INTRODUCTION

Banks were never so serious in their efforts to ensure timely recovery and consequent reduction of Non-Performing Assets (NPAs) as they are today. It is important to remember that recovery management, be of fresh loans or old loans, is central to NPA management. This management process needs to start at the loan initiating stage itself. Effective management of recovery and Non-Performing Assets comprise two pronged strategy. First relates to arresting of the defaults and creation of NPA thereof and the second is to handling of loan delinquencies. The tenets of financial sector reforms were revolutionary which created a sense of urgency in the minds of staff of bank and gave them a message that either they perform or perish. The prudential norm has forced the bank to look into the asset quality. A debt from a loan, credit line or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. In accounting, the bad debt recovery would credit the allowance for bad debts or bad debt reserve categories, and reduce the accounts receivable category in the books. Not all bad debt recoveries are like-kind recoveries. For example, a collateralized loan that has been written off may be partially recovered through sale of the collateral. Or, a bank may receive equity in exchange for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit. Recovery is defined as the process of regaining and saving something lost or in danger of becoming costs. Recovery is a key to the stability of the banking sector there should be no hesitation in stating that Indian banks have done a remarkable job in containment of Non-Performing Assets (NPA) considering the over all difficult environment. Recovery management is also linked to the banks interest margins we must recognize that cost and recovery management supported by enabling legal framework hold the key to future health and competitiveness of the Indian banks. No doubt, improving recovery management in India is an area requiring expeditions and effective actions in legal institutional and judicial processes. Banks at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to banks has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time.

Advantages & Disadvantages of recovery

Advantages:

The process of assigning debt collection to outsides enables officials from Banks to develop more remunerative new business. Third party involvement in debt collection has proven time and again to improve the chances of recovering bank dues as these people are specialists in negotiating with debtors and the result usually speak for themselves;

A skillfully negotiated debt collection could mean saving on litigation cost. The process of assigning debt collection to outsides enables officials of non-Banks. Cost to develop more beneficial new business. Disadvantages:

Debt collection does cost money; The debt collection agency will be establishing a relationship with the banks customers, which could be potentially harmful if they sour that relationship by not dealing with customers in a courteous manner. Important points for loan recovery On the basis of the foregoing procedure for normal recovery process, we may list below certain Donts for the dent recovery, which are as follows: 1) Dont violate or breach the recovery policy, procedure etc. prescribed by the principal. 2) Dont exceed the authority given in the recovery arrangement. 3) Dont make a call to the debtor before 0700 hours or after 2100 hours. 4) Dont make anonymous calls or bunched calls to the debtor, which may be perceived as harassment. 5) Dont conceal or misrepresent your identity during calls and visit or other interaction with the debtor. 6) Dont show uncivil/indecent/dirty behavior or use such language during calls and visits to the debtor. 7) Dont harass/humiliate/intimidate/threaten the debtor-verbally or physically. 8) Dont intrude into the privacy of the debtors family members, friends/colleagues. 9) Dont disclose the customers debts/dues/account information to unauthorized person. 10) Dont forget that the debtor is a human being and deserves to be treated with fairness and courtesy, despite the fact that he/she is a debtor for the time being.

Elements of loan recovery

The agency regarding debt recovery contains the main terms and conditions agreed by the principal (say a bank) and the agent. The main elements of the debt recovery would generally include: 1) Specific tasks to be accomplished e.g. the amount to be recovered from the specified loan accounts in default and the broad time frame. 2) Debt Recovery Policy and Procedure of the bank. 3) Code of conduct in recovery process may include dress code, verbal and written communication rules top be followed by the individuals employed by the agency for the purpose of collection. 4) Duties of the agent. 5) Rights of the agent, including the commissions/fees payable by the principal to the agent/agency for the recovery of debt/other services. The Loan Recovery Policy and code of conduct in the debt recovery will be regulations compliant, i.e. in accordance with the directives and guidelines of the Reserve Bank of India issued from time to time. If, however these are not incorporated therein, it is advisable for agents to seek clarification from the principal, as compliance with the regulations is mandatory for the banks and also their recovery agents. The Debt Recovery Agreement between the credit institution and the debt recovery agent/agency serves as the contractual arrangement that is legally binding on both. Such an arrangement, being bank specific may vary from bank to bank in details. The duties of the agent/agency the authority delegated and code of conduct prescribed by the bank in the process of recovery function would to be carefully noted for strict compliance by the agent.

Certain important points for loan recovery

On the basis of the foregoing procedure for normalrecovery process, we may list below certain Donts for thedent recovery, which are as follows: 1)Dont violate or breach the recovery policy, procedureetc. prescribed by the principal 2)Dont exceed the authority given in the recoveryarrangement. 3)Dont make a call to the debtor before 0700 hours or after 2100 hours. 4)Dont make anonymous calls or bunched calls to thedebtor, which may be perceived as harassment. 5)Dont conceal or misrepresent your identity during callsand visit or other interaction with the debtor. 6)Dont show uncivil/indecent/dirty behavior or use suchlanguage during calls and visits to the debtor. 7)Dont harass/humiliate/intimidate/threaten the debtor-verbally or physically.

