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INTRODUCTION

Banks were never so serious in their efforts to ensure timely recovery and consequentreduction of Non-Performing Assets (NPAs) as they are today. It is important to remember

that recovery management, be of fresh loans or old loans, is central to NPA management.

This management process needs to start at the loan initiating stage itself. Effective

management of recovery and Non-Performing Assets comprise two pronged strategy. First

relates to arresting of the defaults and creation of NPA thereof and the second is to handling

of loan delinquencies. The tenets of financial sector reforms were revolutionary which

created a sense of urgency in the minds of staff of bank and gave them a message that

either they perform or perish. The prudential norm has forced the bank to look into the asset

quality.

A debt from a loan, credit line or accounts receivable that is recovered either in whole or in

part after it has been written off or classified as a bad debt. In accounting, the bad debt

recoverywould credit the allowance for bad debts or bad debt reserve categories, and

reduce the accounts receivable category in the books.

Not all bad debt recoveries are like-kind recoveries. For example, a collateralized loan that

has been written off may be partially recovered through sale of the collateral. Or, a bank

may receive equity in exchange for writing off a loan, which could later result in recovery of

the loan and, perhaps, some additional profit.

Recovery is defined as the process of regaining and saving something lost or in danger of

becoming costs.

Recovery is a key to the stability of the banking sector there should be no hesitation in

stating that Indian banks have done a remarkable job in containment of Non-Performing

Assets (NPA) considering the over all difficult environment. Recovery management is also

linked to the banks interest margins we must recognize that cost and recovery management

supported by enabling legal framework hold the key to future health and competitiveness of

the Indian banks. No doubt, improving recovery management in India is an area requiring

expeditions and effective actions in legal institutional and judicial processes. Banks at

present experience considerable difficulties in recovering loans and enforcement of

securities charged with them. The existing procedure for recovery of debts due to banks has

blocked a significant portion of their funds in unproductive assets, the value of which

deteriorates with the passage of time.

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Elements of loan recovery

The agency regarding debt recovery contains the main terms and conditions agreed by the

principal (say a bank) and the agent. The main elements of the debt recovery would

generally include:1) Specific tasks to be accomplished e.g. the amount to be recovered from the specified

loan accounts in default and the broad time frame.

2) Debt Recovery Policy and Procedure of the bank.

3) Code of conduct in recovery process may include dress code, verbal and written

communication rules top be followed by the individuals employed by the agency for the

purpose of collection.

4) Duties of the agent.

5) Rights of the agent, including the commissions/fees payable by the principal to the

agent/agency for the recovery of debt/other services.

TheLoan Recovery Policyand code of conduct in the debt recovery will be regulationscompliant, i.e. in accordance with the directives and guidelines of the Reserve Bank of India

issued from time to time. If, however these are not incorporated therein, it is advisable for

agents to seek clarification from the principal, as compliance with the regulations is

mandatory for the banks and also their recovery agents.

The Debt Recovery Agreement between the credit institution and the debt recovery

agent/agency serves as the contractual arrangement that is legally binding on both. Such an

arrangement, being bank specific may vary from bank to bank in details. The duties of the

agent/agency the authority delegated and code of conduct prescribed by the bank in the

process of recovery function would to be carefully noted for strict compliance by the agent.

Certain important points for loan recoveryOn the basis of the foregoing procedure for normalrecovery process, we may list

below certain Donts for thedent recovery, which are as follows:

1)Dont violate orbreach the recovery policy, procedureetc. prescribed by the

principal

2)Dont exceed the authority given in the recoveryarrangement.

3)Dont make a call to the debtor before 0700 hours or after 2100 hours.

4)Dont make anonymous calls or bunched calls to thedebtor, which may be

perceived as harassment.

5)Dont conceal or misrepresent your identity during callsand visit or other

interaction with the debtor.

6)Dont show uncivil/indecent/dirty behavior or use suchlanguage during calls

and visits to the debtor.

7)Dont harass/humiliate/intimidate/threaten the debtor-verbally or physically.

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Defaults of loan

One major problem which the banks in India arefacing is the problem of recovery and

overdue of loans. Thereasons behind this may vary for different financialinstitutions as it

depends upon the respective nature of loans.Here an attempt is made to find out the some

causes of default of loans due to which financial Institutions are facingthe problems of

overdue of loans. The recovery officers of different banks are interviewed for finding out the

causes of defaults. These reasons may be useful for the and Banks for the better recovery of

loans in future. After surveying differentbanks, the following can be said to be some of the

maincauses of default of loans from industrial sector:-

Improper selection of an entrepreneur :-

Selection of the right Entrepreneur is one of the

major factors in the profitability of Banks. Two major criterionnamely the in

tention to repay and the capacity to repayshould be properly dealt with in

Credit Evaluation. Theentrepreneurs who have the willingness, capabilities

,qualities and the requisite expertise for successfully settingup and

running an industrial unit, should be identified withproper prudence and

jud ic iousness. Th is is the best way

of safeguarding the investment of a bank, thereby ensuringproper and

timely repayment. Unbiased survey reports of thesite and capability of the

Entrepreneur must be verified bythe surveyor. In other words the credit

worthiness of the losing his encumbered asset in the event of his defaulting

inthe payment of dues to banks, he often takes the liberty, andtends to weigh

the pros and cons vis--vis default. Securityagainst loan, though at times may

fal l harsh on the borrower,serv es a w ort hwh i le pur pos e in tha t i t cre ate s

pr om ot er s' stake in the borrowers and thus, disciplines the borrower tobe more

committed in paying the dues to Banks.

