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Shri R. Koteeswaran
Chairman and Managing Director
Indian Overseas Bank
Central office
Chennai 600 002.
Dear Sir,
Father of our Nation has said
The past belongs to us but we do not belong to the past
We belong to the PRESENT
We are makers of the FUTURE

UTILISATION OF RETIRED IOBIANS IN NPA RECOVERY


FORMATION OF COMPETENT, CORE, CREDIBLE
RECOVERY TEAM
Non performing assets are a drain to the banks. Our bank under your able
leadership is adopting various strategies to reduce the non performing assets in
their banks and they are also adopting various methodologies by which further
addition to NPA portfolio is minimized though there is no such ideal bank where
the NPA is nil. But as far as our bank is concerned chronic slippages offsetting
good work done in casa mobilization and recoveries. So there has been concern.
There has been anxiety. There is a general feeling our Banks NPA is on the rise
inconsistent with the good recovery efforts as could be seen from the performance
review statement circulated during the Business Plan Conference of the Bank in
which we had participated.
These signs are unmistakable. IOB is in a pressure cooker situation. The heat and
pressure within the vessel of NPA has crossed the safety limits and there is a
danger of imminent explosion. If it is allowed to happen, it will be disastrous to all
of us as we may have to face the ignominy of being classified as distressed bank.
The following traditional, theoretical strategies have been adopted by our banks
trying to curtail non performing assets to a great extent:
Recovery camps
Preference of claims
Compromise proposals
Technical write off
One time settlement scheme
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Suit filing: debt recovery tribunals


Lok adalats
Securitization act
BUT PRACTICAL EXPERINCE?
Last year we should be frank is yet to see us in the brim of our efforts in our
recovery drives as evidenced from the figures available of last quarter. .We would
not like to go into the details for this sluggish recovery compounded with further
new slippages, nor would we like to give excuses. We cannot be bad carpenters
complaining about tools and instruments. But we have faith that that as in the past
the combined renewed, resolute efforts of all staff members with the proactive
initiative of union and officer association, healthy IR climate, continued social
dialogue with the union and officer association by the top echelons on evolving
strategies and will to recover can perform the miracle and pull the Bank out of
the rut and get them going once again to the pre-eminent position.
The gap between theory and practice is visible.
Today it our experience that Legal process is tardy and no tangible result is
achieved in time. But there is no other go presently to Banks to settle disputes due
to the adherence to age-old system. The legal options for recovery comprise of

Revenue recovery acts


Legal services Authorities act 1987 - Lok Adalat
Civil Courts
Debts Recovery Tribunal

Revenue recovery act is enacted to recover amounts to the banks borrowed for
either Agriculture and / or Commercial purpose. This recovery made is not very
prevalent.
Lok Adalat sits occasionally and the suits up to the value of Rs. 5 Lacks are
decided by them. Delays are not brought down to effect quick recovery.
Civil suits once again are time consuming and do not measure up to the challenge
posed by the huge NPAs
Debut recovery tribunals function from the year 1993 following Narasimham
Committee reports. NPAs over Rs. 10 Lacks are dealt by these tribunals and in
exceptional circumstance the limit can be reduced. The tribunals follow the
summary procedure and are only guided by the principles of Natural justice. It is
not necessary to indicate the procedure to be followed in filing the cases and
process thereafter to recover the amount. It is suffice to state that these tribunals
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though created with much hope of reducing the quantum of NPAs, those hopes
have been belied. Repeated adjournments of cases, willful dragging of the
proceedings by interested parties, difficulties in executions of decree and above all
limited number of tribunals cause much delay in delivering judgements and to
implement the decree.
A concise note prepared in the Department of Banking supervision, RBI brings out
in a detailed manner the extent of suit filing / Recovery etc., in banks. The note
gives detailed analysis of position of NPAs in banks and discusses the ways and
means to reduce NPAs both through judicial and quasi-judicial fora. Some
important statements in that note regarding the measures taken and the result
achieved are reproduced as follows:

EXTENT OF SUIT FILING/RECOVERY Etc., BY BANKS

The data from 33 banks (27 public sector and 6 private sector) and the study of
files relating to measures taken for recovery of suit by 15 banks reveals that banks
do file suits after exhausting other means of recovery and the amounts involved in
suits after exhausting other means of recovery, in the suit filed case accounted for
insignificant % of these banks NPA.. The recoveries made out of suit filing by
these 33 banks during the last 3 years were 7.33%, 4.74% and 4.32% respectively
of the suit file amount evidencing decreasing trend of recovery through this route.
In view of such meagre recovery, the banks before filing suit weigh the likely
recovery prospects out of the suit and opportunity cost of any amount that could be
recovered immediate. Suit filing, as such is resorted to as the last alternative.
Further, as advances in "Sub - Standard" category due to temporary problems like
slow moving stocks, delay in receivables, etc., or not always recoverable and some
of them get regularised and upgraded to "Standard" accounts, the suit filing in
such accounts is neither required nor resorted to. In view of the cost benefit
implications and time factor in suit filing, banks consider legal measures only
when the account is classified atleast as "doubtful".