Defaults of loan
One major problem which the banks in India arefacing is the problem of recovery and overdue of loans. Thereasons behind this may vary for different financialinstitutions 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 facingthe 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 differentbanks, the following can be said to be some of the maincauses 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. Two major criterionnamely the in tention to repay and the capacity to repayshould be properly dealt with in Credit Evaluation. Theentrepreneurs who have the willingness, capabilities ,qualities and the requisite expertise for successfully settingup and running an industrial unit, should be identified withproper prudence and judiciousness. This is the best way of safeguarding the investment of a bank, thereby ensuringproper and timely repayment. Unbiased survey reports of thesite and capability of the Entrepreneur must be verified bythe surveyor. In other words the credit worthiness of the losing his encumbered asset in the event of his defaulting
inthe payment of dues to banks, he often takes the liberty, andtends to weigh the pros and cons vis--vis default. Securityagainst loan, though at times may fall harsh on the borrower,s e r v e s a w o r t h w h i l e p u r p o s e i n t h a t i t c r e a t e s p r o m o t e r s ' stake in the borrowers and thus, discip lines the borrower tobe more committed in paying the dues to Banks.

Unrealistic Terms and Schedule of Repayment: Occasions are not few when there develops a tendency o n t h e p a r t o f t h e f i n a n c e r s t o p a i n t a r o s y p i c t u r e o f t h e project at the time of appraisal. If the sanctioning authority isguided by considerations of personal interests, many thingsmay happen. The breakeven point of a project may be shownat an unrealistically low level of operation, or profitability maybe shown at an unduly high level just to brighten the chancesof acceptability of the project by the financial institution; or c a s h i n f l o w m a y b e s h o w n i n a n u n d u l y o p t i m i s t i c manner a n d , t h e r e f o r e , D e b t s S e r v i c e C o v e r a g e R a t i o

(DSCR)worked out incorrectly, fixing unrealistically high i nstallmentsand conservative schedule of repayments. These inner pullsa n d p r e s s u r e s m a y f i n d r e f l e c t i o n i n f i x i n g e x c e s s i v e amounts of installments in order to show an early period of r e p a y m e n t . T h e b o r r o w e r a t t h i s s t a g e f i n d s h i m s e l f i n a n unenviable position of a 'Yes Master' and nods his head atw h a t e v e r c o n d i t i o n s a r e a t t a c h e d o r w h a t e v e r r e p a y m e n t schedule is fixed by the financial institutions, in all probability,covering up his design to evade payment of the future dues.A n d , t h e r e a l p r o b l e m s u r f a c e s w h e n r e p a y m e n t o f i n s t a l l m e n t / p a y m e n t o f i n t e r e s t f a l l s d u e a n d t h e b o r r o w e r conveniently and blissfully ignores calls for clearance of the s a i d d u e s , n o t s o m u c h d u e to his intention to defraud the l o a n s , a s d u e t o h i m a l r e a d y b l e e d i n g w h i t e t o k e e p h i s concern going.

Lack of Follow up Measures:"A stitch in time saves nine" Follow-up measures taken regularly and systematically k e e p t h e b o r r o w i n g u n i t u n d e r c o n s t a n t v i g i l o f t h e b a n k s . Many ills can be checked through such follow-up measuresby keeping the borrowing units on their alertness and guidingt h e m t o r e c t i f y t h e i r m i s t a k e s i n t h e f i r s t o p p o r t u n i t i e s o r extending them a helping hand in tiding over their tight times.Normally, such close follow-up programs are conspicuous byt h e i r a b s e n c e . I n t h e r e s u l t , t h e b o r r o w i n g u n i t s n o t o n l y ignore payment of their dues to banks but also often tread onw r o n g t r a c k s , m u c h t o t h e d e t r i m e n t o f t h e i r o w n f i n a n c i a l health and that of the banks.P e r f o r m a n c e o f t h e b o r r o w i n g u n i t s , i f c a r e f u l l y a n d s y s t e m a t i c a l l y m o n i t o r e d t h r o u g h r e g u l a r i n s p e c t i o n s b y scrutiny of returns, annual balance sheet and inspection of s i t e , c a n b e s i g n i f i c a n t l y i m p r o v e d . N a t u r a l l y , s u c h i n s p e c t i o n s p r e v e n t t h e b o r r o w e r s f r o m d e v i a t i n g f r o m t h e terms and conditions of the loan or from diverting any f undfor purpose other than those earmarked in the sanction letter and keep the financial health of the units in good order.

Labour problems:The labour situation in India can be broadly classifiedinto two categories namely availability and welfare relatedproblems. Skilled labour is in shortage for many specializedi n d u s t r i a l u n i t s p a r t i c u l a r l y b e c a u s e o f t h e g e o g r a p h i c als i t u a t i o n o f s u c h u n i t s . S h o r t a g e o f l a b o u r r e s u l t s i n unwarranted deceleration of production thereby hampering t h e

p r o f i t a b i l i t y o f t h e c o n c e r n e d u n i t . O n t h e o t h e r h a n d labour welfare is grossly neglected by industrial units leadingto a feeling of dissatisfaction and disgruntlement among thew o r k i n g f o r c e . H o w e v e r , i t w o u l d b e p e r t i n e n t t o m e n t i o n here, that there are numerous instances where political andvested interests tend to instigate labour problems.

