m



 

Presented By-
Bipul Singh Rajput (09FT-041)
Chandan Jain (09FT-043)
Chandan Jee (09FT-044)
Ankur Srivastava (09IT-002)
Rahul Jain (09IT-020)
Komal Agarwal (09IT-)
mPA-mon Performing Assets
‡ A/c which ceases to generate income for the
bank
‡ Defined as a credit facility in respect of which the
interest and / or instalments of principal has
remained µoverdue¶ for a µspecified period¶ of
time
‡ Under IRAC norms, specified period at present
is 90 days
IRAC morms
‡ An a/c is an mPA:
‡ Interest and Principal remain overdue for a period of
more than 90 days.
‡ Account remain out of order in respect of an overdraft
/ cash credit for more than 90 days.
‡ Bill remain overdue for a period of more than 90 days
in the case of bills purchased and discounted.
‡ Any amount to be received remains overdue for more
than 90 days.
‡ Direct Agricultural advances, a/c is mPA- overdue based
on crop seasons.
 Asset Classification
‡ totally regular, safe and conducted as per norms of sanction
Standar ‡ Can be termed ³watch category´ if irregularity occurs
d

Substa ‡ mPA for period less than or equal to 12 months

ndard

‡ Doubtful I ± mPAs for a period between 12 months and 24 months

‡ Doubtful II ± mPAs over 24 months to 48 months
Doubtful ‡ Doubtful III ± mPAs over 48 months

‡ Loss identified by bank but amount not fully written off

Loss ‡ Considered uncollectible and of little value
Provision for mPAs
6
  
  






Standard Assets 0.25%

Sub-standard Assets 10%

Doubtful Assets (Doubtful I) 20%

Doubtful Assets (Doubtful II) 30%
Doubtful Assets (Doubtful 100%
III)
Loss Asset Should be written off
Some General Guidelines
‡ mo further charging of interest.
‡ Asset classification will be borrower wise not facility
wise.
‡ Under consortium-Based on recovery record of individual
Banks.
‡ Loan a/c -> mPA -> Standard a/c
‡ But in case of Re-structuring mPA-> Standard a/c
after 1 year.
‡ µStand Still Clause¶ under CDR.
‡ Infrastructure Projects-Treated as Substandard if date of
completion extends by 1 yr.
sILFUL DEFAULTERS
‡ silful Default is deemed when:
‡ Unit has defaulted even when it has the capacity.
‡ Unit not utilised the finance from the lender for the
specific purposes.
‡ Unit has siphoned off the funds.
‡ Siphoning of Funds
‡ Funds utilized for un-related operations of borrower.
‡ Detriment to the health of the lender or any other
entity.
‡ Decision based on the lender¶s judgement.
DIVERSIOm OF FUmDS
‡ Utilization of short term sC funds for long term
purposes.
‡ Deployment of funds for other activities not in sync for
which it was sanctioned.
‡ Transfer of funds to subsidiaries.
‡ Investment in other companies ±acquiring equities/debt
±without approval.
‡ Shortfall in deployment in funds.
PEmAL MEASURES
‡ mo additional facilities granted.
‡ Debarred from Institutional finance- 5 years.
‡ Legal proceedings & Recovery of dues.
‡ Proactive approach ± change of management of wilfully
defaulting unit.
‡ Incorporate a covenant in the loan agreement- steps for
removal of a wilful defaulter.
‡ Tracking of Repayment performance to the lenders.
‡ RBI publishes booklet-list of suit filed accounts.
VoV mPA as Percentage of Total Assets
R


  6 R  
6 R 6

6


     

     
Public Sector Banks 1.6 1.3 1.2 0.6 0.6 0.6

Private Sector Banks 1.2 1.4 1.7 0.5 0.6 0.7

Foreign Banks 0.8 0.8 1.5 0.3 0.3 0.7

6
!
! 1.5 1.3 1.3 0.6 0.6 0.6

 


VoV mPA as Percentage of Advances
R


  6  
6 

6! 

6! 