EFFECTIVENESS OF SUIT FILING/LEGAL RECOVERY


MEASURES IN BANKS

In some cases there were suits pending for 15-20 years, but no progress was made
in the suit. Out of all the suit filed cases of Rs. 1 Crore and above studied in 15
banks which were visited, there was only one case in which the suit filing was
taken to logical end i.e., execution of decree, recovery as per decree and closure of
the borrowal account.

TIME TAKEN FOR SETTLEMENT OF SUIT

In the light of the above the issue that needs deliberation is that despite banks
resorting to filing of suits in NPA cases constituting 48.27% of the NPAs, even as a
lost resort, whether the legal process beneficial in recovery of dues of banks and
enforcement of credit discipline and if not, the measures that could be taken for
making this process an effective tool.

DEBT RECOVERY TRIBUNAL

A data though old speaks the ground realities of the situation states at the end of
June' 1997 out, of total number of 11,700 cases filed and transferred to DRTs
involving 8,866.67 Crore only 1,045 cases had been decided and a meagre amount
of 178.08 Crore was recovered.
The data suggests that the working of DRTs had fallen short of expectations by not
creating a fast track system for recovery of banks dues. Banks are of the view that
so far the constitution of the Debt Recovery Tribunals has not contributed
substantially in recovery of problem loans/ enforcement securities by the banks, as
they are not equipped with proper infrastructure and required flexibility. Therefore
immediate need for removing all the impediments coming in the way of smooth
functioning so as to make it play the role expected of it.

CONSIDERING THE PROBLEM IN REDUCING NPAs THROUGH


LEGAL PROCEEDINGS THE RBI NOTE CONCLUDES AS
FOLLOWS

Reduction of NPAs in banking sector should be treated as a national priority item


to make the Indian banking system more strong, resilient and geared to meet the
challenges of globalization. It is necessary that public debate is started soon on the
problem of NPAs and their resolution. It is hoped that our sincere submissions in
this letter will provide a base and generate a healthy public debate, which may be
helpful in evolving suitable strategies for satisfactory solution of the problem.
The issue that needs deliberation is whether it could be concluded that the high
level of NPAs is historical legacy mainly due to lacunae in credit recovery system,
largely arising from inadequate legal provisions on foreclosure and bankruptcy,
long drawn legal procedures and difficulties in executions of decrees awarded by
the court.
In the background of the above remarks of RBI the fittest measures for reducing
NPAs is to be examined. In this connection the report of the various committees
set up for recommendations for improving the working of the banks may assist.

Pannir Selvam Committee Report submitted in 1998 on NPAs of public


sector banks suggests Arbitration/Conciliation under the Arbitration Act
1996 as an effective tool.

Some of the observations made in that report in this connection are


extracted below.

The Pannir Selvam Committee has pointed out that main reason for growth
of NPAs and slump in recoveries in banks in India is the antiquated legal
system and the laws prevalent in the country. Thus according to the
committee unless the legal system in the country is thoroughly overhauled/
reformed it would be increasingly difficult to tackle the NPA problem. In
contrast, banks abroad have been able to contain their NPAs because of
quick disposal of litigation by their judicial systems to release their dues.

The committee suggests various measures to strengthen credit monitoring


by setting up special recovery cells placing persons with credit management
skills in branches having sizeable NPAs, and intensive follow up of sub standard assets for the upgradation. It further suggests periodic meetings
with borrowers, constitution of special recovery teams, exploring
possibilities to quickly get the account adjusted by compromise/write off.
Provisions have been made for doubtful and loss assets, obtaining
additional security to strengthen loan asset and reduce the provision
requirements. The committee strongly recommends to make the Arbitration
act 1996 to be made applicable to banks. Compulsory Arbitration by senior
Retd. Judges or Ex- ED/CMD of Banks / FIs is advocated before reference
to high court /DRT.

The non-legal options for NPA management mainly compromises of dispute


settlement. Compromise as an option is attractive when the bank and promoter are
willing to negotiate and settle an option where there are gains to both parties. This
method is used by our bank in a selective manner depending upon the strength
and weakness of the banks vis--vis other options. Tardy legal system if resorted
may causes heavy delay in recovery by which time the mortgaged assets may
loose their value or the interest earned on money recovered may compensate loses
if any by the delayed Judgement by judicial fora.
Negotiated settlement appears to be a reasonable solution, which can bring down
NPAs in short span of time. Our Banks ahs increasingly used this approach for
debt recovery. Probably the RBI and apex body of the banks may have to issue
necessary guidelines to take recourse to this method extensively. But it appears
there is still mind block to utilize this time-tested method.

