TOOLS FOR RECOVERING NPA (Specical for Credit Officers)

      For recovery of NPA there are different tools are available. The important purpose of these tools are to recover the loan amount from borrower. These tools can beuse according to Loan amount.Following are the different recovery tools.

• LOK ADALATS
• DEBT RECOVERY TRIBUNALS (DRT)
• SARFAESI ACT, 2002
• ASSET RECOVERY CONSTRUCTION INDUSTRY LIMITED(ARCIL)
• CORPORATE DEBT RESTRUCTURING (CDR)
• ASSET MANAGEMENT COMPANY(AMC)

Lok Adalats :

Lok Adalats is a mechanism to settle matters relating to recovery of dues, out of court. These are convened by Debt Recovery Tribunals / Debt Recovery AppellateTribunals. Lok Adalats have no judicial powers. It is a mutual forum for the bank and the borrower to meet and arrive at a mutual settlement. Once the settlement is signed by boththe parties, the same is placed before the court. The court would then pass a suitabledecrees / orders as per the terms of settlement. Such decrees can not be challenged in thenext higher courts. At present, accounts in µdoubtful¶ and µloss¶ category with outstandingabove Rs. 5.00 lacs can be referred to this forum. Lok Adalats Proved to be quiteeffective for speedy justice and recovery of small loans.

DEBT RECOVERY TRIBUNALS (DRT)

Keeping in line with the international trends on helping financial institutions recover their bad debts quickly and efficiently, the Government of India has constituted thirty three Debts Recovery Tribunals and five Debts Recovery Appellate Tribunals across the country. 

The Debts Recovery Tribunal (DRT) enforces provisions of the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 and also Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002. 

Under the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 banks approach the Debts Recovery Tribunal (DRT) whereas, under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002 borrowers, guarantors, and other any other person aggrieved by any action of the bank can approach the Debts Recovery Tribunal (DRT). 

Debts Recovery Tribunal are located across the country. Some cities have more than one Debts Recovery Tribunals. New Delhi, Chennai, Kolkata and Mumbai have three Debts Recovery Tribunals. Ahmedabad and Chandigarh have two Debts Recovery Tribunal (DRT) each. One Debts Recovery Tribunal has been constituted at Allahabad, Aurangabad, Bangalore, Coimbatore, Cuttack, Earnakulam, Guwahati, Hyderabad, Jabalpur, Jaipur, Lucknow, Madurai,Nagpur, Patna, Pune, Vishakapatnam and Ranchi.

SARFAESI ACT, 2002

The full form of SARFAESI Act as we know is Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Banks utilize this act as an effective tool for bad loans (NPA) recovery. It is possible where non-performing assets are backed by securities charged to the Bank by way of hypothecation or mortgage or assignment.

SARFAESI is effective only for secured loans where bank can enforce the underlying security eg hypothecation, pledge and mortgages. In such cases, court intervention is not necessary, unless the security is invalid or fraudulent. However, if the asset in question is an unsecured asset, the bank would have to move the court to file civil case against the defaulters.

ASSET RECOVERY CONSTRUCTION INDUSTRY LIMITED(ARCIL)

The word asset reconstruction company is a typical used in India.  Globally  the equivalent phrase used is " asset management companies". The word "asset reconstruction" in India were used in Narsimham I report where it was  envisaged for  the setting up of a central Asset Reconstruction Fund with money contributed by the Central Government, which was to be used by banks to shore up their balance sheets to clean up their non-performing loans.   However, this never saw the light of the day and later on  Narsimham II floated the idea  asset reconstruction companies..

Why ARC :

In last 15 years or so the a number of economies around the world have witnessed the problem of non performing assets.    A high level of NPAs in the banking system can severely affect the economy in many ways. The high level of NPAs leads to diversion of banking resources towards  resolution of this problems.  This causes an opportunity loss for more productive use of resources.  The banks tend to become risk averse in making new loans, particularly to small and medium sized companies. Thus, large scale NPAs when left unattended, cause continued economic and financial degradation of the country.  The realization of these problems has lead to greater attention to resolve the NPAs.  ARCs have been used world-wide, particularly in Asia, to resolve bad-loan problems. However, these  had a varying degree of success in different countries.   ARCs focus on  NPAs and allows the banking system  to act as "clean bank".

ARC in India :

 

In India the problem of recovery from NPAs was recognized in 1997 by Government of India.  The Narasimhan Committee Report mentioned that an important aspect of the continuing reform process was to reduce the high level of NPAs as a means of banking sector reform.  It was expected that with a combination of policy and institutional development, new NPAs in future could be lower.  However, the huge backlog of existing NPAs continued to hound the banking sector.  It impinged severely on banks performance and their profitability. The Report envisaged creation of an  "Asset Recovery Fund" to take the NPAs off the lender's books at a discount.

 

Accordingly, Asset Reconstruction Company (Securitization Company / Reconstruction Company) is a company registered under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act, 2002. It is regulated by Reserve Bank of India as an Non Banking Financial Company ( u/s 45I ( f ) (iii) of RBI Act, 1934).

RBI has exempted ARCs from the compliances under section 45-IA, 45-IB and 45-IC of the Reserve Bank Act, 1934. ARC functions like an AMC within the guidelines issued by RBI.

 

ARC has been set up to provide a focused approach to Non-Performing Loans resolution issue by:-

(a) isolating Non Performing Loans (NPLs) from the Financial System (FS), 

(b) freeing the financial system to focus on their core activities and 

(c) Facilitating development of market for distressed assets.

CORPORATE DEBT RESTRUCTURING (CDR)

Corporate debt restructuring is the reorganization of a company's outstanding obligations, often achieved by reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back.

ASSET MANAGEMENT COMPANY(AMC)

An asset management company (AMC) is a company that invests its clients' pooled funds into securities that match declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves.