Management of NPAs -Some recovery techniques.

When a loan account becomes Non-performing it is a headache and signal of deteriorating health of a bank. Any addition to this portfolio raises anxiety for the institution so this needs to be kept at a minimum level by effective recovery techniques.

Although it is always better to avoid slippage of accounts to NPA category by proper follow-up because ‘PREVENTION IS ALWAYS BETTER THAN CURE‘ but still some accounts do slip to NPA category because of one or the other reasons as already discussed in the earlier blog.

RECOVERY METHODS: We should study the NPA portfolio carefully and plan a strategy in a scientific manner, categorizing the accounts in order of ease of recovery.

Following are some suggestions at operational levels:

  1. One should not lose sight of the renewal date of the DP notes and no such account be allowed to become time-barred by limitation. So necessary recovery proceedings are initiated within the limitation period of the particular loan account. Fresh DP note, acknowledgment of debt or a credit into the account by the loanee with a credit slip duly signed by him will extend his limitation period. If this is not possible despite all efforts and persuasions the lawsuit be filed in the court of law well before the date the limitation period expires.
  2. After categorizing the accounts in order of ease of recovery, first, handle the accounts which can be recovered easily or by comparatively fewer efforts than in case of other accounts.
  3. There may be some freshly slipped account to NPA category where only a few installments or some interest is pending for payment. A recovery of that small amount can result in the upgrading of the whole amount of NPA account. All such accounts are given top priority as less effort produces comparatively much better results.
  4. Some NPA accounts of persons of good repute and standing can be recovered by hot persuasions. Keep a regular contact with these persons and their guarantors and encourage them to pay bank’s dues and save heavy legal charges and embarrassment of the courts to which the bank may be forced to go in case of nonpayment of its dues.
  5. Regular contact with the defaulter and his guarantors is a must. The recovery team members should be polite, persuasive but firm in their pursuit of recovery. During any discussions with the concerned parties, space should always be kept for further discussion. Bank’s DEFAULT IS A BIG SOCIAL STIGMA and many people pay if properly approached to avoid this embarrassment in society due to the regular visits of the recovery team.
  6. As there is always a shortage of staff in branches and it is difficult to spare people to form a team so banks should build recovery teams on a CLUSTER MODE where staff from few branches in the cluster join and work for all associated branches. The leader of the team should be rotated depending upon the recovery of a loan of the concerned branch because leader from the concerned branch can better understand the customer and his default account. If possible, some Female Staff should also be associated with recovery teams as this will help in avoiding many embarrassing situations which the recovery teams face during their recovery drives.
  7. The defaulter should be given reasonable time and encouraged to repay the due amount.
  8. There are also some HARD NUTS TO CRACK i:e the WILFUL DEFAULTERS and habitual defaulters they are real sharks and deserve no leniency so need to be dealt ruthlessly.
  9. Wherever merits demand suitable settlements can be made after negotiations. The negotiating teams should be experienced and skilled in this field.
  10. Publication of photos of defaulters and their guarantors, reporting to CIBIL as per authority and consent already obtained during the execution of legal documents at the time of releasing loan be resorted to on the merits and demerits of each case.
  11. In case of Wilful and hard type defaulters, negotiations should not be held in the cozy chambers of the bank’s executives but in the chamber of recovery officer. These chambers should not have comfortable chairs and sofas but ordinary chairs. The walls of the chambers be painted with recovery slogans and pictorial mages showing the bad effects on the reputation and standing of a defaulter in the eyes of society and public(try to corner them psychologically).
  12. The recovery officer should not sit in the chamber to welcome the defaulter when the defaulter is expected to visit him. Someone else should guide him to the chamber and let him sit there for some time and get acclimatized with the environment of recovery chamber. Recovery officer should make the defaulter and his guarantors understand the ramifications of legal recovery proceedings and costs involved. They should be advised and encouraged to repay the loan to avoid legal embarrassment.
  13. Negotiations be held with defaulters on merits of each case and nothing less than the realizable value of security charged to bank be agreed to be accepted in settlement of the account as this creates problems in the long run and sets the wrong precedence. As already said in the foregoing paragraph that during negotiations the position of the defaulter is that of a SHARK and that of the bank as a TEDDY BEAR. By skilled negotiations, you should be able to reverse this position. Please note that negotiations should never end up in a deadlock and scope should be always kept to restart the same again after some time.
  14. There may be some cases where chances of recovery are dismal and the value of the security has diminished to worthless level. Do not waste your time and energy on such cases and let the management take a call on the fate of such accounts.
  15. Recovery camps/Recovery fortnights /special recovery drives can be arranged at different levels to settle accounts. Defaulters should be encouraged to avail the opportunity to settle the account at some concession which can be decided by banks during these programs.
  16. The recovery under SARFAESI Act, through debt recovery tribunals, bank courts, other legal methods are already well defined and should be resorted to wherever required under the guidance of legal cells of respective banks.
  17. Recovery of Rural area defaults of comparatively small amounts are handled with compassion. Village heads, Sarpanch, and Village level workers (VLWs) should be involved. They should be told that more default in a village or an area is a factor stopping the bank from more lending in the area. These people can have great influence on defaulters.

RECOVERY NEEDS A MISSIONARY APPROACH. A casual approach is just a formality and brings no results.

THE TOP MANAGEMENT must provide all guidance and support to recovery departments because they are the people who are front warriors without them the mission cannot be accomplished. Only they can help them to sweep out the Junk from the system…….

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Author: Kuldeep Kumar Sharma

I am an Ex-banker having 38 years of experience in different fields and capacities in banking and social life. I started the career at a very humble position and ended at a senior position of President of the bank.

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