As Bankers we do not fear to negotiate but they do not negotiate out of fear.
Vigilance checks and apportioning accountability of managers on unrelated
grounds causes fear and the managers drive the promoters to legal courts or the
bank themselves initiate legal proceedings.
To avoid long drawn litigations quasi-judicial proceedings may be a proper
answer. It was expected Arbitration and Conciliation proceedings by experienced
Arbitrators and Conciliators will not only ensure quick disposal of recovery cases
but also avoid fear psychosis of the bank managers. Decrees passed in Arbitration
or compromise settlement arrived at in a Conciliation proceedings are decrees of a
court under the Arbitration and Conciliation Act 1996. Hence this process of
recovery settlement was encouraged instead of depending upon legal system,
which has serve limitations.
In our country the agencies acting for arranging Arbitration/ Conciliation
proceedings effectively are few. These agencies are also run under the control of
Govt. institutions like ICADR and Arbitration tribunals. They do not attract many
clients. Even in those institutions the delays can not be ruled out due to various
reasons. Then what is the solution? The only remedy appears to be to encourage
our own retired employees to arrange for Arbitration / Conciliation adhering to the
Arbitration and Conciliation Act 1996 following their own procedural rules.
Experienced retired employees equipped in all respects sanction of advances and
recovery will deliver the goods of early recovery of NPAs with earnestness and
with gains to both sides.
With this objective the undersigned had series dedicated meetings of handful of
retired IOBIANS, irrespective of their membership in any of the retirees
associations in our bank at Mumbai, in the month of JULY 2013. in one such
meetings the undersigned presented the following paper Strategies for effective
NPA recoveries which itself is the by product of various informative articles by
competent experts on recovery interwoven as effective grid model to identify the
pulse of NPA parties and evolve suitable strategies to approach them strategies.
STRATEGIES FOR EFFECTIVE NPA RECOVERIES

This research and the findings, to our belief, will be very useful for OUR
BANK to adopt specific protocols for recovery of the NPAs in their books.
1. Introduction
Every strategy emanates from the market and market itself evaluates it over a
period of time. Wartime experiences encourage development of new tools and
techniques. The banking crisis which started from late 2008 was nothing less
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than a war where banks were struggling to survive.


In cluttered conditions like above, Banks had a tough task of reducing /
recovering the current NPA levels and at the same time address the
increasing flow of good credit becoming bad. Resolution of NPA means an
exit from the asset through total or partial recovery of NPA, with or without
external assistance from Asset Reconstruction Companies (ARCs), Debt
Recovery Tribunal (DRT), Corporate Debt Restructuring (CDR) or other
legal proceedings. Our analysis on different cases, which comprises of NPA
in our own bank ,based on my experience in the board of directors for two
terms and subsequent experience of other workmen nominees share to me with
different types of company working on distinct Business grid, ahs provided
the impetus to this new theory of grid proposed by us . . Here we propose a
grid which can be well used as a protocol to be followed for NPA resolution.
The focus of my paper is not to clean the books by divestiture or swap of
NPAs, but to recover the NPA
2.
Literature
Review
The researches in the field of NPA are quite nascent. The papers have been
limited to providing a trend in NPA over the years. A research work by
Justin Bert(2009), vice president at Capstone Advisors on topic
Developing an Action Plan for Non-Performing Assets have tried to set
up measures in place to check lending in sub standard loans which leads to
bad debt. This paper has put forward ideas of judging asset quality and
detailed legal review. However, this grid doesnt take into account that, NPA
cases emerge out of many different reasons and not only because of operational
inefficiency. Prashanth K Reddy, in his paper A comparative study of
Non Performing Assets in India in the Global Context- similarities and
dissimilarities, remedial measures explained the formation of NPA in
Asian countries. However his analysis was focussed on the problems of
judiciary, polity and bureaucracy and hence the solutions proposed
were for amendments in regulations. In his paper named Resolving Nonperforming
Assets of the Indian Banking System He Dong from
International Monetary Fund have enlisted the best practices to be adopted to
help AMCs(Asset Management Companies) meet the need of resolving NPA
in banks. This is a descriptive list with a narrow focus on AMCs. There
havent been many efforts to explain and optimize the recovery process of
NPA. This is where we have put our thoughts to present a grid, which takes
care of the same and explains approaches to reduce the hassle and risk of
losing bad debt and customers. In our analysis we have found that there can
even be lot of collaborative approaches to NPA collection.
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3. Pre Sales Analysis


In banking industry, the Collection team professionals face huge impediments
in meeting their KRAs (Key Result Areas). If you go by the analysis of Non
Performing Asset (NPA) accounts, the blame could be easily passed on to
the marketing t e a m . However, a contrary view might be that its due to the
over-ambitious sales by the banks that the recovery experts are enjoying all
importance in the lending business industry. Bankers often follow the policy
of "Sell and forget" since the account is believed to be converted and will
be there till any major problem creeps in. Staffs get really desperate, to the
point where they will convince customers they need something when they
really don't. The sales targets lead to many corrupt practices like opening up
an account and closing it the next day to make sure that the targets are
reached. For the customers, it becomes difficult to understand whether the
suggestions made are based on their needs, or the agents job security or a
bonus.
The Banking services, being a specialized service industry, personal selling is
the way banks prefer in expanding the sales. Personal selling in banks takes
place in two ways. Either the customers and banker perform interaction face
to face at branch office or the bank personnel (the customer representatives) g o
to customers p l a c e . Customer representatives are meant to be
specialist in financial services to be offered and they shape the
relationship between lending institutions and customer. But many companies
adopt Hard selling way whereby they hire sales person with least knowledge
of the services and rely on their efforts and convincing skills to win
customers. This leads to customers subscribing to facilities which they really
don't need. However, the recession of 2008-09 made us go back to the
drawing board and rethink our strategies primarily pertaining to follow up
with the customers. This can undo the damages which Push sales would
create.
Now that we claim the crisis is over, we say it's just a beginning, where lot
of gear shifts will be required. Running at controlled speed to grab the green
shoots at the same time being wary of falling in same trap again would help to
ward off the crisis faster. The learning curve for the last few years in this
industry has been very steep. The credit goes to the quick learning in the face of
recession and the resilience s h o w n by many banks . We have seen
lending i n s t i t u t i o n s u s i n g innova tive w a y s of resolving NPA.
Resolution of NPA means an exit from the asset through total or partial
recovery of NPA, with or without external assistance from Asset
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Reconstruction Companies (ARCs), Debt Recovery Tribunal (DRT),