Unrealistic Terms and Schedule of Repayment:-

Occasions are not few when there develops a tendencyo n t h e p a r t o f t h e

f i n an c e r s t o p a in t a ro s y p i c t u r e o f t he project at the t ime of appraisa l.

If the sanctioning authority isguided by considerations of personal interests,

many thingsmay happen. The breakeven point of a project may be shownat an

unrealistically low level of operation, or profitability maybe shown at an unduly

high level just to brighten the chancesof acceptability of the project by the

f inancial insti tu tion; or cash in f low may be show n in an undu ly opt imis t ic

m ann er a n d , t h e r e f o r e , D e b t s S e r v i c e C o v e r a g e R a t i o

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(DSCR)worked out incorrectly, fixing unrealistically high installmentsand

conservative schedule of repayments. These inner

pullsa n d p r e s s u r e s m a y f i n d r e f l e c t i o n i n f i x i n g e x c e s

s i v e amounts of installments in order to show an early period of re pa ym en t.

The borr ower at th is s ta ge f in ds h ims el f in an unenviable posit ion of a 'Yes

Master' and nods his heada twhateve r con d i t ions a re a t tached or wh atever repayme ntschedule is

fixed by the financial institutions, in all probability,covering up his design to

evade payment of the future

dues.A n d , t h e r e a l p r o b l e m s u r f a c e s w h e n r e p a y m e

n t o f

ins ta l lment /p ayment o f in t e res t fa l l s due and the bor rower convenient ly

and bl issful ly ignores calls for clearance of thesa id du es , no t so mu ch du e

t o h i s i n te nt i o n t o d e fr a ud t h e l o a n s , a s d u e t o h i m a l r e a d y

b l e e d i n g w h i t e t o k e e p h i s concern going.

Lack of Follow up Measures:-

"A stitch in time saves nine"

Follow-up measures taken regularly and systematical lyk ee p th e bo rr ow in g

un i t un der co nst ant vi gi l of th e b an ks. Many i lls can be checked through

such follow-up measuresby keeping the borrowing units on their alertness and

g u i d i n g t h e m t o r e c t i f y t h e i r m i s t a k e s i n t h e f i r s t o p p o r t u n i t i e s o r

extending them a helping hand in tiding over their tight times.Normally, suchc lose fol low-up programs are consp icuous byt h e i r a b s e n c e . I n t h e r e s u l t ,

t h e b o r r o w in g u n i t s n o t on l y ignore payment o f the ir dues to banks but

a lso often t read onwro ng t r ack s, m uch t o th e det r im ent o f t he i r own

f in an ci al health and that of the

banks .Per fo rmance o f the bor row ing un i ts , i f ca re fu l l y andsys temat ica l l

y mon i tor ed thr ough reg ular insp ect ions byscrutiny of re turns, annual

balance sheet and inspection

of s i t e , c a n b e s i g n i f i c a n t l y i m p r o v e d . N a t u r a l l y ,

s u c h i n s pe c t i on s p r ev e n t t h e b or r o w er s f r om d e v ia t i n g f r o m t he terms

and conditions of the loan or from diverting any fundfor purpose other thanthose earmarked in the sanction letter and keep the financial health of the units

in good order.

Labour problems:-

The labour situation in India can be broadly classifiedinto two categories namely

availability and welfare relatedproblems. Skilled labour is in shortage for many

s p e c i a l i z e d i n d u s t r i a l u n i t s p a r t i c u l a r l y b e c a u s e o f t h e g e o g r a p h i c

a l s i t u a t i o n o f s u c h u n i t s . S h o r t a g e o f l a b o u r r e s u l t s i n unwarranted deceleration of production thereby hamperingt h e

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p r o f i t a b i l i t y o f t h e c o n c e r n e d u n i t . O n t h e o t h e r h a n d labour

welfare is grossly neglected by industrial units leadingto a feeling of

dissatisfaction and disgruntlement among

thework ing fo rc e . How ever , i t wou ld be p er t inen t to me nt ionhere, that

there are numerous instances where political andvested interests tend to

instigate labour problems.

Default due to natural calamities:-

A c e r t a i n p r o p o r t i o n o f d e f a u l t c a n b e a t t r i b u t e d t o n atural

calamities such as floods, earthquakes, storms, etc.Pr im a- fa ci e th is wo ul d

se en to be a fa ct or be yo nd hu ma ncontrol . A more detailed insight, would

however, suggest thatcertain precautionary preventive measures such as

proper meteorological and topographical analysis of the industrials i g h t c a n

g o a l o n g w a y i n r e d u c i n g t h i s e l e m e n t o f r i s k . N at ur al c al am it ie s not only affect the uni t d i rect ly but alsoexert addi t ional burden on the

Government in terms of relief measures, waivers etc. A further fraction, albeit

nominal, is of such borrowers who tend to take undue advantage of

suchn a t u r a l c a l a m i t i e s i n o r d e r t o a v o i d r e p a y m e n t , t h e r e b y i ncrea

sing the magnitude of default.

What is NPA?For a bank, an NPA or bad debt is usually a loan that isnot producing income.

