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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: Strategies for recoveries for a “DEAD” customer:
    - At any point if there arises an opportunity to move the defaulter to any of the other quadrants, the chance should be grabbed with most sincere efforts from the collection team. Offering waivers to customer on outstanding loan amount (subject to rules, case to case basis) can be one of the ways in which lending institution may try to make customer co-operative.
    - Legal proceedings, collections by agents (external & Internal) would be at highest level here. Lending institution on due course may be able to recover some amount on liquidation of assets if the loan is against a security.
    - In cases where these efforts don’t materialize, the customer should be approached for a one-time settlement (OTS). In these settlements, a higher waiver ranging from 20-50 percent can be given (based on parameters / rationale existing case to case). However, in many cases, the customers don’t respond to any communication and try to escape any kind of payments. In the end, when OTS doesn’t work out, the exit strategy should be to sell these assets selectively to an Asset Reconstruction Company (ARC). These companies buy a portfolio of assets at a certain percent of the value of portfolio. They are specialized in reworking the assets to make out maximum from the bad debts (Simon Mundy, 2010).

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