Default due to natural calamities:A c e r t a i n p r o p o r t i o n o f d e f a u l t c a n b e a t t r i b u t e d t o natural calamities such as floods, earthquakes, storms, etc. P r i m a - f a c i e t h i s w o u l d s e e n t o b e a f a c t o r b e y o n d h u m a n control. A more detailed insight, would however, suggest thatcertain precautionary preventive measures such as proper meteorological and topographical analysis of the industrial s i g h t c a n g o a l o n g w a y i n r e d u c i n g t h i s e l e m e n t o f r i s k . Natural calamities n o t o n l y a f f e c t t h e u n i t d i r e c t l y b u t a l s o exert additional burden on the Government in terms of relief measures, waivers etc. A further fraction, albeit nominal, is of such borrowers who tend to take undue advantage of suchn a t u r a l c a l a m i t i e s i n o r d e r t o a v o i d r e p a y m e n t , t h e r e b y increa sing the magnitude of default.

What is NPA?
For a bank, an NPA or bad debt is usually a loan that isnot producing income. Earlier it was largely applicable tob u s i n e s s e s . B u t t h i n g s h a v e c h a n g e d w i t h b a n k s w i d e l y e x t e n d i n g c o n s u m e r l o a n s ( h o m e , c a r , p e r s o n a l a n d educati o n , a m o n g o t h e r s ) a n d s t r i c t a s s e t c l a s s i f i c a t i o n norms.I f a b o r r o w e r m i s s e s p a y i n g h i s e q u a t e d m o n t h l y installment (EMI) for 90 days, the loan is considered bad, or an NPA. High NPAs are a sign of bad financial health. Thishas wide-ranging ramifications for a bank, especially in thestock market and money market. So, as soon as a debt goesbad, the banks want it either made better or taken out of their books.

The genesis (origin) of an NPA

T h e r e a r e m a n y r e a s o n s a s t o w h y a l o a n g o e s b a d . For a business, it could be because it fails to take off.Such a situation may arise because of sudden healthexpenditure or job loss or death. Often, as in the US today, itcan be because of over-leveraging, when consumers borrow

Meaning of NPA
An asset is classified as non-performing asset (NPAs)if dues in the form of principal and interest are not paid by theborrower for a period of 180 days. However with effect fromMarch 2004, default status would be given to a borrower if dues are not paid for 90 days. If any advance or creditfacilities granted by bank to a borrower become nonperforming, then the bank will have to treat all theadvances/credit facilities granted to that borrower as non-performing without having any regard to the fact that theremay still exist certain advances / credit facilities havingperforming status. 1) Why such huge levels of NPAs exist in the Indianbanking system (IBS)? The origin of the problem of burgeoning NPAs lies inthe quality of manag ing credit risk by the banks concerned.What is needed is having adequate preventive measures inplace namely, fixing pre -sanctioning appraisal responsibilityand having an effective postdisbursement supervision.Banks concerned should continuously monitor loans t oidentify accounts that have potential to become non-performing. 2) Why NPAs have become an issue for banks in India? To start with, performance in terms of profitability is abenchmark for any business enterprise including the bankingindustry. However , increasing NPAs have a direct impact onbanks profitability as legally banks are not allowed to bookincome on such accounts and at the same time banks areforced to make provision on such assets as per the ReserveBank of India (RBI) guidelines.Further, Reserve Bank of India (RBI) successfullycreates excess liquidity in the system through various ratecuts and banks fail to utilize this benefit to its advantage dueto the fear of burgeoning non -performing assets.

Strategy for recovery

Devising a strategy helps in achieving a set goal or objective. Recovery agents should therefore devise astrategy for debt recovery. The following guidelines wouldhelp in preparing proper strategy for debt recovery. i)The collection process should be compliant to the bank-specific recovery norms and also regulatoryguidelines. ii)The collection timing should be synchronized to thecash inflow pattern of the debtors: For example,recovery from salaried employees should be timedwhen salary is received by or credited to the debtorsaccount, normally at the mothend. In case of SMEborrowers the effort should coincide with cash flow onaccount of sales. In case a collection fromagriculturist should be made, then it should be soonafter the crops are sold. This will call for knowl edge of bank products on the part of agents. It should be theendeavour of the agent that collection should be madewell before the cash inflows are spent away by thedebtor for meeting other expenses. iii)Adopt different collection strategy for different deb tor types: This is based on the dictum that one size doesnot fit all. In the foregoing paragraphs, three types of debtors have been described and they need differentstrategies for recovery success: Normal debtors, i.e. who can pay and will pay if re minded or/and persuaded to pay. Difficult debtors, i.e. those who can pay, but will notpay. Doubtful debtors, i.e. whose who can pay the reducedamount as negotiated with them.iv)While different strategies are required for differenttypes of debtors, the following are the common pointsto be followed in all kinds of recovery strategies: Recovery effort should start with the establishing agood rapport with the debtor. Communication, listeningand persuasive skills would be applied in building goodinterpersonal relations. Go through the know Your Customer papers furnishedby the bank and know the customers identify andpersonal profile. Go through the copy of the loan agreement of thedebtor furnished by the bank and note down thefinancial position, cash flow pattern, and assetscharged to the bank. v)Record in notebook recovery efforts in chronologicalorder for each.