Earlier it was largely applicable

tob u s i n e s s e s . B u t t h i n g s h a v e c h a n g e d w i t h b a n k s w i d e l y e x t e n

d i n g c o n s u m e r l o a n s ( h o m e , c a r , p e r s o n a l a n d e d u c a t i

o n , a m o n g o t h e r s ) a n d s t r i c t a s s e t c l a s s i f i c a t i o n norms.I f a b o r

r o w e r m i s s e s p a y i n g h i s e q u a t e d m o n t h l y installment (EMI) for

90 days, the loan is considered bad, or an NPA. High NPAs are a sign of bad

fi na nc ia l hea lth . This ha s wid e-ra ng in g rami fi cati ons fo r a bank, es pec ia lly in

thestock market and money market. So, as soon as a debt goesbad, the bankswant it either made better or taken out of their books.

The genesis (origin) of an NPA

The re are m an y re as o n s a s t o why a l oan g oe s b ad . For a b us in es s, i t

could be because it fails to take off.Such a situation may arise because of

sudden healthexpenditure or job loss or death. Often, as in the US today, itcan

be because of over-leveraging, when consumers borrow

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Meaning of NPA

An asset is classified as non-performing asset (NPAs)if dues in the form of

principal and interest are not paid by theborrower for a period of 180 days.

However with effect fromMarch 2004, default status would be given to a

borrower if dues are not paid for 90 days. If any advance or

creditfacilities granted by bank to a borrower become non-

performing, then the bank will have to treat all theadvances/credit facilities

granted to that borrower as non-performing without having any regard to the fact

that theremay still exist certain advances / credit facilities havingperforming

status.

1) Why such huge levels of NPAs exist in the Indianbanking system (IBS)?

The origin of the problem of burgeoning NPAs lies inthe quality of managing

credit risk by the banks concerned.What is needed is having adequate

preventive measures inplace namely, fixing pre-sanctioning appraisal

responsibilityand having an effective post-

disbursement supervision.Banks concerned should continuously monitor loans t

oidentify accounts that have potential to become non-performing.

2) Why NPAs have become an issue for banks in India?

To start with, performance in terms of profitability is abenchmark for any

business enterprise including the bankingindustry. However, increasing NPAs

have a direct impact onbanks profitability as legally banks are not allowed to

bookincome on such accounts and at the same time banks areforced to make

provision on such assets as per the ReserveBank of India (RBI)

guidelines.Further, Reserve Bank of India (RBI) successfullycreates excess

liquidity in the system through various ratecuts and banks fail to utilize this

benefit to its advantage dueto the fear of burgeoning non-performing assets.

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Strategy for recovery

Devising a strategy helps in achieving a set goal or objective. Recovery agents

should therefore devise astrategy for debt recovery. The following guidelines

wouldhelp in preparing proper strategy for debt recovery.

i)The collection process should be compliant to thebank-specific recovery norms

and also regulatoryguidelines.

ii)The collection timing should be synchronized to thecash inflow pattern of the

debtors: For example,recovery from salaried employees should be timedwhen

salary is received by or credited to thedebtorsaccount, normally at the moth -

end. In case of SMEborrowers the effort should coincide with cash flow

onaccount of sales. In case a collection fromagriculturist should be made, then

it should be soonafter the crops are sold. This will call for knowledge of bank

products on the part of agents. It should be theendeavour of the agent that

collection should be madewell before the cash inflows are spent away by

thedebtor for meeting other expenses.

iii)Adopt different collection strategy for different debtor types: This is based on

the dictum that one size doesnot fit all. In the foregoing paragraphs, three

types of debtors have been described and they need differentstrategies for

recovery success:

Normal debtors, i.e. who can pay and will pay if re minded or/and persuaded

to pay.

Difficult debtors, i.e. those who can pay, but will notpay.

Doubtful debtors, i.e. whose who can pay the reducedamount as negotiated

with them.iv)While different strategies are required for differenttypes of debtors,

the following are the common pointsto be followed in all kinds of recovery

strategies:

Recovery effort should start with the establishing agood rapport with the

debtor. Communication, listeningand persuasive skills would be applied in

building goodinterpersonal relations.

Go through the know Your Customer papers furnishedby the bank and know

the customers identify andpersonal profile.

Go through the copy of the loan agreement of thedebtor furnished by the bank

and note down thefinancial position, cash flow pattern, and assetscharged to the

bank.

v)Record in notebook recovery efforts in chronologicalorder for each.

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Policy, Processes and procedure of loan recovery management

Collection of post due debt or receivables of the bankthat has engaged a

recovery agent is the core function of theagent. All other functions, as discussed

in the precedingunit, revolve around this core function. We will discuss indetailthe policy, processes and procedure for debt recoveryfunction in this unit.Banks

lay down their policy and procedure for collection of past due debts in

conformity with the legal andregulatory framework. The banks will in particular,

abide by:1)The RBI directives on recovery of debt, includingrecovery agents

engaged by the bank and,2)The Model Policy on collection of Dues

andRepossession of security framed by the Indian BanksAssociation.A bank will

normally incorporate its policy andprocedure for debt recovery in the

arrangement entered intoits recovery agents. In terms of the recovery

managementagreed with the bank, the recovery agents should adhere tothe

policy, procedure, etc. prescribed by the bank.