Corporate Debt Restructuring (CDR) or other legal proceedings. Leads
should not be lost while the customer is transferred to a new team.
Though the lending institutions seem to be running on most conservative
lines and lending to the safest customers, it turns out to be a misleading
notion when seen in light of business knowledge of their clients. The standard
process of following the Gearing ratio, balance sheet analysis and cash flow
test should be in addition to non-financial check points for the customer. The
financial indices cannot capture the intent of the promoters and their
expectations from the company. The constitution of the company plays a
very important part in ascertaining their intent and avoiding fraudulent
customers. Once the prospective customer stands tall in these checks, its
business model, industry and average profitability b e c o m e s i m p o r t a n t . A
credit analyst needs to map the company on Michael Porters Value chain,
which can reveal the strength of company. Apart from this, the following table
lists the major industry wise checkpoints for Business Model of clients:
Checkpoints for Business Model Strength in different
industry
Industry
Pharmaceuticals

FMC
G
Trading & shipping
Transportation
Wood and Timber

Checkpoints for the Business Model


Investment in R & D.
Distribution Network is developed/ investment
required. Competent Distributors.
Integration of its Supply chain
Value added to product/service at its
end. Profit margin
Infrastructure in terms of warehouses, ships.
Number of Trucks
owned/leased. Transport
permits
Legal approvals for cutting trees.

Cold storages in place


Perishable commodity Efficient distribution Network.
Textile
Retail
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Investment to build a brand


Brand strategies for differentiation
The Rental cost.
The value addition and value captured
Brand recall.

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Chemical

Quality check procedures


ISO Norms and regulatory bodies.

Note: we have not included priority sector lending and agriculture which are
aimed at financial inclusion where recover through existing procedures have
yielded satisfactory results.
The above parameters are hardly taken care of by the bankers. The
facilities and limits are decided upon by fixed templates provided by their
back office. Another most influencing agent in their decision making
happens to be the target for the month/quarter. The visit to debtors and
physical verification are often compromised. Thus the huge increase in NPA
and i n c r e a s e in problem loans linked to commercial activity and
commercial real estate was not only due to macro economic reasons.]
4. Post Sales Issues & NPA Recovery
Grid
The figures of NPA levels has a direct impact on profitability of banks and
hence stability of economy. Huge amount of credit got trapped for building
provisions for Bad loans during recession for most of the banks. As a matter
of fact, due importance has been given to reduction of NPA by regulators of
most countries. Still recovery is one of the most challenging tasks in banking.
Lending institutions often employ barely legal methods for recoveries (K R
Sreenivas, S Shyam Prasad, 2010). The lending institutions employ
relationship managers for handling each customer separately. All efforts
are taken to retain them. But often this relationship is based on the amount
of business they bring to the company. Seldom is the customer profiling done
on the basis of risks they pose and taking dynamic inputs from the
relationship managers. In troubled times this becomes increasingly important.
The recovery teams often increases the customer follow up which
becomes counterproductive. Strategizing a recovery process is paramount
and following the NPA recovery grid would aid the process.
The grid is based on two decision-making parameters: Commitment from
customers and co-operation from customers. These are most pragmatic
parameters to be used by recovery agents to understand their clients and
differentiate cases. The customer is placed in one of the below quadrants
based on their co-operation level a n d a c t u a l c o m m i t m e n t shown i n
m a k i n g p a y m e n t s . The j u d g m e n t s on the parameters should reflect
the current state of the asset and the customer. Profile and track record of the
customer can also be considered for this assessment. Before categorizing the
customer into one of the quadrants, the recovery team must have some
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experience with the customer or should have sufficient data justifying the
co-operation & commitment levels. The relationship managers of the
company defaulting can based on his judgement classify the company in four
quadrants too. Timely review of the cases can be done justifying their
classification. The NPA Recovery grid is applicable as long as legal
proceedings are in place and ongoing or if they have not started at all. If
there were an outcome in the court the grid would obviously be of no help.
The NPA recovery grid is also sensitive towards the kind security in place for
the loan given to the client. A lending institution having taken good security
for giving loan and operating in a country having faster effective legal
system may not have need to use this grid. In that case, bargaining power of
the lending institution will always be much higher and can make any
customer accept their terms. The applicability of the NPA Recovery grid will
be more when legal proceedings takes lot of time and the lending institution
holds less security (or unsecured loans). NPA recovery Grid has been
explained by considering examples from Small & Medium Enterprise segment.
The Grid works well within the boundaries of this segment. However, since
the grid deals with human behaviour and integration, it can be used in all
categories, be it Global corporate or large local corporate. Timely review
about companies can be taken to ensure change in quadrants and thus
change in strategies.

