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Manish Gadia

Vice President,

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Non Performing Assets (NPA) Recovery Grid

In cluttered economy of current times, Banks had a tough task of reducing / recovering the current NPA levels and at the same time address the increasing flow of good credit becoming bad. It's a general trend that rate of default is higher than resolution rate of NPA in times of financial downturn (Resolution of NPA means an exit from the asset through total or partial recovery of NPA, with or without external assistance from Asset Reconstruction Companies (ARCs), Debt Recovery Tribunal (DRT), Corporate Debt Restructuring (CDR) or other legal proceedings) In such demanding conditions, lending institutions must be equipped with more and more of expertise in recovery. The conventional methodologies in recovery need to be complemented with strategies which could be even standardised for the lending institution. Here we propose a grid which can be well used as a protocol to be followed for NPA resolution. The trigger points of NPA have been distinctly categorized with cause & effect. Lending Institutions can use this as a necessary checklist to avoid substandard loans. The focus of this IDEA is not to clean the books by divestiture or swap of NPAs, but to recover the NPAs.

The Grid - A 2 X 2 Matrix with Co-operation from Customer on X Axis and Commitment from Customer on Y Axis. Quadrant 1 to be Collaboration Strategy. Quadrant 2 to be Silence Strategy. Quadrant 3 to be DEAD strategy and 4 to be 2 Face Attack.

The set of customers, who are willing to collaborate with the bank are positioned in the first quadrant. They are high on co-operation as well as commitment.

2 Face Attack
There are many customers who appropriately entertain all calls from the agents and keep up to all the meetings to discuss recoveries. They are cooperative in talking to lending institutions. But they don’t honour most of their commitments of repayments.

Another 2 Strategies to be communicated below....


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    Dec 1 2011: Strategy for Collaboration:
    - The lending institution should break customer’s outstanding loans in various tranches as against asking them to repay entire amount at one go. Bank should ensure customer accepts a written undertaking or accepts a memorandum of understanding specifying the same. The lending institution should put efforts in helping customer settle a credit by extending their due dates if a particular tranche of payments are being delayed on one off basis.
    - Lending Institutions should also make the payment process smooth by ensuring enough room is given to customer to conduct the business activities, as the repayment may only come through the same. Lending institutions should not press the panic button on default as that may lead to misunderstanding with the customer. Lending institution and defaulter on same page is the best possible situation. The recovery process gets very difficult when they are operating on different pages. Banks should do what is takes to ensure the customer is collaborative and stays that way.
    - Lending institutions should collaborate with these types of defaulters in real sense like helping them sell off their sick assets, which would be channelized to settle the NPA. Lending institutions can also try and aid customer in disposing off the excess finished goods, the customer may be sitting on.
    - Lending institutions should minimize the calls done by collection agents & also slow down on legal proceedings here. Lending institutions should refrain from hiring external collection agents and use on payroll professional for recoveries here.

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