Loan recovery policy

The debt collection policy (recovery policy) of the bankis built around dignity

and respect to customers. The Bankwill not follow policies that are unduly

coercive in recovery of dues from borrowers. The policy is built on courtesy, fair

treatment and persuasion. The bank believes in followingfair practices with

regard to recovery of dues from borrowersand taking possession of security

(properties / assetscharged to the bank as primary or collateral security)

(knownas security repossession) and thereby fostering customer confidence and

long-term relationship.The repayment schedule for any loan sanctioned bytheBank will be fixed taking into account the repayingcapacity and cash flow

pattern of the borrower. The bank willexplain to the customer upfront the method

of calculation of interest and how the Equated Monthly Installments (EMI) or

payments through any other mode of repayment will beappropriated against

interest and principal due from thecustomers. The bank would expect the

customers to adhereto the repayment schedule agreed to and approach the

Bankfor assistance and guidance in case of genuine difficulty inmeeting

repayment obligations.The Banks Security Repossession Policy

(takingpossession of the mortgaged properties under SRESI Act or acquiring the

property as non banking asset throughenforcement of decree) aims at recoveryof dues in the eventof default and is not aimed at whimsical deprivation of

theproperty. The policy recognizes fairness and transparency inrepossession,

valuation and realization of security. All thepractices adopted by the bank for

follow up and recovery of dues and repossession of security will be in

consonance withthe law.

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General Guidelines:

All the members of the staff or any person authorizedto represent our Bank in

collection and / or securityrepossession would follow the guidelines set out

below:

1.The customer would be contacted ordinarily at theplace of his / her choice andin the absence of any specifiedplace, at the place of his / her residence and if

unavailable athis / her residence, at the place of business / occupation.

2.Identity and authority of persons authorized torepresent the Bank for follow up

and recovery of dues wouldbe made known to the borrowers at the first

instance. Thebank staff or any person authorized to represent the bank

incollection of dues or / and security repossession will identifyhimself / herself

and display the authority letter issued by thebank upon request.

3.The bank would respect privacy of its borrowers.

4.The bank is committed to ensure that all written andverbal communication with

its borrowers will be in simplebusiness language and the bank will adopt civil

manners for interaction with borrowers.

5.Normally the banks representatives will contact theborrower between 0700

hrs and 1900 hrs, unlesscircumstances warrant visiting the borrower at odd

hours andoccasions. Such circumstances would include continuousirregularity in

the accounts.

6.Borrowers requests to avoid calls at a particular time or at a particular place

would be honored as far aspossible.

7.The bank will document the efforts made for therecovery of dues and the

copies of communication, if any,sent to the customers will be kept on record.

8.All assistance will be given to resolve disputes or differences regarding dues

in a mutually acceptable and inan orderly manner.

9.Inappropriate occasions such as bereavement inthe family or such other

calamitous occasions will be avoidedfor making calls / visits to collect dues.

Giving notice to borrowers

While written communication, telephonic reminders or visitsby the banks

representatives to the borrowers place or residence will be used as loan follow

up measures, the bankwill not initiate any legal or other recovery

measuresincluding repossession of the security without giving duenotice in

writing. The Bank will follow all such procedures asrequired under law for

recovery / repossession of security.

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Repossession of Security

Repossession of security is aimed at recovery of dues andnot to deprive the

borrower of the property. The recoveryprocess through repossession of security

will involverepossession, valuation of security and realization of securitythrough

appropriate means. All these would be carried out ina fair and transparentmanner. Repossession will be doneonly after issuing the notice as detailed

above. Due processof law will be followed while taking repossession of

theproperty. The bank will take all reasonable care for ensuringthe safety and

security of the property after taking custody, inthe ordinary course of the

business.

Valuation and Sale of Property

Valuation and sale of property repossessed by the bank willbe carried out as per

law and in a fair and transparentmanner. The bank will have right to recover

from theborrower the balance due, if any, after sale of property.Excess amount,if any, obtained on sale of property will bereturned to the borrower after meeting

all the relatedexpenses provided the bank is not having any other claimsagainst

the borrower.

Opportunity for the borrower to take back the security

As indicated earlier in the policy document, the bank willresort to repossession

of security only for the purpose of realization of its dues as the last resort and

not with intentionof depriving the borrower of the property. Accordingly, thebank

will be willing to consider handing over possession of property to the borrower

any time after repossession butbefore concluding sale transaction of theproperty, providedthe bank dues are paid in full. If satisfied with thegenuineness

of borrowers inability to pay the loaninstallments as per the schedule which

resulted in therepossession of security, the bank may consider handingover the

property after receiving the installments in arrears.However, this would be

subject to the bank being convincedof the arrangements made by the borrower

to ensure timelyrepayment of remaining installments in future.

Loan recovery processes:-

Loan recovery processes can be typically of followingkinds, each involving differentpr ocedu re :

1) Difficult recovery process where the debtors are notwilling to pay and who

intentionally resist or avoid recoveryefforts: The recovery agent has to follow special

pr ocess of re cove ry ag ai ns t th e reca lci tran t de fau lters , in cons ul tat io nw it h the ba nk .

2) As se ts po sse ss io n proce ss : If the re cal cit ra nt de bt orsd o no t eve nt ua lly pa y the

dues, the movable assets chargedto the bank by way of hypothecation or pledge, can

bepossessed by the bank or the recovery agent and thereafter auctioned or otherwise

sold to recover the dues. Thedetailed procedure for such recovery is discussed later,

after explaining the meaning of pledge, hypothecation etc. inanother Unit.