Figure- 1 NPA Recovery Grid


Commitment from Customer
High

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SILENCE

Low

COLLABORATION

DEAD

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TWO FACE ATTACK

Low

High

Co-operation from customer

Collaboration
The set of customers, who are willing to collaborate with the bank are
positioned in the first quadrant. They are high on co-operation as well as
commitment. They do entertain all the calls and meetings initiated by
collection departments of lending institutions. Collaborative customers
accept their liabilities and are willing to go extra mile to pay off their debts.
Mostly, the dates decided with the lending institution for repayments are
honoured. More often than not the companies have defaulted on the loans due
to a rare economic downturn or a big setback on adopting a wrong strategy.
Usually such companies have market goodwill and plan to continue
operations after payment process, which give them motivation to repay
quickly.
Strategy for collaboration
- The lending institution should break customers outstanding loans in
various tranches as against asking them to repay entire amount at one go.
Bank should ensure customer accepts a written undertaking or accepts a
memorandum of understanding specifying the same. The lending institution
should put efforts in helping customer settle a credit by extending their
due dates if a particular tranche of payments are being delayed on one off
basis.
- Lending Institutions should also make the payment process smooth by
ensuring enough room is given to customer to conduct the business
activities, as the repayment may only come through the same. Lending
institutions should not press the panic button on default as that may lead to
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misunderstanding with the customer. Lending institution and defaulter on


same page is the best possible situation. The recovery process gets very
difficult when they are operating on different pages. Banks should do what is
takes to ensure the customer is collaborative and stays that way.
- Lending institutions should collaborate with these types of defaulters in real
sense like helping them sell off their sick assets, which would be channelized
to settle the NPA. Lending institutions can also try and aid customer in
disposing off the excess finished goods, the customer may be sitting on.
- Lending institutions should minimize the calls done by collection agents &
also slow down on legal proceedings here. Lending institutions should refrain
from hiring external collection agents and use on payroll professional for
recoveries here.
Example 1 ABC Textiles: This Company was into manufacturing
garments and the NPA resulted due to issues in textile industry downfall
(2008 09 recession of world textile industry). They approached their bank
and rolled out a plan for settling the full amount. A NPA of worth USD 2 Mn
was settled in course of 9 months. The loan was unsecured. According to the
exit strategy agreed with customer, every 15 days a payment was to be made
by ABC Textiles, which was always honored. The bank promised to
withdraw the legal case on receiving the last tranche of payment. Bank also
allowed ABC Textile to undergo normal business activities and agreed to meet
them only when ABCs customers were not around. Further, the Bank also
promised to give the customer a Conduct certificate stating entire
recoveries have taken place within a day of full recovery to facilitate
them in receiving new working capital. If the bank had tried to mandate the
customer in paying them USD 2 Mn immediately, customer had to probably
shut down the business operations. In all possibility nothing would have been
recovered then (Bankers who had taken security and lent to ABC Textiles
would have claimed their fixed assets) Bank also had let know the customer
through the process that they reserve the right to increase the activities
of collection agents & legal proceedings if the collaborative approach by
customer was let go off.
Example 2 XYZ Foods Pvt Ltd) was into export of processed foods and
vegetables with
100% export oriented units. Due to export slump and material rejection, the
company defaulted with the bank. The Company had well experienced
promoters who approached the bank for help in selling off a sick sister
concern, thus aiding them in tiding off the capital crunch. The bank went
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forward to the extent of providing advisory services for the purpose thus
working towards a win-win situation.

Two
Face
Attack:
Figure 2: Two Face
Attack strategy

There are many customers who appropriately entertain all calls from the
agents and keep up to all the meetings to discuss recoveries. They are
cooperative in talking to lending institutions. But they dont honour most of
their commitments of repayments. They will miss the commitment dates
regularly and often come up with multiple reasons for the same. These
customers should be exposed to two faces of bank a resolute one and a cooperative one.
Two Face Attack
Strategies:
- There should be two points of contacts from the lending institution for the
defaulted customer, either two individuals or two separate teams. One of the
individual / team should approach the customer with the aim to understand
all latest developments and how it may affect the repayments. Efforts
should be put to ensure customer commits repayments of loans by
specifying some dates where in part/full payments can be given to the lending
institution. All these insights of the customer are shared with second
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agent/team, who would be working in conjunction. This second person/team