Policy, Processes and procedure of loan recovery management

Collection of post due debt or receivables of the bankthat has engaged a recovery agent is the core function of theagent. All other functions, as discussed in the precedingunit, revolve around this core function. We will discuss indetail the policy, processes and procedure for debt recoveryfunction in this unit.Banks lay down their policy and procedure for collection of past due debts in conformity with the legal andregulatory framework. The banks will in particular, abide by:1)The RBI directives on recovery of debt, includingrecovery agents engaged by the bank and,2)The Model Policy on collection of Dues andRepossession of security framed by the Indian BanksAssociation.A bank will normally incorporate its policy andprocedure for debt recovery in the arrangement entered intoits recovery agents. In terms of the recovery managementagreed with the bank, the recovery agents should adhere tothe policy, procedure, etc. prescribed by the bank. Loan recovery policy The debt collection policy (recovery policy) of the bankis built around dignity and respect to customers. The Bankwill 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 followingfair practices with regard to recovery of dues from borrowersand taking possession of secur ity (properties / assetscharged to the bank as primary or collateral security) (knownas security repossession) and thereby fostering customer confidence and long-term relationship.The repayment schedule for any loan sanctioned bythe Bank will be fixed taking into account the repayingcapacity and cash flow pattern of the borrower. The bank willexplain to the customer upfront the method of calculation of interest and how the Equated Monthly Installments (EMI) or payments through any other mode of repayment wi ll beappropriated against interest and principal due from thecustomers. The bank would expect the customers to adhereto the repayment schedule agreed to and approach the Bankfor assistance and guidance in case of genuine difficulty inmeeting repayment obligations.The Banks Security Repossession Policy (takingpossession of the mortgaged properties under SRESI Act or acquiring the property as non banking asset throughenforcement of decree) aims at recovery of dues in the eventof default and is not aimed at w himsical deprivation of theproperty. The policy recognizes fairness and transparency inrepossession, valuation and realization of security. All thepractices adopted by the bank for follow up and recovery of dues and repossession of security will be in consonance withthe law.

General Guidelines:
All the members of the staff or any person authorizedto represent our Bank in collection and / or securityrepossession would follow the guidelines set out below: 1.The customer would be contacted ordinarily at the place of his / her choice and in the absence of any specifiedplace, at the place of his / her residence and if unavailable athis / her residence, at the place of business / occupation. 2.Identity and authority of persons authorized torepresent the Bank for follow up and recovery of dues wouldbe made known to the borrowers at the first instance. Thebank staff or any person authorized to represent the bank incollection of dues or / and security repossession will identifyhimself / herself and display the authority letter issued by thebank upon request. 3.The bank would respect privacy of its borrowers. 4.The bank is committed to ensure that all written andverbal communication with its borrowers will be in simplebusiness language and the bank will adopt civil manners for interaction with borrowers. 5.Normally the banks representatives will contact theborrower between 0700 hrs and 1900 hrs, unlesscircumstances warrant visiting the borrower at odd hours andoccasions. Such circumstances would include continuousir regularity in the accounts. 6.Borrowers requests to avoid calls at a particular time or at a particular place would be honored as far aspossible. 7.The bank will document the efforts made for therecovery of dues and the copies of communication, if any,sent to the customers will be kept on record. 8.All assistance will be given to resolve disputes or differences regarding dues in a mutually acceptable and inan orderly manner. 9.Inappropriate occasions such as bereavement inthe family or such other calamitous occasions will be avoidedfor making calls / visits to collect dues. Giving notice to borrowers While written communication, telephonic reminders or visitsby the banks representatives to the borrowers place or residence will be used as loan follow up measures, the bankwill not initiate any legal or other recovery measuresincluding repossession of the security without giving duenotice in writing. The Bank will follow all such procedures asrequired under law for recovery / repossession of security.

