‘ Out of Order’ status An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'. ‘ Overdue’ Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
Net NPA = Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held)
hgsIn the early 1990s PSBs started suffering from acute capital inadequacy and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals. The banks had little freedom to price products, cater products to chosen segments or invest funds in their best interest
Audit and control functions were not independent and thus unable to correct the effect of serious flaws in policies and directions Inadequate mechanism to gather and disseminate credit information amongst commercial banks Effective recovery from defaulting and overdue borrowers was hampered on account of sizeable overhang component arising from infirmities in the existing process of debt recovery, inadequate legal provisions on foreclosure and bankruptcy and difficulties in the execution of court decrees. Banks were not sufficiently developed in terms of skills and expertise to regulate the humongous growth in credit and manage the diverse risks that emerged in the process
RBI also releases a list of borrowers with aggregate outstanding of Rs.1 crore and above against whom banks have filed suits for recovery of their funds Special mention accounts for early identification of bad debts. Loans and advances overdue for less than one and two quarters would come under this category. However, these accounts do not need provisioning . RBI has advised banks to examine all cases of wilful default of Rs.1 crore and above and file suits in such cases. Board of Directors are required to review NPA accounts of Rs.1 crore and above with special reference to fixing of staff accountability. Norms of Lender’s Liability – framing of Fair Practices Code with regard to lender’s liability to be followed by banks, which indirectly prevents accounts turning into NPAs on account of bank’s own failure
Thirty three Debt Recovery Tribunal and five Debt Recovery Appellate Tribunal across the country.
BIFR- Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) commonly known as the SICA
and write off incorporation compromise and negotiated settlements with board approval
The First Lok Adalat was held in Chennai in 1986. Members one social worker and one lawyer. Lok Adalat accepts the cases which could be settled by conciliation and compromise, and pending in the regular courts within their jurisdiction. Main condition of the Lok Adalat is that both parties in dispute should agree for settlement. The decision of the Lok Adalat is binding on the parties to the dispute and its order is capable of execution through legal process. No appeal lies against the order of the Lok Adal
The Securities Contracts (Regulation) Amendment Bill 2007 Include “securitised instruments” in the definition of “securities”. The amendment has paved way for listing and trading of securitized debt on stock exchanges. SEBI (Public Offer and Listing of Securitized Debt Instrument) Regulations, 2008 The Regulations lay down the broad parameters for eligibility of the issuer and the other conditions for the public offer and listing of securitized debt instruments.
A financial asset may be sold to the SC/RC by any bank/ FI where the asset is:
Bank documents – same document given to many banks. Bank shud evaluate the realizable value and then only consider for acceptance Ability of the bank to sell that asset shud be assessed before the acceptance Ability & source of the borrower shud be checked and identified. The credit rating of the guarantor can also be checked before acceptance
Vulnerability of the borrower shud be considered. As discussed about the credit rating A proper time frame shud be formed and adhered to Bank’s staff shud have the strength & zeal to work towards the recovery of NPA. It differs from private to public sector undertakings Bank’s policy shud be complied to and the acceptance of the proposal must adhere to the policy framework The success rate of the such type of deals/proposals shud be kept in mind before accepting
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