would be working to push the customer in meeting the commitments. Without
the necessary push, these type of customers would have tendency to take
leeway and dishonour dates of repayments.
- The second team / individual would play an important part in the whole
process by ensuring regular meetings with the customer are conducted.
Activities of meeting customer and constantly being in touch will increase
many folds when the commitment dates are near. This team may take help
of external collection agents who are specialists in follow-ups.
- Whilst the first individual / team are seen in positive angle by the customer,
the second one will not share the same place. However both faces would
be required to complete the recovery process together. Both individuals /
teams will have to work on-going basis whereby one person/team makes the
customer to commit while other will ensure that commitments are kept. Care
should also be taken that customer puts in writing all the commitments.
- Parallel to influencing the customer for new payments, the first agent
should also try to ascertain new ways to collaborate with the customers. The
proposals forwarded should pose win-win solution for both the party. This
would shift the customer to the first quadrant i.e. Collaboration and thus
simplifying the whole process.
- Recovery process here may take a long time but
continuity is the key.
Example 1- Medial Prints (MP) used to deal in various types of printed
plastic and bin bags. During the recovery process the promoters of MP use to
always pick up call and share the problems of credit flow to agents. They
would always commit but very rarely they would meet commitments.
These insights were gained by one of the agent who patiently gathered
maximum information regarding certainty of payments from the customer.
Then another agent from the collections would approach the customer multiple
times before the payment dates to ensure that customer doesnt go back on
commitments. Initially when the second agent was not introduced, customer
would not pay to the bank sighting credit crunch as the reason but would keep
on spending on expensive cars. The two-face attack approach helped to recover
most of the outstanding.
Silence
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There are yet another group of customers who feel uncomfortable with the
phone calls and meeting recovery agents/ bank employees. They certainly
dont believe in collaborating with the bank and request a Do Not Disturb
from bank side. However they keep their commitments and make the payments
on date, as per mutually agreed plans. Just like collaborative customers they
accept their liabilities and will be willing to go extra mile to pay off their debts.
Mostly, the dates decided with the bank for repayments are honoured. More
often than not, just like Collaborative customers they defaulted on the
loans due to a rare economic downturn or a big setback on adopting a wrong
strategy.
Strategies
for
Silence Customers:
- For these customers Less is more. They should be left with the payment
plans with least of follow up from the agents side. Collection calls & regular
follow-ups with customer may upset the customer and upset the repayment
rhythm. However the continuous assessment must take place and if the
commitments are not being met then this strategy has to be replaced with two
Face attack.
- Occasional meetings / phone calls may suffice as
customers commitment here.
- Option to move the customer from Silence to Collaborative
quadrant should be explored.
- Legal proceedings should be kept at minimal as the same can upset the
repayment activities of customer as such customer can quickly go on bad note
with the bank.
Example 1 ABC Foods, was a pioneer of 'Ready-to-Eat' Snacks, an
established brand in potato chips manufacturing in Asia. They were also into
exporting a wide range of snacks. The company was keen on not receiving
any calls or pushing from agents and promised few deadlines for payments.
Initially a two Face attack was adopted which got the company into wrong foot
with the lending institution. For 30 days nothing came out of the strategy.
Then a joint call with the customer was taken to go on with the Silence
strategy i.e Bank will not follow-up with the customer for the payment,
except for once in a week (Every Friday evening). Customer will repay on
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weekly basis. Customer missing one or two deadlines will not tantamount to
bank switching over to two Face attack again. But the moment customer misses
the third one; bank will have option to expedite activities with respect to legal
proceedings & re initiate follow-ups by lending institution. The customer
agreed upon this strategy. The customer accepted a written confirmation
of the same. This ensured the bank recover all its outstanding along with
interest payment, which was 15% of the size of facility.
Dead:

Figure 3:
Dead strategy

A customer with no co-operation with recovery agents and also giving no


commitment for repayments are placed in this quadrant. A defaulting
customer should only be pronounced dead for recovery after considerable
amount of time & effort has been spent towards the same. When all
efforts of transferring the defaulting customer to any of other quadrants fail,
the customer may be put under this category. Usually intentional fraudsters lie
in this category. The promoters may have no intention to carry on operations
of the company going ahead. Sometimes the lending institution may even
have to trace the missing promoters altogether. Business associates of
defaulter lying in dead category may deny links with the defaulter to protect
themselves. A default company lying in this category may have defaulted
with multiple lending institutions.
Strategies for recoveries for a
DEAD customer:
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- At any point if there arises an opportunity to move the defaulter to any of


the other quadrants, the chance should be grabbed with most sincere efforts
from the collection team. Offering waivers to customer on outstanding loan
amount (subject to rules, case to case basis) can be one of the ways in which
lending institution may try to make customer co-operative.
- Legal proceedings, collections by agents (external & Internal) would be
at highest level here. Lending institution on due course may be able to
recover some amount on liquidation of assets if the loan is against a security.
- In cases where these efforts dont materialize, the customer should be
approached for a one-time settlement (OTS). In these settlements, a higher
waiver ranging from 20-50 percent can be given (based on parameters /
rationale existing case to case). However, in many cases, the customers dont
respond to any communication and try to escape any kind of payments. In the
end, when OTS doesnt work out, the exit strategy should be to sell these
assets selectively to an Asset Reconstruction

