Académique Documents
Professionnel Documents
Culture Documents
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
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:
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".
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.
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.
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.
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.
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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FMC
G
Trading & shipping
Transportation
Wood and Timber
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Chemical
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.
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SILENCE
Low
COLLABORATION
DEAD
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Low
High
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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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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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
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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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(ii)
Encoding of Cheques
(iii)
(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)
(vi)
(vii)
(viii) Monitoring of NPAs and initiating steps for upgradation and recoveries
by maintaining continuous communication with clients.
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(ix)
(x)
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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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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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