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Banks need to recover the money lent to the borrowers. In case the funds lend becomes npa; it hampers whole banking business and decrease profitability.
“Recovery” is defined as the process of regaining and saving something lost and “Management” is the process of planning, organizing and controlling activities to achieve the objectives of business efficiently.
Recovery Management is thus concerned with designing and implementing a collection of strategy to recover the debts without losing customers.
Recovery measures could be legal and non-legal :- Banks could adopt legal measures to recover loans by filing a suit in civil court or filing an application before the DRTs. Before taking legal actions banks generally give frequent reminders by calls, messages, mails and visit to borrower’s place which is considered as non-legal measures without intervention of court.
Major reasons behind defaults :- Lack of credit evaluation, Inadequacy of collateral security/ equitable mortgage against loan, Lack of follow up measures, Default due to natural calamities etc.
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Recovery Management In Banking
1. DEVTECH FINANCE
CREDIT MANAGEMENT TUTORIAL
RECOVERY
MANAGEMENT
IN BANKING
DEBT RECOVERY TRIBUNAL
ASSET RECONSTRUCTION
COMPANIES
DEBT RECOVERY
AGENTS
SARFAESI ACT
NOTICE ,REPOSSESSION &
SALE OF PROPERTY
2. INTRODUCTION TO RECOVERY MANAGEMENT
• Banks need to recover the money lent to the borrowers. In case the funds lend
becomes npa; it hampers whole banking business and decrease profitability.
• “Recovery” is defined as the process of regaining and saving something lost and
“Management” is the process of planning, organizing and controlling activities to
achieve the objectives of business efficiently.
• Recovery Management is thus concerned with designing and implementing a
collection of strategy to recover the debts without losing customers.
• Recovery measures could be legal and non-legal :- Banks could adopt legal
measures to recover loans by filing a suit in civil court or filing an application before
the DRTs. Before taking legal actions banks generally give frequent reminders by
calls, messages, mails and visit to borrower’s place which is considered as non-legal
measures without intervention of court.
• Major reasons behind defaults :- Lack of credit evaluation, Inadequacy of collateral
security/ equitable mortgage against loan, Lack of follow up measures, Default due
to natural calamities etc.
3. NOTICE TO BORROWERS, REPOSSESION & SALE
OF PROPERTY
• NOTICE TO BORROWER - Before initiation of any legal measures, giving notice to
borrowers in form of written communication, telephonic reminders or visits by the
bank’s representatives to the borrowers’ place is done as a part of loan follow up.
• REPOSSESSION OF SECURITY - Repossession of security is aimed at recovery of
dues from the borrower by taking custody of the property until full outstanding loan
amount is repaid. The recovery process through repossession of security will involve
valuation of security and realization of security through appropriate means.
Repossession can be done only after issuing the legal notice to borrower.
• VALUATION AND SALE OF PROPERTY - Valuation and sale of property
repossessed by the bank is carried out as per law and in a fair and transparent
manner. The bank have right to recover from the borrower the balance due if any
after sale of property. Excess amount obtained on sale of property will be returned to
the borrower after meeting all the related expenses provided the bank is not having
any other claims against the borrower.
4. DEBT RECOVERY TRIBUNALS
• The Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI);
popularly known as DRT Act was enacted in the year 1993 to speed up the
recovery process by banks and FIs through legal proceedings from their
borrowers.
• The Act provided for establishment of Debt Recovery Tribunals (DRTs) for
expeditious settlement in case of debts above Rs. 10 lakhs.
• Procedure for filing application before DRTs involve :-
a. Filling of application
b. Scrutiny of application by the Registrar of DRT
c. Issue of summons to borrowers
d. Recovery proceedings
5. ASSET RECONSTRUCTION COMPANIES
• The Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest (SARFAESI) Act, enacted in December 2002 provides
the legal basis for the setting up ARCs in India.
• Securitization means the conversion of an asset especially a loan into
marketable securities typically for the purpose of raising cash by selling
them to other investors.
• An Asset Reconstruction Company is a specialized financial institution that
buys the NPAs or bad assets from banks and financial institutions so that
the banks/FIs can clean up their balance sheets and ARCs can sell the debt
value in form of financial securities to investors.
• Banks rather than going after the defaulters by wasting their time and effort,
can sell the bad assets to the ARCs at a mutually agreed value.
6. DEBT RECOVERY AGENTS
• Debt Recovery Agent may be defined as a person or entity engaged by a bank
for the purpose of collecting specified bad loans or advances or other kind of
debts from the borrowers in accordance with the specified terms and conditions
of loan agreement.
• Banks are advised that they should ensure that the recovery agents are
properly trained to handle loan cases with care and sensitivity in particular
aspects like hours of calling, privacy of customer information, no abuses or
violence, informed of legal norms and compliances etc.