Company (ARC). These companies buy a portfolio of assets at a certain


percent of the value of portfolio. They are specialized in reworking the
assets to make out maximum from the bad debts (Simon Mundy, 2010).
Example 1 XYZ Pharma drugs Limited (MPDL) faced immense
problems due to finished products getting rejected by their client. MPDL
availed a USD 1 Mn unsecured loan from a bank. When agents started
calling for overdue, the calls were not entertained. The employees also
stopped co-operating. Multiple trials to establish contact with the customer
did not yield anything substantial. Simultaneously, the case was filed in
court. Legal proceeding was left to take its own course. Later on, the
promoter was found to be already behind bars. Many banks having lent to
the customer after taking security were already after the customer & the
fixed assets. After 2.5 years, Unsecured Bank had to sell the asset (loan to
Company) to an ARC company at around 3 to 4 percent of its original value.
When secured lenders were struggling to recover, there was no possibility
for an unsecured lender. The lending institutions also had to decide on the
time they can afford to keep the debt portfolio in their books or how long
they can keep expensive resources chasing DEAD categorized clients.
.
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Any NPA bears a direct impact on banks liquidity, profitability, equity and its
operations. Though the risk analysis, accounting for NPAs and ratio analysis for
lending are quite developed subjects, the researches done on NPA recovery
gives a clear indication that it has not grabbed enough attention of strategist.
This paper attempts to provide strategies which could improve and standardize
the NPA recovery process. Our proposed decision making grid can be used
as a modus operandi across all branches of banks to remove the mayhem
which prevails in this unorganised function of highly organised lending
institutions. This grid emanates from the learning of a large number of live
cases which makes it indirectly tested.
With this pellucid understanding we suggest the following strategies I suggest the
following steps to give thrust towards Utilization of Services of experienced ,
competent credible Retired IOBians
On the participants who is taken in the panel of by the bank as Recovery
agent who has done certificate course at RBI suggested engaging retired
Iobians and using their services for productive purposes by way of
outsourcing and rendering various services to I.O.B. for mutual benefits.
And for recovery of banks impaired assets. I have already executed
contract agreement with the bank.
Other participants who have contributed their mite to substantial recoveries
during their service tenure resolved undertake this job with all seriousness
professionally.
Accordingly we suggest the bank to avail services of interested retirees on
banks approval
We have plan to undertake this job at all India level with your cooperation
to make positive impact on recovery of banks impaired assets. For this
purpose, there are a couple of pre-conditions prescribed by RBI /IBA/IIBF
etc. DRA or its employee / assistants must undergo 100 hours training and
pass certified examination conducted by IIBF. As retired banker 100 hours
training is not necessary, it may be made to minimum by taking up with
RBI/IBA/IIBF. Moreover, this training may be imparted at our training
center free of cost and cost of examination fees about Rs.1250/- may be
absorbed by the bank. There is also one more condition of tape-recording of
conversation with the borrower. I believe that generally this condition is not
observed by Debt recovery agency and the same may be waived since those
who will be taking up the job will be having clean and unblemished service
record.
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Apart from the above, in collaboration with the bank various other jobs can
be undertaken by retirees at all India level which will benefit the retirees
with reasonable revenue earning and the bank will be benefited in a big
way.
Retiree organization/Association must prepare a list of retirees indicating
their past banking experience and potential and keep updating every month
as more and more retirees will be added up and a few may opt out due to
their own reasons. From the available list, association must short list only
those retirees center/city wise and who had unblemished service record,
willing to work can take up the job assigned by the bank in the area near by
their residence. With available list of eligible/willing retirees, the
association may approach bank and request for out sourcing various jobs
and thereby relieve the regular staff for some other more important and
productive purposes.
In pursuance of the above noble objectives we suggest that bank to entrust the
activities to the pool of retired employees as suggested above
1. Collecting and verifying various documents which are a must for
KYC compliance as per banks guidelines. The same will be further
scrutinized by banks official for his satisfaction and approval.
2. Bank pays no interest on current account and pays interest at fixed
rate in SB account half yearly. If CASA deposits canvassed by the
retirees, bank should pay half percent interest amount as commission
every half year. This incentive will encourage the retirees to canvass
good and quality CASA accounts wherein substantial balance would
be maintained rather than opening unproductive CASA accounts.
3. In retail segment, loans canvassed by the retirees to satisfaction of
the bank should pay quarter percent interest amount as commission
per annum on all performing assets canvassed by retiree till such
loans are liquidated.
4. Regularizing the watch category and sub standard NPA accounts
with charging penal interest and recovery, the bank must share one
percent of interest with retiree as incentive.
5. As regard to doubtful and loss assets accounts, it must be entrusted
to Debt Recovery agents on panel (necessarily ex-staff) for recovery,
OTS, SARFRESI action by utilizing best available staff and
commission may be paid as per the circular issued by the bank to
that effect.
6. Bank should pay quarter percent interest amount as commission on
short term deposit below one year for of amount one lac and above
and 0.1% on bulk long term deposits above rupees twenty five lacs
for period one year and above
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7. In big centers like Mumbai comprising of about 70 branches


