CAIIB RB Unit 16 - Recovery of Retail Loans

The unsecured nature of retail assets like Personal Loans and Credit Card Receivables made the portfolio more vulnerable for default as there is nothing to proceed against for banks except through money suits.

Default is the occurrence of an event which happens due to non-payment of agreed installments.

Default happens mainly due to the following reasons;

(a) Genuine defaults due to reasons beyond the borrowers' control and
(b) Willful defaults where the borrowers deliberately default with malafide intention

Recovery process is a scientific as well as an essential tool for maintaining the quality of retail assets.

1. Giving Notice to Borrowers
2. Repossession of Security
3. Valuation And Sale of Proerty
4. Opportunity for the Borrower to Take Back the Security

Recovery Agents

PSBs administer recovery management through their own staff in case of retail loans, private and foreign banks outsource their recovery process and entrust the same to Recovery Agents for end to end recovery management when the accounts become delinquent.

Reserve Bank has requested the Indian Banks' Association to formulate, in consultation with Indian Institute of Banking and Finance (IIBF), a certificate course for Direct Recovery Agents with minimum 100 hours of training. Once the above course is introduced by IIBF, banks should ensure that over a period of one year all their Recovery Agents undergo the above training and obtain the certificate from the above institute.

Taking Possession of Property Mortgaged/Hypothecated to Banks

The terms and conditions of the contract should be strictly in terms of the Recovery Policy and should contain provisions regarding :

(a) notice period before taking possession
(b) circumstances under which the notice period can be waived
(c) the procedure for taking possession of the security
(d) a provision regarding final chance to be given to the borrower for repayment of loan before the sale/ auction of the property
(e) the procedure for giving repossession to the borrower
(f) the procedure for sale/auction of the property.

Banks are encouraged to use the forum of Lok Adalats for recovery of personal loans, credit card loans or housing loans with less than Rs.10 lakh as suggested by the Honourable Supreme Court.

SARFAESI ACT

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act was put in place to allow banks and FIs to take possession of securities and sell them.

The act envisaged the formation of asset reconstruction companies (ARCs)/Securitisation Companies (SCs).

The Act provides alternative methods for recovery of NPAs, namely:

(a) Securitisation
(b) Asset Reconstruction

Debt Recovery Tribunals (DRTs)

DRTs are governed by provisions of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, also popularly called as the RDB Act.

• Each Debt Recovery Tribunal is presided over by a Presiding Officer.
• The Presiding Officer is generally a judge of the rank of Dist. & Sessions Judge.
• The Presiding Officer of a Debt Recovery Tribunal is the sole judicial authority to hear and pass any judicial order.
• Each Debt Recovery Tribunal has two Recovery Officers.
• DRTs can appoint Receivers, Commissioners, pass ex-parte orders, ad-interim orders, interim orders apart from powers to Review its own decision and hear appeals against orders passed by the Recovery Officers of the Tribunal.