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3) Legal recovery process: The intervention of the court isrequired to possess

mortgaged immovable property by the or its recovery agent. Also if the charged

assets do not exist, or the debt is unsecured, the debtor will have to be sued for

recovery of the dues by the bank/recovery agent.

Procedure of tribunal

1) Application to the Tribunal:

(1)Where a bank has to recover any debt from any person, itmay make an

application to the Tribunal within the locallimits of whose jurisdiction By Act 1 of

2000, se c. 8(w .r .e .f . 17-1-2 00 0).S ub s. by Act 1 of 2000, sec . 9, for se ct io n 19

(w.r.e.f.17-1-2000).

(a) the defendant, or each of the defendants where there aremore than one, at the

time of making the application, actuallyand voluntarily resides or carries on

business or personallyworks for gain; or

(b) any of the defendants, where there are more than one, atthe time of making the

application, actually and voluntarilyresides or carries on business or personally

works for gain;(c) the cause of action, wholly or in party, arises.

(2) Where a bank, which has to recover its debt from anyperson, has filed an

application to the Tribunal under subsection (1) and against the same person

another bankalso has claim to recover its debt, then, the later bank or financial

institution may join the applicant bank at any stageof the proceedings, before the

fin al orde r is pas se d, bymak ing an ap pl ic at io n to tha t Tri bu na l.

(3) Every application under sub-section (1) or sub-section (2)shall be in such form

and accompanied by such documentsor other evidence and by such fee as may be

pr esc ri be dP ro vi de d th at the fee may be pr esc ri bed hav ing re gar d to th ea mo unt of

debt to be recovered Provided further that nothingcontained in this sub-section

relating to fee shall apply tocases transferred to the Tribunal under sub -section of

section 31. On receipt of the application under sub-section(1) or sub-section, the

Tribunal shall issue summonsrequiring the defendant to show cause within thirty

days of the service of summons as to why the relief prayed for should not be granted.

(4) The defendant shall, at or before the first hearing or withinsuch time as the

Tribunal may permit, present a writtenstatement of his defence.

(5) Where the defendant claims to set-off against theapplicants demand any

ascertained sum o f money legallyrecoverable by him from such applicant, the

defendant may,at the first hearing of the application, but not 17 afterwardsunless

pe rmi tte d by th e Tri bunal, pre se nt a wri tt en sta tem ent cont ai ni ng th e par tic ul ar s of

the debt sought to be set-off.

(6) The written statement shall have the same effect as aplaint in a cross-suit so as

to enable the Tribunal to pass afinal order in respect both of the original claim andof the set-off.

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(7) A defendant in an application may, in addition to his rightof pleading a set -off

under sub-section, set up, by way of counter-claim against the claim of the applicant,

any right or claim in respect of a cause of action accruing to thedefendant against

the applicant either before or after thefiling of the application but before the

defendant hasdelivered his defence or before the time limited for delivering his

defence has expired, whether such counter-claim is in thenature of a claim for

damages or not.

(8) A counter-claim under sub-section shall have the sameeffect as a cross-suit so as

to enable the Tribunal to pass afinal order on the same application, both on the

original claimand on the counter-claim.

(9) The applicant shall be at liberty to file a writtenstatement in answer to the

counter-claim of the defendantwithin such period as may be fixed by the Tribunal.

(10) Where a defendant sets up a counter-claim and theapplicant contends that the

claim thereby raised ought not bedisposed of by way of counter -claim but in an

independentaction, the applicant may, at any time before issues aresettled in

relation to the counter-claim, apply to the Tribunalfor an order that such counter-

claim may be excluded, andthe Tribunal may, on the hearing of such application,

makesuch order as it thinks fit.

(11) The Tribunal may make an interim order (whether byway of injunction or stay

or attachment) against thedefendant to debar him from transferring, alienating or

otherwise dealing with, or disposing of, any property andassets belonging to him

without the prior permission of theTribunal.

(12) (A) Where, at any stage of the proceedings, the Tribunalis satisfied, by affidavit

or otherwise, that the defendant, withintent to obstruct 18 or delay or frustrate the

execution of anyorder for the recovery of debt that may be passed againsthim,

(i) is about to dispose of the whole or any part of his property;or

(ii) is about to remove the whole or any part of his propertyfrom the local limits of

the jurisdiction of the Tribunal; or

(iii) is likely to cause any damage or mischief to the propertyor affect its value by

misuse or creating third party interest,the Tribunal may direct the defendant, withina time to befixed by it, either to furnish security, in such sum as may bespecified in

the order, to produce and place at the disposal of the Tribunal, when required, the

said property or the value of the same, or such portion thereof as may be sufficient

tosatisfy the certificate for the recovery of the debt, or toappear and show cause why

he should not furnish security.

(B) Where the defendant fails to show cause why he shouldnot furnish security, or

fai ls to furn ish th e se curity re quire d, wi thin the ti me fix ed by th e Tri bu na l, the

Tribunal may order the attachment of the whole or such portion of the

pr opert ie sc lai me d by the ap pl ic ant as th e pr ope rt ie s sec ur ed in his favo ur or

otherwise owned by the defendant as appearssufficient to satisfy any certificate for

the recovery of debt.