( Mumbai I & II regions ),the old records can be kept under one roof,
saving costly space occupied in the branches for record storage. The
centralized storage may be identified in outskirt of city at much
lower rent. A comprehensive proposal already submitted to RO
Mumbai-I in this regard.
8. Banks training college/center faculties can be outsourced from
experienced retirees
9. Inspection of the branches and concurrent audit also can be
outsourced from the retirees
10. Computer stationary can be procured directly from the
manufacturers for all India consumption and supplying to the
branches by utilizing the services of retirees. The cost of computer
stationary for huge consumption will be brought down substantially
and thereby bank to benefit in a big way.
11. Table stationary can be purchased for all India consumption from
whole-sellers and supplying them to all branches by utilizing the
services of retirees. Again bank to gain by substantial cost reduction.
12. Retiree messenger/sweepers services may be utilized in absence of
regular staff on leave/long-leave, etc.
13. Courier mails from one center to another centers can be made in one
lot and get them delivered to respective branches through CBO
centers using the service of retirees..
Many other similar services can be identified and delivered in professional
way which will be beneficial to both bank and retirees.
Other suggestions :
SETTING UP CENTRALISED PROCESSING CENTRE(CPU)
BARCODING OF ACCOUNT DETAILS IN CHEQUE BOOKS
Data entry of account number at the time of processing a cheque can be eliminated
by bar-coding account number. This requires issuing of cheque books centrally
after receiving a cheque book request from a branch. It also requires transfer of
cheque request from branch to central place The Bank comes to know of change
in address if any from the Customer (updated information).
MIS-REPORTING

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The number of statements to be generated by the branches classified under DAILY


(6), WEEKLY (1), FORTNIGHTLY (4), MONTHLY (78), QUARTERLY (42),
HALF YEARLY (14), YEARLY (11) is high. Considerable time is spent by
branches on these statements. In CBS branches IF done centrally it will help
Branch functioning.
The retired employees after selection along with contingent of regular employees
both officers as well as clerks will carry out these activities in CPU in lieu of
outsourcing :
(i)

Outward & Inward clearing

(ii)

Encoding of Cheques

(iii)

Loan Proposal Processing above a thresh hold value.

(iv)

Cheque book issuing after bar coding account number and dispatch to
customers directly Customers address can be updated with every
request of cheque book if there is a change.

(v)

MIS reporting of CBS branches.

(vi)

Monitoring of A category Advances.

(vii)

Preparing, Paying & Dispatch of Tax deduction at Source certificates for


Interest on Deposits. This will require fewer Officers in the Branch
premises during Customer Transaction time.

(viii) Monitoring of NPAs and initiating steps for upgradation and recoveries
by maintaining continuous communication with clients.

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(ix)

Monitoring of inoperative accounts and initiating steps for upgrading it


as operative by sending reminders to clients. For this purpose the task
may be entrusted to retired staff members if necessary. However letters
to clients should be sent through Central Processing centre only. Thus
officers can devote more time to outside the branch premises official
work such as recovery.

(x)

Maintaining liaison with potential clients and NRI clients by


maintaining continues communications with them.

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(xi)

Sending greeting cards, good wishes letter, thanks giving letter, new
product information, conveying other achievements of the Bank etc, to
potential clients.

For the aforesaid purposes sub hubs may formed for carrying out specific role
functions. Adequate manpower( both retried and regular ) should be arranged for
carrying out these task in the Central Processing Centre described above

CONCLUSION
We trust that the above suggestions, will considered by the Bank objectively in
pursuit of reaching pinnacle of excellence in the banks business growth. We note
to add further suggestions, wedded to the principles of Kaizen continuous
improvements
We believe in the firm conviction that The future never just happened. It was
created. But we also know that we live in a world of change, and we cannot act
on the basis of continuity. Our creation of the future depends upon how correctly
we anticipate the change and prepare ourselves for it.
We are aware when writing these lines that at this very moment, few staff matters
remain to be solved. But it is also a fact that any trade union of our size will have
at a given moment some problems awaiting solutions. While we shall be devoting
our attention to them simultaneously, we shall not be found guilty by posterity for
having tried to bargain for our ends in a unique way.
But we have immense faith in our the best work force, our devoted and
committed soldiers who have all the potential to make IOB acquire and attain the
first place in all respects. The will and determination we have often exhibited and
spirit of resilience will transform into fully into result oriented actions.
For us commitment is action and not a mere empty word ,.
"Arbitrate - don't litigate' is todays slogan for quick and profitable reducing of
non - performing assets by banks.
"Vision without Action or Action without Vision" leads no where. "Vision
with Action" is the solution for achieving success. Vision of reducing the
NPAs combine with action through Arbitration / Conciliation through our
own staff retired or serving is the best solution available to the banks for
recovering the dues from borrowers. This time tested method through
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private agencies is to be encouraged by Government to achieve viable and


quick results
Accordingly we suggest that a meeting of apex level leaders of union, officer
association and retirees association be called at Central Office followed up by at
big centers like Mumbai, Chennai, Delhi, and Kolkata, etc. and call for suggestion
to strike a deal at organization level both by the bank & the service providers i.e.
management committee of retirees to build core, competent, credible teams of
recovery agents/support staff from in-house human resources comprising of
regular and retired staff . .
We look forward for your early and positive response in the matter to move it to
the next level.
Awaiting your just response

Assuring of my cooperation and support at all times

Yours faithfully
S.SRINIVASAN
(S.SRINIVASAN)
Retired bank unionist
19-07-2015
Published in the interest of Hailing successful 46 years of Bank Nationalisaion
Success of nationalization depends on the dedication we show in our every task.

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