER NEW SCALE OF FINANCE.
NPA KCC A/C HOLDERS THAT IF THEY ALSO WANT ATM CARDS THEY SHOULD FIRST REGULARIZE THEIR ACCOUNTS. ALL POSSIBLE
SHOULD BE GIVEN TO HELP SHOULD BE GIVEN TO FARMERS IN OBTAINING COPY OF LAND RECORDS AND
N.E.C.
3. BRANCH STAFF TO VISIT REGULARLY TO CONTACT BORROWERS EARLY IN THE MORNING AND LATE IN THE EVENING. 4. BRANCHES TO MOBILIZE THE SUPPORT OF VILLAGE AND BLOCK 23 FUNCTIONARIES, MEMBERS OF KRISHAK CLUB, CSPS AND SOLAR SUVIDHDATA
PRESENTED BY CM & ARD DEPARTMENT
9/15/2013
5. WIDE PUBLICITY TO BE DONE THROUGH PUBLIC ADDRESS SYSTEMS BY MEANS OF PRE RECORDED CASSETTES/CDS FOR PERCOLATING OUR MASSAGE AMONG BORROWERS. FARMERS SHOULD BE EXPLAINED THE BENEFIT OF 4% INTEREST ON THEIR KCC ACCOUNTS IF THEY MAKE REGULAR PAYMENTS IN THEIR ACCOUNTS. 6. BRANCHES TO MAKE BEST USE OF PRIVATE RECOVERY AGENTS WHEREVER NECESSARY. 7. BRANCHES TO ISSUE FRESH RECOVERY CERTIFICATES WITH REVENUE
AUTHORITIES OF DISTRICT CONCERNED AND PROVIDE THEM WITH VEHICLE, IF DEMANDED AFTER TAKING PERMISSION FROM THEIR REGIONAL OFFICE. BRANCHES TO REGULARIZE ACCOUNTS THROUGH OTHER RECOVERY TOOLS LIKE ACTION UNDER SARFAESI ACT OTS SCHEME/SANCHETNA.
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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.
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PREPARATION STAGE
Thorough
study of the case Find out our strengths and weaknesses in the case. Find out the vulnerable point/weaknesses of the 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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* TO ENSURE COMPLIANCE OF TERMS OF SANCTION, CPA & VETTING DOCUMENTS. * TO ENSURE NOTING OF LOAN PROPOSALS BY NEXT HIGHER AUTHORITY * SUBMISSION OF BORROWER HEALTH PROFILES (BHP) 1-BHP 1-RS.50LAC AND ABOVE(MONTHLY) 2-BHP 2-RS.25LAC AND ABOVE<50 LAC(BI-MONTHLY) 3-BHP 3-RS.25LAC AND ABOVE<50 LAC(BI-QUARTERLY)
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* REGULAR MONITORING & FOLLOW UP FOR RECOVERY OF OVERDUE LOAN ACCOUNTS. * TO MAINTAIN LOAN DISBURSEMENT REGISTER WITH TELEPHONE NUMBERS OF BORROWERS.
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