STRATEGIES FOR REDUCING NON-PERFORMING ASSETS

STRATEGIES FOR REDUCING NON-PERFORMING

ASSETS

Banks to reduce NPA can use the following techniques:

1)                 Repayment of loans: -

Repayment of term loans depends on income generating capacity of the borrowing concern. A unit, which does not earn profit, may repay a few repayments. Therefore it is necessary to fix repayment schedule for a term loan according to income generating capacity of the unit. If repayment profit, possibility may be explored in consultation with the borrowers, for replacement of the loan installments. The classification of the assets may improve, if performance of the loan account remains satisfactory for two years after repayment. It may be mentioned that repayment of the loan installments should be done only when it is expected to get payment after the repayment.

2) Rehabilitation of Potentially viable units:

If a sick unit is potentially viable, necessary efforts should be made to finalize the rehabilitation package without loss of time. Provisions need not be made for a period of one year from the date of disbursement in respect of additional facilities sanctioned under rehabilitation packages approved by BIFRV term landing institutions. If the rehabilitation program runs smoothly, it may be necessary to make provision even after one year for additional facilities provided statutory auditors are also satisfied about the progress of rehabilitation programmed.

If the unit becomes viable the entire outstanding will become standard assets. Although rehabilitation of sick units is long drawn procedure, it may be encouraged where units are potentially viable and the management is reliable. However non-viable sick units should be liquidated to get funds for recycling    j without avoidable loss of time in decision-making.

                                              

3) Acquisition of sick unit by healthy units:                                               

If a healthy unit acquires a sick unit, the outstanding loan amount of sick unit   

may be transferred to the healthy unit and the entire NPA may be even wiped    off. Therefore banks should encourage mergers, acquisition of a sick units

Wherever they fell it may reduce the NPA'S.                                                      

4) Compromise with borrowers:

A compromise may be called a negotiated settlement in which the borrower agrees to pay a certain amount to the banker after getting certain concessions. A large number of compromise proposals are being approved by banks with a view to reducing the NPA's and recycling the funds instead of restoring to expensive recovery proceeding spread over a long period. Compromise proposals should not be approved without proper scrutiny. Banks should try to recover their dues to the maximum extent possible at minimum expense.

5) Calling up the Advances and Filing of Civil Suits:

If it is not possible to revive a unit or enter into a reasonable settlement with the borrower, it is better to recall the advance at an early stage instead of waiting for a long time which may result in deterioration of the security available. Further, if it is not possible to sell the security available without obtaining courts order, civil suits may be filled against such borrowers who are not likely to come to a reasonable settlement.

Banks should not feel that their job is over by filing civil suit. If a reasonable

settlement is possible even after filing the court case, compromise may be done

with the knowledge of the court. Proper follow up of me court cases is

essential. Banks should revise the list of approved advocates from time to time

keeping in view their performance. Advocate who do not perform well should

not be given new cases.

6) Approaching Debt Recovery Tribunals:

An act has been passed by the parliament for setting up Debt recovery tribunals

for expeditious adjudication and recovery of debts due to banks and financial

Institutions Act 1993, are applicable where the amount of debt due to any bank

or financial institution or to a consortium of banks or financial institution is not

less than Rs 10 lacs. The central government has been empowered to reduce the

lower limit of Rs 10 lacs but not beyond Rs 1 lacs by issuing a notification.

     7) Recovery    of   Advances    given    under    Government    sponsored

Programmed:

its

Banks should lake advantage of the legislation enacted by state government for speedy recovery of banks over dues. They should promptly file cases against willful defaulters with the concerned authorities of the state government by giving necessary details. The matters, relating to recovery of advances would be discussed in the state level bankers meeting and necessary help for recovery should be obtained from the state government authorities.

8)        Settlement of Claims with DICGC/ECGC:

If DICGC/ECGC claims are available banks should submit their proposals for the same with necessary details. Proper follow up with DICGC/ECGC is necessary for settlement of claims and reducing the NPA'S to certain extent.

9)                  Establishment of Asset Recovery Branches:

Some banks have opened asset recovery branches at critical centers for undertaking recovery. Bad and doubtful debts of various existing branches have been transferred to the Recovery branch, which may have, expert trained staff with necessary background for recovery. The specialized recovery branches may give undivided attention to recovery of dues. Establishment of such specialized branches may help in reducing NPA'S.

10)              Write off the Outstanding:

Of all the efforts for recovery fail, banks may write off the advances. Such write off should be done after exhausting all other remedies when chances of recovery are negotiable, some banks prefer to write off an advance to reduce its income and save tax. In such cases, banks should continue to make efforts for recovery even after writing off the advance.