Repossession of Security Repossession of security is aimed at recovery of dues andnot to deprive the borrower of the property. The recoveryprocess through repossession of security will involverepossession, valuation of security and realization of securitythr ough appropriate means. All these would be carried out ina fair and transparent manner. Repossession will be doneonly after issuing the notice as detailed above. Due processof law will be followed while taking repossession of theproperty. The bank will take all reasonable care for ensuringthe safety and security of the property after taking custody, inthe ordinary course of the business. Valuation and Sale of Property Valuation and sale of property repossessed by the bank willbe carried out as per law and in a fair and transparentmanner. The bank will have right to recover from theborrower the balance due, if any, after sale of property.Excess amount, if any, obtained on sale of property will bereturned to the borrower after meeting all the relatedexpenses provided the bank is not having any other claimsagainst the borrower. Opportunity for the borrower to take back the security As indicated earlier in the policy document, the bank willresort to repossession of security only for the purpose of realization of its dues as the last resort and not with intentionof depriving the borrower of the property. Accordingly, thebank will be willing to consider handing over possession of property to the borrower any time after repossession butbefore concluding sale transact ion of the property, providedthe bank dues are paid in full. If satisfied with thegenuineness of borrowers inability to pay the loaninstallments as per the schedule which resulted in therepossession of security, the bank may consider handingover the property after receiving the installments in arrears.However, this would be subject to the bank being convincedof the arrangements made by the borrower to ensure timelyrepayment of remaining installments in future.

Loan recovery processes:Loan recovery processes can be typically of followingkinds, each involving different procedure: 1) Difficult recovery process where the debtors are notwilling to pay and who intentionally resist or avoid recoveryefforts: The recovery agent has to follow special process of recovery against the recalcitrant defaulters, in consultationwith the bank. 2) Assets possession process: If the recalcitrant debtorsdo not eventually pay the dues, the movable assets chargedto the bank by way of hypothecation or pledge, can bepossessed by the bank or the recovery agent and thereafter auctioned or otherwise sold to recover the dues. Thedetailed procedure for such recovery is discussed later, after explaining the meaning of pledge, hypothecation etc. inanother Unit.

3) Legal recovery process: The intervention of the court isrequired to possess mortgaged immovable property by the or its recovery agent. Also if the charged assets do not exist, or the debt is unsecured, the debtor will have to be sued for recovery of the dues by the bank/recovery agent.

Procedure of tribunal
1) Application to the Tribunal: (1)Where a bank has to recover any debt from any person, itmay make an application to the Tribunal within the locallimits of whose jurisdiction By Act 1 of 2000, sec. 8(w.r.e.f. 17-1-2000).Subs. by Act 1 of 2000, sec. 9, for section 19 (w.r.e.f.17-1-2000). (a) the defendant, or each of the defendants where there aremore than one, at the time of making the application, actuallyand voluntarily resides or carries on business or personallyworks for gain; or (b) any of the defendants, where there are more than one, atthe time of making the application, actually and voluntarilyresides or carries on business or personally works for gain;(c) the cause of action, wholly or in party, arises. (2) Where a bank, which has to recover its debt from anyperson, has filed an application to the Tribunal under subsection (1) and against the same person another bankalso has claim to recover its debt, then, the later bank or financial institution may join the applicant bank at any stageof the proceedings, before the final order is passed, bymaking an application to that Tribunal. (3) Every application under sub -section (1) or sub-section (2)shall be in such form and accompanied by such documentsor other evidence and by such fee as may be prescribedProvided that the fee may be prescribed having regard to theamount of debt to be recovered Provided further that nothingcontained in this sub -section relating to fee shall apply tocases transferred to the Tribunal under sub -section of section 31. On receipt of the application under sub -section(1) or sub-section, the Tribunal shall issue summonsrequiring the defendant to show cause within thirty days of the service of summons as to why the relief prayed for should not be granted. (4) The defendant shall, at or before the first hearing or withinsuch time as the Tribunal may permit, present a writtenstatement of his defence. (5) Where the defendant claims to set -off against theapplicants demand any ascertained sum of money legallyrecoverable by him from such applicant, the defendant may,at the first hearing of the application, but not 17 afterwardsunless permitted by the Tribunal, present a written statementcontaining the particulars of the debt sought to be set-off. (6) The written statement shall have the same effect as aplaint in a cross -suit so as to enable the Tribunal to pass afinal order in respect both of the original claim and of the set-off.