     

     
Public Sector Banks 2.7 2.2 2.0 1.1 0.8 0.7

Private Sector Banks 2.2 2.5 2.9 1.0 1.2 1.5

Foreign Banks 1.8 1.8 4.0 1.0 0.9 1.7

6
!
! 2.5 2.3 2.3 1.0 1.0 1.1

 


Income Recognition
‡ Income from non-performing assets (mPA) is not
recognized on accrual basis but is booked as income
only when it is actually received
‡ Interest on advances against term deposits, mSCs, IVPs,
KVPs and Life policies may be taken to income account
on the due date, provided adequate margin is available
in the accounts
‡ Fees and commissions earned by the banks as a result
of re-negotiations or rescheduling of outstanding debts
should be recognized on an accrual basis over the
period of time covered by the re-negotiated or
rescheduled extension of credit
Reversal of Income
‡ If any advance becomes mPA as at the close of any
year, interest accrued and credited to income account in
the corresponding previous year, should be reversed or
provided for if the same is not realized.
‡ Fees, commission and similar income that have accrued
should cease to accrue in the current period and should
be reversed or provided for with respect to past periods,
if uncollected
Recovery using Recovery Certificate
‡ Recovery Officer proceeds to recover the amount in any
of the following ways :
a) attachment and sale of the movable and immovable
property
b) arrest and detention of the defendant
c) appointing a receiver for the management of the
movable or immovable properties
d) issue Garnishee Order against third parties.
‡ Reacting promptly would be in favour of the Bank
saiver of Appeal
‡ Suit filed by the Bank has been dismissed by the Court
‡ Suit is decreed in Bank¶s favour but for the amounts
lower than prayed for
‡ Reasons for award of lower than the prayed for and
chances of success of appeal
‡ Availability of security from which to recover the dues
‡ Cost benefit analysis, if appeal is preferred
‡ Time value of money and the possibility of delay in
execution of decree in case of preferring appeal
‡ Suit filed by the Bank has been dismissed by the
Court/DRT
R

    

‡ For action under DRT Act
‡ Filing for Recovery Application before DRT, if permitted by Competent
authority, should be done within two months from date of sanction
‡ sithin one month from date of passing of the Recovery Certificate it
should be taken on the record of the Recovery Officer for the purpose
of execution
‡ For action before Civil Courts
‡ In case of filing a civil suit before Civil courts, if permitted by Competent
authority, should be done within two months from date of sanction.
‡ sithin one month from date of filing of the Bank¶s Application/
Requisition it should be taken on the record of the Revenue authority for
the purpose of execution.
‡ Further, particulars of assets, location of assets and other necessary
particulars should also be provided to the Revenue Officials within one
month of date of filing of Bank¶s Application / Requisition


"  
!!


!

‡ The developments of all suit filed and decreed accounts shall be
assessed and reviewed by the Branch and reported to the Zone
once in a quarter.
‡ Review is to ensure that
‡ All suit filed accounts are properly followed up by the Branch and its
Advocates
‡ Summons is served on all the defendants at the earliest
‡ Assets of the borrowers / guarantors are identified by making local
enquiries and by perusing the Income Tax / sealth Tax Returns, CBD
23 etc of the borrowers / guarantors
‡ Decree / Recovery Certificate is obtained at the earliest
‡ Branch supplies the assets detail to the Bank¶s Advocates within one
month of the issuance of the Decree / Recovery Certificate or files an
application, before DRT or before the Civil Court praying for an order
directing the defendants to declare on Affidavit all the particulars of
attachable assets of them
‡ Further Review of all suit filed and decreed accounts based on
book-outstanding will be done once in a year
BIFR
‡ Board for Industrial and Financial Reconstruction(BIFR)
is a body constituted under Sick Industries Companies
(Special Provision) Act (SICA) 1985
‡ Timely detection and power to consider revival and
rehabilitation of sick companies
‡ Any sick company can make a reference to BIFR within
60 days from date of adoption of annual accounts after
which the board of directors have come to a conclusion
that company has become sick
‡ Shipping companies, Industrial units registered as SSIUs
and service units like hotels are not eligible for reference
BIFR/AAIFR
‡ Immediate effect of reference:
‡ no legal action/ recovery action can be instituted
against the borrower company and the guarantors
‡ all pending cases against the borrower/ guarantors
are suspended during the pendency of reference
‡ legal proceedings can be instituted/ continued after
obtaining the permission of BIFR
‡ If any of the parties is aggrieved by any of the order of
BIFR, such affected party may prefer to appeal within 45
days from the date of order to Appellate Authority for
Industrial & Financial Reconstruction (AAIFR)
‡ Being misused by defaulting and dishonest borrowers
Corporate Debt Restructuring(CDR)
‡ Objectives:
‡ ensure timely and transparent mechanism for
restructuring the corporate debts of viable entities
facing problems, outside the purview of BIFR, DRT
and other legal proceedings, for the benefit of all
concerned
‡ preserving viable corporate that are affected by
certain internal and external factors
‡ minimize the losses to the creditors and other
stakeholders through an orderly and coordinated
restructuring programme
CDR -Structure