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(13) The applicant shall, unless the Tribunal otherwisedirects, specify the property

required to be attached and theestimated value thereof.

(14) The Tribunal may also in the order direct the conditionalattachment of the

whole or any portion of the propertyspecified under subsection.

(15) If an order of attachment is made without complying withthe provisions of sub -

section, such attachment shall be void.

(16)In the case of disobedience of an order made by theTribunal under sub-sections

(12), (13) and

(17) or breach of any of the terms on which the order was made, the Tribunalmay

order the properties of the person guilty of suchdisobedience or breach to be

attached an may also order such person to be detained in the civil prison for a term

notexceeding three months, unless in the meantime the Tribunaldirects his release.

(18) Where a certificate of recovery is issued against acompany registered under the

Companies Act, 1956 (1 of 1956) the Tribunal may order the sale proceeds of

suchcompany to be distributed among its secured creditors inaccordance with the

pr ovi si ons of sec ti on 529A of th eCo mp an ies Act, 1956 an d to pay the su rp lus , i f any ,

to thecompany.

(19) The Tribunal may, after giving the applicant and thedefendant an opportunity

of being heard, pass such interimor final order, including the order for payment of

interest fromthe date on or before which payment of the amount is founddue u p to

the date of realization or actual payment, on theapplication as it thinks fit to meet

the ends of justice.

(20) The Tribunal shall send a copy of every order passed byit to the applicant and

the defendant.

(21) The Presiding Officer shall issue a cert ificate under hissignature on the basis of

the order of the Tribunal to theRecovery Officer for recovery of the amount of debt

specifiedin the certificate.

(22) Where the Tribunal, which has issued a certificate of recovery, is satisfied that

the property is situated within thelocal limits of the jurisdiction of two or more

Tribunals, it maysend the copies of the certificate of recovery for execution tosuch

other Tribunals where the property is situated:Provided that in a case where the

Tribunal to which thecertificate of recovery is sent for execution finds that it has no

ju ri sd ict io n to co mp ly wi th the cer tif ic at e of re cove ry , it sh al lre tu rn the sam e to the

Tribunal which has issued it.

(23)The Tribunal may made such orders and give suchdirections as may b e necessary

or expedient to give effect toits orders or to prevent abuse of its process or to secure

theends of justice.

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2) Appeal to the Appellate Tribunal.

(1) Save as provided in subsection(2) any person aggrieved by an order made, or

deemed tohave been made, by a Tribunal under this Act, may prefer anappeal to an

App el lat e Tr ibu na l hav in g ju ri sd ic ti on in th ematte r. No ap pe al shal l lie to th e

App el lat e Tr ibu na l fro m ano rd er ma de by a Tri bu nal wit h th e conse nt of the pa rt ie s.

(2) Every appeal under sub-section shall be filed within aperiod of forty-five days

fro m the da te on wh ic h a copy of th eord er ma de , or dee me d to have be en ma de , by

the Tribunalis received by him and it shall be in such form and beaccompanied by

such fee as may be prescribed: Providedthat the Appellate Tribunal may entertain an

appeal after theexpiry of the said period of forty-five days if it is satisfied thatthere

was sufficient cause for not filing it within that period.

(3) On receipt of an appeal under sub-section, the AppellateTribunal may, after

gi vi ng the pa rt ie s to th e app eal , an oppo rt uni ty of be ing hear d, pas s suc h ord ers

thereon as itthinks fit, confirming, modifying or setting aside the order appealedagainst.

(4) The Appellate Tribunal shall send a copy of every order made by it to the parties

to the appeal and to the concernedTribunal.

(5) The appeal filed before the Appellate Tribunal under sub-section shall be dealt

with by it as expeditiously as possibleand endeavor shall be made by it to dispose of

the appealfinally within six months from the date of receipt of theappeal.

3) Deposit of amount of debt due, on filing appeal.

Where an appeal is preferred by any person fromwhom the amount of debt is due to abank or a consortium of banks, such appeal shall not be entertained by the

App el lat eT ri bu nal unl ess suc h pe rs on has de po si te d wi th th eApp ellate Tr ib una l

seventy-five per cent of the amount of debt so due from him as determined by the

Tribunal under section 19: Provided that the Appellate Tribunal may, for reasons to

be recorded in writing, waive or reduce theamount to be deposited under this

section.

4) Procedure and Powers of the Tribunal and theAppellateTribunal.

(1) The Tribunal and the Appellate Tribunal shall not bebound the procedure laid

down by the Code of CivilProcedure, 1908 (5 of 1908), but shall be guided by

theprinciples of natural justice and, subject to the other provisions of this Act and of

any rules, the Tribunal and theAppellate Tribunal shall have powers to regulate their

ownprocedure including the p laces at which they shall have their sittings.

(2) The Tribunal and the Appellate Tribunal shall have, for the purposes of

discharging their functions under this Act, thesame powers as are vested in a civil

court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit,

inrespect of the foll owing matters, namely:--(a) Summoning and enforcing the

attendance of any personand examining him on oath;(b) Requiring the discovery and

pr odu cti on of do cu me nt s; (c) Rec ei vi ng evi de nce on affi da vi ts; (d) I ssui ng

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commissions for the examination of witnesses or documents;(e) Reviewing its

decisions;(f) Dismissing an application for default or deciding it

ex parte;

(g) Setting aside any order of dismissal of any application for default or any orderpa ssed by it

ex parte;

(h) Any other matter which may be prescribed.(3) Any proceeding before the

Tribunal or the AppellateTribunal shall be deemed to be a judicial proceeding

withinthe meaning of sections 193 and 228, and for the purposesof section 196, of

the Indian Penal Code (45 of 1860) and theTribunal or the Appellate Tribunal shall

be deemed to be acivil court.