(7) A defendant in an application may, in addition to his rightof pleading a set -off under sub-section, set up, by way of counter -claim against the claim of the applicant, any right or claim in respect of a cause of action accruing to thedefendant against the applicant either before or after thefiling of the application but before the defendant hasdelivered his defence or before the time limited for delivering his defence has expired, whether such counter-claim is in thenature of a claim for damages or not. (8) A counter-claim under sub-section shall have the sameeffect as a cross -suit so as to enable the Tribunal to pass afinal order on the same application, both on the original claimand on the counter -claim. (9) The applicant shall be at liberty to file a writtenstatement in answer to the counter-claim of the defendantwithin such period as may be fixed by the Tribunal. (10) Where a defendant sets up a counter -claim and theapplicant contends that the claim thereby raised ought not bedisposed of by way of counter -claim but in an independentaction, the applicant may, at any time before issu es aresettled in relation to the counter-claim, apply to the Tribunalfor an order that such counter claim may be excluded, andthe Tribunal may, on the hearing of such application, makesuch order as it thinks fit. (11) The Tribunal may make an interim order (whether byway of injunction or stay or attachment) against thedefendant to debar him from transferring, alienating or otherwise dealing with, or disposing of, any property andassets belonging to him without the prior permission of theTribunal. (12) (A) Where, at any stage of the proceedings, the Tribunalis satisfied, by affidavit or otherwise, that the defendant, withintent to obstruct 18 or delay or frustrate the execution of anyorder for the recovery of debt that may be passed againsthim, (i) is about to dispose of the whole or any part of his property;or (ii) is about to remove the whole or any part of his propertyfrom the local limits of the jurisdiction of the Tribunal; or (iii) is likely to cause any damage or mischief to the propertyor affect its value by misuse or creating third party interest,the Tribunal may direct the defendant, within a time to befixed by it, either to furnish security, in such sum as may bespecified in the order, to produce and place at the disposal of the Tribunal, when requ ired, the said property or the value of the same, or such portion thereof as may be sufficient tosatisfy the certificate for the recovery of the debt, or toappear and show cause why he should not furnish security. (B) Where the defendant fails to show cause why he shouldnot furnish security, or fails to furnish the security required,within the time fixed by the Tribunal, the Tribunal may order the attachment of the whole or such portion of the propertiesclaimed by the applicant as the properties secured in hisfavour or otherwise owned by the defendant as appearssufficient to satisfy any certificate for the recovery of debt.

(13) The applicant shall, unless the Tribunal otherwisedirects, specify the property required to be attached and theestimated value ther eof. (14) The Tribunal may also in the order direct the conditionalattachment of the whole or any portion of the propertyspecified under subsection. (15) If an order of attachment is made without complying withthe provisions of sub section, such attachment shall be void. (16)In the case of disobedience of an order made by theTribunal under sub -sections (12), (13) and (17) or breach of any of the terms on which the order was made, the Tribunalmay order the properties of the person guilty of suchdisobedience or breach to be attached an may also order such person to be detained in the civil prison for a term notexceeding three months, unless in the meantime the Tribunaldirects his release. (18) Where a certificate of recovery is issued against acompany registe red under the Companies Act, 1956 (1 of 1956) the Tribunal may order the sale proceeds of suchcompany to be distributed among its secured creditors inaccordance with the provisions of section 529A of theCompanies Act, 1956 and to pay the surplus, if any, to thecompany. (19) The Tribunal may, after giving the applicant and thedefendant an opportunity of being heard, pass such interimor final order, including the order for payment of interest fromthe date on or before which payment of the amount is founddue u p to the date of realization or actual payment, on theapplication as it thinks fit to meet the ends of justice. (20) The Tribunal shall send a copy of every order passed byit to the applicant and the defendant. (21) The Presiding Officer shall issue a cert ificate under hissignature on the basis of the order of the Tribunal to theRecovery Officer for recovery of the amount of debt specifiedin the certificate. (22) Where the Tribunal, which has issued a certificate of recovery, is satisfied that the property is situated within thelocal limits of the jurisdiction of two or more Tribunals, it maysend the copies of the certificate of recovery for execution tosuch other Tribunals where the property is situated:Provided that in a case where the Tribunal to which thecertificate of recovery is sent for execution finds that it has no jurisdiction to comply with the certificate of recovery, it shallreturn the same to the Tribunal which has issued it. (23)The Tribunal may made such orders and give suchdirections as may b e necessary or expedient to give effect toits orders or to prevent abuse of its process or to secure theends of justice.

2) Appeal to the Appellate Tribunal.

(1) Save as provided in subsection(2) any person aggrieved by an order made, or deemed tohave been made, by a Tribunal under this Act, may prefer anappeal to an Appellate Tribunal having jurisdiction in thematter. No appeal shall lie to the Appellate Tribunal from anorder made by a Tribunal with the consent of the parties. (2) Every appeal under sub-section shall be filed within aperiod of forty -five days from the date on which a copy of theorder made, or deemed to have been made, by the Tribunalis received by him and it shall be in such form and beaccompanied by such fee as may be prescribed: Providedthat the Appellate Tribunal may entertain an appeal after theexpiry of the said period of forty -five days if it is satisfied thatthere was sufficient cause for not filing it within that period. (3) On receipt of an appeal under sub-section, the AppellateTribunal may, after giving the parties to the appeal, anopportunity of being heard, pass such orders thereon as itthinks fit, confirming, modifying or setting aside the order appealed against. (4) The Appellate Tribunal shall send a copy of every order ma de by it to the parties to the appeal and to the concernedTribunal. (5) The appeal filed before the Appellate Tribunal under sub -section shall be dealt with by it as expeditiously as possibleand endeavor shall be made by it to dispose of the appealfinally within six months from the date of receipt of theappeal.

3) Deposit of amount of debt due, on filing appeal.

Where an appeal is preferred by any person fromwhom the amount of debt is due to a bank or a consortium of banks, such appeal shall not be entertai ned by the AppellateTribunal unless such person has deposited with theAppellate Tribunal seventy-five per cent of the amount of debt so due from him as determined by the Tribunal under section 19: Provided that the Appellate Tribunal may, for reasons to be recorded in writing, waive or reduce theamount to be deposited under this section.

