Debt Recovery Management in Banks
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insurance and baking laws...
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INTRODUCTION Banks were never so serious in their efforts to ensure timely recovery and consequent reduction of NPAs as they are today. It is important to remember that recovery management, be of fresh loans or old loans, loans, is central central to NPA management. management. his management process process needs to start at the loan initiating stage itself. !ffective management of recovery and NPA comprise two pronged strategy. "irst relates to arresting of the defaults and creation of NPA thereof and the second second is to handlin handling g of loan loan delinq delinquenc uencies ies.. he tenets tenets of financ financial ial sector sector reform reformss were were revolutionary which created a sense of urgency in the minds of staff of bank and gave them a message message that either they perform perform or perish. perish. he prudential 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 recovery would 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$kind# recoveries. "or e%ample, a collaterali&ed loan that has been written off may be partially partially recovered recovered through sale of the collater collateral. al. 'r, a bank may receive equity in e%change for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit.
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(BANKING & INSURANCE)
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Recovery
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Meaning:
!Recovery !Recovery i" #e$ine# a" %e 'roce"" o$ regaining an# "aving "oe%ing o"% or in #anger o$ *ecoing co"%"+,
(ecovery is a key to the stability stability of the banking sector sector there should be no hesitation hesitation in stating that Indian banks have done a remarkable )ob in containment of Non$Performing Assets *NPA+ considering the overall difficult environment. (ecovery management is also linked to the banks interest margins we must recogni&e 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 e%peditions and effect effective ive action actionss in legal legal instit instituti utional onal and )udicia )udiciall proces processes ses.. Banks Banks at presen presentt e%perie e%perience nce considerabl considerablee difficulti difficulties es in recovering recovering loans and enforcement enforcement of securitie securitiess charged charged with them. he e%isting 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.
Rea"on" $or Recovery Manageen%: Bank deserves deserves to be paid for their products and services. he collection
professionals
in (ecovery -anagement ystems will work to see that. (easonable fees with no up$front costs. hey get paid only when it is collect. (ecov (ecover ery y -ana -anage geme ment nt yst ystem emss will will desi design gn a coll collec ecti tion on stra strate tegy gy to meet meet bank bankss ob)ectives. Bank can recover their debts without losing customers. -onthly settlements with meaningful reporting. tatus updates on demand.
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(BANKING & INSURANCE)
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!%tensive e%perience obtaining and collecting money )udgments in 'hio. /arnishments, liens, and levies (ecovery -anagement ystems will collect when legal action is the only option.
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0utting edge skip$tracing tools and techniques recovery -anagement ystems can work 1st, 2nd, and 3rd placements and even turn bank old )udgments into money.
A#van%age" & Di"a#van%age" o$ Recovery Manageen%: A#van%age": •
he process of assigning debt collection to outsides enables officials from Banks to develop more remunerative new business.
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hird party involvement in debt collection has proven time and again to improve the chances of recovering bank dues as these people are specialists in negotiating with debtors and the result usually speak for themselves.
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A skillfully negotiated debt collection could mean saving on litigation cost.
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he process of assigning debt collection to outsides enables officials of non$Banks. 0ost to develop more beneficial new business.
Di"a#van%age":
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4ebt collection does cost money5
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he debt collection agency will be establishing a relationship with the banks customers, which could be potentially harmful if they sour that relationship by not dealing with customers in a courteous manner.
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(BANKING & INSURANCE)
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I'or%an% /oin%" $or De*% Recovery: On %e *a"i" o$ %e $oregoing 'roce#0re $or nora recovery 'roce"" 2e ay i"% *eo2 cer%ain Don3%" $or %e #en% recovery 2ic are a" $oo2":
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4ont violate or breach the recovery policy, procedure etc. prescribed by the principal.
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4ont e%ceed the authority given in the recovery arrangement.
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4ont make a call to the debtor before 67.66 hours or after 21.66 hours.
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4ont make anonymous calls or bunched calls to the debtor, which may be perceived as harassment.
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4ont conceal or misrepresent your identity during calls and visit or other interaction with the debtor.
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4ont show uncivil8indecent8dirty behavior or use such language during calls and visits to the debtor.
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4ont harass8humiliate8intimidate8threaten the debtor$verbally or physically.
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4ont intrude into the privacy of the debtors family members, friends8colleagues.
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(BANKING & INSURANCE)
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4ont disclose the customers debts8dues8account information to unauthori&ed person.
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Cancel Download Anddeserves Print 4ont forget that the debtor is a human being and to be treated with fairness
and courtesy, despite the fact that he8she is a debtor for the time being.
Eeen%" o$ De*% Recovery: he agency regarding debt recovery contains the main terms and conditions agreed by the principal *bank+ and the agent. he main elements of the debt recovery would generally include9
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pecific tasks to be accomplished e.g. the amount to be recovered from the specified loan accounts in default and the broad time frame.
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4ebt (ecovery Policy and Procedure of the bank.
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0ode 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.
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4uties of the agent.
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(ights of the agent, including the commissions8fees payable by the principal to the agent8agency for the recovery of debt8other services.
he 4ebt (ecovery Policy and code of conduct in the debt recovery will be regulations compliant, i.e. in accordance with the directives and guidelines of the (eserve 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. 5
(BANKING & INSURANCE)
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he 4ebt (ecovery Agreement between the credit institution and the debt recovery agent8agency serves as the contractual arrangement that is legally binding on both. uch an arrangement, being bank specificCancel may vary Download from bankAnd to bank Print in details. he duties of the agent8agency 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.
S%ra%egy $or De*% Recovery: 4evising a strategy helps in achieving a set goal or ob)ective. (ecovery agents should therefore devise a strategy for debt recovery. he following guidelines would help in preparing proper strategy for debt recovery9
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he collection process should be compliant to the bank$specific recovery norms and also regulatory guidelines.
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he collection timing should be synchroni&ed to the cash inflow pattern of the debtors9 "or e%ample, recovery from salaried employees should be timed when salary is received by or credited to the debtors account, normally at the moth$end.
In case of -!
borrowers the effort should coincide with cash flow on account of sales. In case a collection from agriculturist should be made, then it should be soon after the crops are sold. his will call for knowledge of bank products on the part of agents. It should be the endeavour of the agent that collection should be made well before the cash inflows are spent away by the debtor for meeting other e%penses.
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Adopt different collection strategy for different debtor types9
his is based on the
dictum that :one si&e does not fit all. In the foregoing paragraphs, three types of debtors have been described and they need different strategies for recovery success9 Normal debtors, i.e. who :can pay and :will pay if reminded or8and persuaded to
pay. 4ifficult debtors, i.e. those who :can pay, but :will not pa y.
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4oubtful debtors, i.e. whose who can pay the reduced amount as negotiated with
them.
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;hile different strategies are required for different types of debtors, the following are the common points to be followed in all kinds of recovery strategies9 (ecovery effort should start with the establishing a good rapport with the debtor.
0ommunication, listening and persuasive skills would be applied in building good interpersonal relations. /o through the :know
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