NORMAL RECOVERY PROCEDURE:

As ment io ne d ab ove , th is pro ced ure will ge ne ral lya ppl y to the de bt ors wh o ar e

willing to pay the dues withnormal recovery process. Based on the above-

mentionedregulatory guidelines, following procedure may be outlinedfor such

recovery. However the recovery agents shouldfollow the bank -specific debt recovery

pr ocedu re as adv is edb y th eir pri nc ipa l. Bel ow ar e gi ve n th e mai n ru les for

makingtelephone calls and visit to the debtor for recovery of dues:

1)The recovery agent has been authorized by the bank tocollect the past due debt

fro m the par ti cul ar cu stome r.

2)T he cus to me r has be en no ti fie d by the ban k of th e de tai lso f th e re cove ry ag ent for

collection of the past-due debt.

3)Making customer calls: This is the first step in recoveryprocedure and following

rules should be followedgenerally:

(i)Calls are made from the same number as advisedby the bank to the customer.

(ii)The agents disclose his identity and authority at thefirst instance.

(iii)The agent contacts the debtor between 0700 hoursand 1900 hours, unless the

special circumstance of his/her business or occupation requires the bank tocontact

of a different time. Under no circ umstances,can the customer be called beyond 2100

hours.

(iv)All calls where the customer becomes abusive or threatening should be

appropriately documented.

(v)Customers question be answered in full. Theyshould be provided with information

requested andgiven assistance in making recovery. Minor issuesshould be resolved.

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(vi)How often to call customer/ The purpose of acollection call as to bring to the

Customers noticethe obligation and to seek a commitment to pay on aspecified date.

Once a promise is elicited a call maybe made to serve as a reminder and for

confirmationof payment.(vii)If the customer is not available during a few callsmade

by the agent, a message may be left to anadult family member as follows Please

leave amessage that ABC had called and request thecustomer to call ABC back at the

gi ve n ph one num be r . The me ssa ge sh oul d no t in di cat e that th ecu sto me r AB C has

overdue amount , or the calloriginated from a Recovery agency.4) Visit to customer

(debtor) This would be the secondstep in colle ction process. Following procedure

shouldgenerally be followed.(i) A customer should be visited for debt collection only

after these conditions are satisfied;

The debtor has not paid the due amount within thedays of grace and the dues are

still outstanding againsthim/her.

When due to nature of the customers employment i .e.working in shifts e.g. callcenter, hotel. He/she is usuallyavailable outside these hours.(v)The agent should

respect privacy of the debtor.Privacy policy as discussed above for calls wouldapply

during visits also.(vi)During the visit, due respect and courtesy should beshown to

the customer and the interactions shouldbe civil and polite as per the principals

po lic y. (vi i) Du ri ng in tera cti ons wi th the de bt or, the ag ent mus tn ot us e th reat s or

intimidation verbally or by bodylanguage. Under no circumstances, any

ph ys ic al vi olen ce be us ed in de bt collecti on pro ces s.

Other modes of recovery(1)Where a certificate has been issued to the RecoveryOfficer under Sub-section of

section 19, the RecoveryOfficer may, without prejudice to the modes of

recoveryspecified in section 25, recover the amount of debt by anyone or more of the

modes provided under this section.

(2) If any amount is due from any person to the defendant,the Recovery Officer may

require such person to deductfrom the said amount, the amount of debt due f rom

thedefendant under this Act and such person shall comply withany such requisition

and shall pay the sum so deducted tothe credit of the R ecovery Officer: Provided that

nothing inthis sub-section shall apply to any part of the amount exemptfrom

attachment in execution of a decree of a civil courtunder section 60 of the Code ofCivil Procedure, 1908 (5 of 1908).

(3) (I) The Recovery Officer may, at any time or from time totime, by notice in

writing, require any person from whommoney is due or may become due to the

defendant or to anyperson who holds or may subsequently hold money for or

onaccount of the defendant, to pay to the Recovery Officer either forthwith upon the

money becoming due or being heldor within the time specified in the notice (not

being before themoney becomes due or is held) so much of the money as issufficient

to pay the amount of debt due from the defendantor the whole of the money when it

is equal to or less thanthat amount.

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(ii) A notice under this sub-section may be issued to anyperson who holds or may

subsequently hold any money for or on account of the Defendant jointly with any

other personand for the purposes of this subsection, the shares of the joint holders in

such amount shall be presumed, until thecontrary is proved, to be equal.

(iii) A copy of the notice shall be forwarded to the defendantat his last addressknown to the Recovery Officer and in thecase of a joint account to all the joint

holders at their lastaddresses known to the Recovery Officer.