4) Procedure and Powers of the Tribunal and theAppellateTribunal.

(1) The Tribunal and the Appellate Tribunal shall not bebound the procedure laid down by the Code of CivilProcedure, 1908 (5 of 1908), but shall be guided by theprinciples of natural justice and, subject to the other provisions of this Act and of any rules, the Tribunal and theAppellate Tribunal shall have powers to regulate their ownprocedure including the places at which they shall have their sittings. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, thesame powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, inrespect of the following matters, namely: --(a) Summoning and enforcing the attendance of any personand examining him on oath;(b) Requiring the discovery and production of documents;(c) Receiving evidence on affidavits;(d) I ssuing

commissions for the examination of witnesses or documents;(e) Reviewing its decisions;(f) Dismissing an application for default or deciding it ex parte; (g) Setting aside any order of dismissal of any application for default or any order passed by it ex parte; (h) Any other matter which may be prescribed.(3) Any proceeding before the Tribunal or the AppellateTribunal shall be deemed to be a judicial proceeding withinthe meaning of sections 193 and 228, and for the purposesof section 196, of the Indian Penal Code (45 of 1860) and theTribunal or the Appellate Tribunal shall be deemed to be acivil court.

NORMAL RECOVERY PROCEDURE:

As mentioned above, this procedure will generallyapply to the debtors who are willing to pay the dues withnormal recovery p rocess. Based on the abovementionedregulatory guidelines, following procedure may be outlinedfor such recovery. However the recovery agents shouldfollow the bank -specific debt recovery procedure as advisedby their principal. Below are given the main rules for makingtelephone calls and visit to the debtor for recovery of dues: 1)The recovery agent has been authorized by the bank tocollect the past due debt from the particular customer. 2)The customer has been notified by the bank of the detailsof the recove ry agent for collection of the past-due debt. 3)Making customer calls: This is the first step in recoveryprocedure and following rules should be followedgenerally: (i)Calls are made from the same number as advisedby the bank to the customer. (ii)The agents disclose his identity and authority at thefirst instance. (iii)The agent contacts the debtor between 0700 hoursand 1900 hours, unless the special circumstance of his/her business or occupation requires the bank tocontact of a different time. Under no circumstances,can the customer be called beyond 2100 hours. (iv)All calls where the customer becomes abusive or threatening should be appropriately documented. (v)Customers question be answered in full. Theyshould be provided with information requested andgiven assistance in making recovery. Minor issuesshould be resolved.

(vi)How often to call customer/ The purpose of acollection call as to bring to the Customers noticethe obligation and to seek a commitment to pay on aspecified date. Once a promise is elicited a call maybe made to serve as a reminder and for confirmationof payment.(vii)If the customer is not available during a few callsmade by the agent, a message may be left to anadult family member as follows Please leave amessage that ABC had called and request thecustomer to call ABC back at the given phonenumber. The message should not indicate that thecustomer ABC has overdue amount , or the calloriginated from a Recovery agency.4) Visit to customer (debtor) This would be the secondstep in colle ction process. Following procedure shouldgenerally be followed.(i) A customer should be visited for debt collection only after these conditions are satisfied; The debtor has not paid the due amount within thedays of grace and the dues are still outstanding againsthim/her. When due to nature of the customers employment i.e.working in shifts e.g. call center, hotel. He/she is usuallyavailable outside these hours.(v)The agent should respect privacy of the debtor.Privacy policy as discussed above for calls w ouldapply during visits also.(vi)During the visit, due respect and courtesy should beshown to the customer and the interactions shouldbe civil and polite as per the principals policy.(vii)During interactions with the debtor, the agent mustnot use threats or intimidation verbally or by bodylanguage. Under no circumstances, any physicalviolence be used in debt collection process.

Other modes of recovery

(1)Where a certificate has been issued to the RecoveryOfficer under Sub -section of section 19, the RecoveryOfficer may, without prejudice to the modes of recoveryspecified in section 25, recover the amount of debt by anyone or more of the modes provided under this section. (2) If any amount is due from any person to the defendant,the Recovery Officer may require such person to deductfrom the said amount, the amount of debt due from thedefendant under this Act and such person shall comply withany such requisition and shall pay the sum so deducted tothe credit of the Recovery Officer: Provided that nothing inthis sub-section shall apply to any part of the amount exemptfrom attachment in execution of a decree of a civil courtunder section 60 of the Code of Civil Procedure, 1908 (5 of 1908). (3) (I) The Recovery Officer may, at any time or from time totime, by noti ce in writing, require any person from whommoney is due or may become due to the defendant or to anyperson who holds or may subsequently hold money for or onaccount of the defendant, to pay to the Recovery Officer either forthwith upon the money becoming due or being heldor within the time specified in the notice (not being before themoney becomes due or is held) so much of the money as issufficient to pay the amount of debt due from the defendantor the whole of the money when it is equal to or less thanthat amount.