CDR Standing CDR Empowered CDR Cell

Forum Group ‡ Assists other two
‡ Representative general ‡ Deals with individual groups in all functions
body of all financial cases of CDR ‡ initial scrutiny of the
institutions and banks proposals received from
‡ Examines viability borrowers / lenders and
‡ self- empowered body
laying down policies
and feasibility of debt puts up the matter with
and guidelines, and restructuring and if Empowered group
monitor the progress of possible approves ‡ If feasible, it prepares
CDR restructuring detailed rehabilitation
‡ Carves CDR core group package plan with the help of
which lays down lenders
policies and guidelines
for debt restructuring
CDR - Features
‡ Covers only multiple banking accounts / syndication /
consortium accounts with outstanding exposure of Rs.20
crores and above by banks and institutions
‡ applicable only to accounts classified as 'standard' and
'sub-standardµ
‡ BIFR cases not eligible
‡ Requests of any corporate indulging in wilful default,
fraud or misfeasance not considered
‡ Reference to CDR can be triggered by:
‡ any creditor who have minimum 20% share in either
working capital or term finance
‡ by the concerned corporate
SARFAESI Act 2002
‡ The Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002
(SARFAESI) empowers Banks / Financial Institutions to
recover their non-performing assets without the
intervention of the Court.
‡ The Act has three segments:
‡ Securitization and Asset Reconstruction Companies
‡ Central Registry
‡ Enforcement of Security Interest
Methods for Recovery

Securitization

Asset Reconstruction

Enforcement of Security without

the intervention of the Court
Securitization & Asset Reconstruction
‡ Securitisation is the process of pooling and repackaging of
homogenous illiquid financial assets into marketable
securities that can be sold to investors
‡ Securitisation company or reconstruction company may raise
funds from the qualified institutional buyers by formulating
schemes for acquiring financial assets
‡ Any securitization or reconstruction company can act as an
agent to a bank/financial institution for the purpose of
recovering their dues
‡ ARC will be treated as secured creditors once they take over
financial assets and have authority to take over the
management of the business of the borrower
‡ ARC restructure mPAs and sell them to investors as ³Pass
Through Certificates´ (PTCs)
Provisions of the Act
‡ mPA loans with outstanding above Rs 1 lac
‡ Amount less than 20% of the principal and interest are
not eligible to be dealt with under this act
‡ Assets under pledge, lien/ assets financed under lease
or hire purchase are not covered
‡ Either a bank must be the sole Banker to the borrower or
in case of joint lending, at least lenders representing 75
% of the contractual amount due and out-standing agree
to take Action
‡ Any security interest created over agricultural land can¶t
be proceeded with
SARFAESI Act- Empowerment to Bank
‡ The Act empowers the bank to:
‡ To issue demand notice to the defaulting borrower
and guarantor, calling upon them to discharge their
dues in full within 60 days from the date of the notice.
‡ To give notice to any person who has acquired any of
the secured assets from the borrower to surrender the
same to the Bank.
‡ To ask any debtor of the borrower to pay any sum
due or becoming due to the borrower
Procedure for Proceeding under SARFAESI
Act
‡ Identification of accounts & Obtain Approval for Action
‡ Issue of duly signed notices by Authorised Officer to
borrower and guarantor asking them to discharge their
dues within 60 days
‡ If borrower makes any representation or raises any
objection and if on careful consideration Bank doesn¶t
accept it, then it has to communicate within one week
from receipt of such representation or objection with the
reasons for non-acceptance
Procedure for Proceeding under SARFAESI
Act
‡ If the borrower/guarantor fails to meet the liability within
notice period, bank can take one or more of the following
measures:
‡ Take possession of the secured assets
‡ Take over the management of the secured assets
‡ Issue notice for collection of receivables / book debts
‡ Bank can also sell or lease out the business and take
over the management of the Company
‡ If the sale proceeds are not sufficient to liquidate bank¶s
dues then bank will have to file recovery suit / DRT
application before Civil Court / DRT for enforcing the
personal covenant against the borrower / guarantor
Appeal to DRT/DRAT
‡ If any person is aggrieved by any of the measures taken
by the bank, he may file an application to DRT within 45
days from the date such measures have been taken
‡ Borrower can also appeal to DRAT after DRT but only
after depositing 50% of the amount of debt due or
determined by DRT whichever is less but can¶t be below
25%
Sale of mPA To Other Banks/FIs
‡ Only mPA accounts with outstanding balance over Rs.
25 lakh and assets classified as mPA for atleast 2 years
are eligible
‡ The sale consideration should be received from the
purchasing Bank in Cash
‡ mPA transferred to purchasing bank on ³without
recourse´ basis
‡ If the sale is at a price below met Book Value (mBV), the
shortfall will be debited to the P&L a/c of the year
‡ If sale is for a value higher than the mBV, the excess
provision shall not be reversed but will be utilised to
meet shortfall on account of sale of other mPAs in future