(iv) Save as otherwise provided in this sub-section, everyperson to whom a notice is

issued under the sub-sectionshall be bound to comply with such notice, and, in

pa rt ic ul ar, wh ere an y suc h no ti ce is is su ed to a po st off ice , ba nk ,f in anc ia l in st it ut io n,

or an insurer, it shall not be necessaryfor any pass book, deposit receipt, policy or

any other document to be produced for the purpose of any entry,endorsement or the

like to be made before the payment ismade notwithstanding any rule, practice or

requirement tothe contrary.

(v) Any claim respecting any property in relation to which anotice under this sub -

section has been issued arising after the date of the notice shall be void as against

any demandcontained in the notice.

(vi) Where a person to whom a notice under this sub -sectionis sent objects to it by a

statement on oath that the sumdemanded or the part thereof is not due to the

defendant or that he does not hold any money for or on account of thedefendant,

then, nothing contained in this sub-section shallbe deemed to require such person to

pa y any su ch sum or par t there of, as th e cas e ma y be , but if it is di scove re d th at su ch

statement was false in any material particular, suchperson shall be personally liableto the Recovery Officer tothe extent of his own liability to the defendant on the date

of the notice, or to the extent of the defendants liability for anysum due under this

Act , wh ic heve r is less.

(vii) The Recovery Officer may, at any time or from time totime, amend or revoke any

notice under this sub-section or extend the time for making any payment in

pu rsu anc e of suc h no ti ce.

(viii) The Recovery Officer shall grant a receipt for anyamount paid in compliance

with a notice issued under thissub-section, and the person so paying shall be

ful lyd is charg ed fro m his lia bi lit y to th e def end an t to th e ext ent of th e amo un t so

pa id .

(ix)Any person discharging any liability to the defendant after the receipt of a notice

under this sub-section shall bepersonally liable to the Recovery Officer to the extent

of hisown liability to the defendant so discharged or to the extentof the defendants

liability for any debt due under his Act,whichever is less.

(x) If the person to whom a notice under this sub -section issent fails to make

pa yme nt in pu rs ua nc e th ere of to theR ec ove ry Of fic er, he sh al l be de eme d to be a

defendant indefault in respect of the amount specified in the notice andfurther

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pr oceed ing s ma y be ta ke n ag ai ns t hi m for ther eal iza ti on of the am ount as if it we re

a debt due from him, inthe manner provided in sections 25, 26 and 27

(4) The Recovery Officer may apply to the court in whosecustody there is money

belonging to the defendant for payment to him of the entire amount of such money,

or if it ismore than the amount of debt due an amount sufficient todischarge theamount of debt so due.The Recovery Officer may, by order, at any stage of

theexecution of the certificate of recovery, require any person,and in case of a

company, any of its officers against whomor which the certificate of recovery is

issued, to declare onaffidavit the particulars of his or its assets.]

(5) The Recovery Officer may recover any amount of debtdue from the defendant by

distrait and sale of his movableproperty in the manner laid down in the Th ird

Schedule tothe Income-Tax Act, 1961 (43 of 1961).

Use of lok adalatThe Honorable Supreme Court also observed thatloans, personal loans, credit card

loans and housing loanswith less than Rs.10 lakh can be referred to Lok Adalats.

Inthis connection, banks' attention is invited to Circular

DBOD.No.Leg.BC.21/09.06.002/2004-05 dated August 3,2004 wherein they were

advised to use the forum of LokAdalats organized by Civil Courts for recovery of

loans.Banks are advised that they should preferably use the foru mof Lok Adalats for

recovery of personal loans, credit cardloans or housing loans with less than Rs.10

lakh assuggested by the Honorable Supreme Court.Banks, as principals, are

responsible for the actionsof their agents. Hence, they should ensure that their

agentsengaged for recovery of their dues should strictly adhere tothe above

gu id elin es and ins tru ctio ns .C omp lain ts re ce ived by Re se rv e Ban k re ga rding vi olat io n

of the above guidelines and adoption of abusivepractices followed by banks recovery

agents would beviewed seriously. Reserve Bank may consider imposing aban on a

bank from engaging recovery agents in a particular area, either jurisdictional or

fun cti ona l, for a limi te d pe ri od. In ca se of pe rs is ten t bre ac h of ab ove gu id elin es .

Similar supervisory action could be attracted when the High Courtsor the Supreme

Court pass strictures or impose penaltiesagainst any bank or its Directors/ Officers/

agents with regardto policy, practice and procedure related to the recoveryprocess.

Programs of bank

Credit counseling

It is the process of education to borrower about howto avoid incurring debts that

cannot be repaid as also how tomanage the debts burden and repayment

commitments inrespect of a number of debts. This process is actually moredebt

counseling than a function of credit education. Creditcounseling often involves

negotiating with bank to establish adebt management plan (DMP) for a customer. A

DMP mayhelp the debtor repay his/her debt by working out arepayment plan with

the bank. DMPs, usually offer reducedpayments, fees and interest rates to the

borrower. Recoveryagents refer to the terms dictated by the bank to

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determinepayments or interest reduction offered to customer in a debtmanagement

pl an .

Debt Management Programs

Once a customer has come under a DMP, th e ba nk wil l close th e cust ome r s va ri ous

accounts and restrict anyfuture charges in the accounts. The most common benefit of

a DMP is the consolidation of multiple monthly payments intoone monthly payment,

which is usually less than the sum of the individual payments previously paid by the

customer.Some DMPs advertise that payment can be cut by 50%,although a reduction

of 10-20% is more common.