(ii) A notice under this sub-section may be issued to anyperson who holds or may subsequently hold any money for or on account of the Defendant jointly with any other personand for the purposes of this subsection, the shares of the joint holders in such amount shall be presumed, until thecontrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the defendantat his last address known to the Recovery Officer and in thecase of a joint account to all the joint holders at their lastaddresses known to the Recovery Officer. (iv) Save as otherwise provided in this sub -section, everyperson to whom a notice is issued under the sub-sectionshall be bound to comply with such notice, and, in particular,where any such notice is issued to a post office, bank,financial institution, or an insurer, it shall not be necessaryfor any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry,endorsement or the like to be made before the payment ismade notw ithstanding any rule, practice or requirement tothe contrary. (v) Any claim respecting any property in relation to which anotice under this sub section has been issued arising after the date of the notice shall be void as against any demandcontained in the notice. (vi) Where a person to whom a notice under this sub -sectionis sent objects to it by a statement on oath that the sumdemanded or the part thereof is not due to the defendant or that he does not hold any money for or on account of thedefendant, then, nothing contained in this sub-section shallbe deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered thatsuch statement was false in any material particular, suchperson shall be personally liable to the Recovery Officer tothe extent of his own liability to the defendant on the date of the notice, or to the extent of the defendants liability for anysum due under this Act, whichever is less. (vii) The Recovery Officer may, at any time or from time tot ime, amend or revoke any notice under this sub-section or extend the time for making any payment in pursuance of such notice. (viii) The Recovery Officer shall grant a receipt for anyamount paid in compliance with a notice issued under thissub -section, and the person so paying shall be fullydischarged from his liability to the defendant to the extent of the amount so paid. (ix)Any person discharging any liability to the defendant after the receipt of a notice under this sub-section shall bepersonally liable to the Recovery Officer to the extent of hisown liability to the defendant so discharged or to the extentof the defendants liability for any debt due under his Act,whichever is less. (x) If the person to whom a notice under this sub -section issent fails to make payment in pursuance thereof to theRecovery Officer, he shall be deemed to be a defendant indefault in respect of the amount specified in the notice andfurther

proceedings may be taken against him for therealization of the amount as if it were a debt due from him, inthe manner provided in sections 25, 26 and 27 (4) The Recovery Officer may apply to the court in whosecustody there is money belonging to the defendant for payment to him of the entire amount of such money, or if it ismore than the amount of debt due an amount sufficient todischarge the amount of debt so due.The Recovery Officer may, by order, at any stage of theexecution of the certificate of recovery, require any person,and in case of a company, any of its officers against whomor which the certificate of recovery is issued, to declare onaffidavit the particulars of his or its assets.] (5) The Recovery Officer may recover any amount of debtdue from the defendant by distrait and sale of his movableproperty in the manner laid down in the Th ird Schedule tothe Income-Tax Act, 1961 (43 of 1961).

Use of lok adalat

The Honorable Supreme Court also observed thatloans, personal loans, credit card loans and housing loanswith less than Rs.10 lakh can be referred to Lok Adalats. Inthis connection, banks' attention is invited to Circular DBOD.No.Leg.BC.21/09.06.002/2004-05 dated August 3,2004 wherein they were advised to use the forum of LokAdalats organized by Civil Courts for recovery of loans.Banks are advised that they should preferably use the foru mof Lok Adalats for recovery of personal loans, credit cardloans or housing loans with less than Rs.10 lakh assuggested by the Honorable Supreme Court.Banks, as principals, are responsible for the actionsof their agents. Hence, they should ensure that thei r agentsengaged for recovery of their dues should strictly adhere tothe above guidelines and instructions.Complaints received by Reserve Bank regardingviolation of the above guidelines and adoption of abusivepractices followed by banks recovery agents would beviewed seriously. Reserve Bank may consider imposing aban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. Incase of persistent breach of above guidelines. Similar supervisory action could be attracted when the High Courtsor the Supreme Court pass strictures or impose penaltiesagainst any bank or its Directors/ Officers/ agents with regardto policy, practice and procedure related to the recoveryprocess.

Programs of bank
Credit counseling
It is the process of education to borrower about howto avoid incurring debts that cannot be repaid as also how tomanage the debts burden and repayment commitments inrespect of a number of debts. This process is actually moredebt counseling than a function of credit education. Creditcounseling often involves negotiating with bank to establish adebt management plan (DMP) for a customer. A DMP mayhelp the debtor repay his/her debt by working out arepayment plan with the bank. DMPs, usually offer reducedpayments, fees and interest rates to the borrower. Recoveryagents refer to the terms dictated by the bank to

determinepayments or interest reduction offered to customer in a debtmanagement plan.

Debt Management Programs

Once a customer has come under a DMP , the bankwill close the customers various accounts and restrict anyfuture charges in the accounts. The most common benefit of a DMP is the consolidation of multiple monthly payments intoone monthly payment, which is usually less than the sum of the indiv idual payments previously paid by the customer.Some DMPs advertise that payment can be cut by 50%,although a reduction of 10-20% is more common.