NPA CompromiseSettlement

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Management of NPAs Compromise Settlements Welcome
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Welcome to the course on Management of NPAs Compromise Settlements.
Welcome to the course on the Management of NPAs Compromise Settlements.
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Management of NPAs Compromise Settlements Objectives
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On completion of this course, you will be familiar with: Definition of NPA; Objectives of NPA management; Fundamental requirements of negotiation; Negotiating for compromise settlements; Guidelines for settlement through the compromise route; Important guidelines on compromises; Screening committees; and One Time Settlement of NPAs in Small & Medium Enterprises. Target Group: This course is meant for the fresh and existing staffs of State Bank of India.
On completion of this course, you will be familiar with: Definition of NPA; Objectives of NPA management; Fundamental requirements of negotiation; Negotiating for compromise settlements; Guidelines for settlement through the compromise route; Important guidelines on compromises; Screening committees; and One Time settlement of NPAs in Small & Medium Enterprises. Target Group: This course is meant for the fresh and existing staffs of State Bank of India. Every care has been taken to incorporate all current developments of the bank as on 1st January 2010. If any errors and omissions are noticed, please advise the AGM (elearning) (e-mail: agm.elearning@sbi.co.in) to rectify the same. Your suggestions in this regard are also welcome.
Management of NPAs Compromise Settlements Non Performing Asset (NPA)
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Non Performing Asset means an asset or account of borrower, which has been classified by a bank as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by The Reserve Bank of India. The quality of loan asset is the most important factor for the basic viability of the banking system. The overdue advances of banks in India are mounting and in consequence, the nonperforming assets in their portfolio are on the rise, impinging on the banks viability. This not only makes inroads in to the banks profitability but also hampers their ability to recycle the funds for productive purposes. The trend needs to be reversed and the position is being watched by many including international investors, rating, agencies, correspondent banks, international development agencies etc. Credit management which includes NPA management is being given paramount importance in our bank as is evident from the policy guidelines from time to time. Achieve a Gross NPAs ratio of 1.5% by March 2013 and Net NPAs ratio of 1%.
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Non Performing Asset means an asset or account of borrower, which has been classified by a bank as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by The Reserve Bank of India. The quality of loan asset is the most important factor for the basic viability of the banking system. The overdue advances of banks in India are mounting and in consequence, the non-performing assets in their portfolio are on the rise, impinging on the banks viability. This not only makes inroads in to the banks profitability but also hampers their ability to recycle the funds for productive purposes. The trend needs to be reversed and the position is being watched by many including international investors, rating, agencies, correspondent banks, international development agencies etc. Credit management which includes NPA management is being given paramount importance in our bank as is evident from the policy guidelines from time to time. Achieve a Gross NPAs ratio of 1.5% by March 2013 and Net NPAs ratio of 1%.
Management of NPAs Compromise Settlements Policy Guidelines
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The corporate policy is to contain the net NPAs below or equal to 1%, Gross NPAs below or equal to 1.5% by March 2013. Voice-over Text Click Policy guidelines to view the some of the strategies to achieve this goal.
The corporate policy is to contain the net NPAs below or equal to 1%, Gross NPAs below or equal to 1.5% by March 2013. Click Policy guidelines to view the some of the strategies to achieve this goal. Policy Guidelines Some of the strategies to achieve this goal could be: The problem loan review and reporting must be effectively operationalised at all levels as envisaged in the Banks NPA Management Policy. Monitoring Mechanism must function with greater thrust so that as soon as default takes place in any loan account alerts are sounded and steps to prevent slippages are initiated. Any weakness in the account should be recognized and treated and no account should come up to be classified as NPA in half yearly returns before it has been treated vigorously during the previous six months. Strengthening the follow up of legal cases specially those filed with Debt Recovery Tribunals (DRTs). Initiation of immediate and appropriate actions based on the irregularity reports and periodical inspection reports within the time frame prescribed under the NPA Management Policy. Ongoing review of the industry / trade specific loan policies, risk management policy, policy with regard to sectoral deployment of funds etc., in the light of continually changing environment and taking into account the reasons which led to the accounts turning NPAs since the last review. Ensuring adherence to the laid down instructions with regard to the credit management and meticulous compliance with the relative policies by the Controllers. Micro level budgeting for recovery / upgradation of NPAs and qualitative performance reviews. Greater thrust on compromise settlement as per the NPA Management Policy and the instructions issued by the Corporate Centre pursuant to a guidelines of RBI for setting up of Settlement Advisory Committees. RBIs OTS scheme to be utilised extensively for reducing NPAs. Rehabilitation and Recovery Branches to play an effective role in targeting high value NPA accounts for upgradation and recovery. There should be substantial recoveries of NPAs of the Circle through these branches. Sharpening of credit management skills and increased focus on due application there of by organizing appropriate training courses at the Staff Training Centres / Colleges. Recoveries in Advances Under Collection Accounts (AUCA). Accounts eligible for write offs should be written off in the beginning of
the year so that efforts saved in managing these are utilised for recovery of other NPAs.
Management of NPAs Compromise Settlements Objectives of NPA management
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The objectives of NPA management are as follows: Maximum recovery of NPAs in the earliest possible time. Our Bank has been in the business of lending over the entire spectrum-from directed lending at one end through the Priority Sectors to the Corporate Credit at the other end. obviously, the NPA Management also has to be as a series of diverse strategies, including, where necessary, circle-specific action plans. Voice-over Text NPA management is an integral part of the overall loan asset management of the bank, consisting of strategic approaches to: (i) Guard against risks of adverse selection of new assets: (ii) Prevent deterioration of existing performing assets: (iii)Tackling the existing NPAs through remedial and corrective measures: Click on each of the cards to know more about it. The objectives of NPA management are as follows: Maximum recovery of NPAs in the earliest possible time. Our Bank has been in the business of lending over the entire spectrum-from directed lending at one end through the Priority Sectors to the Corporate Credit at the other end. obviously, the NPA Management also has to be as a series of diverse strategies, including, where necessary, circle-specific action plans. NPA management is an integral part of the overall loan asset management of the bank, consisting of strategic approaches to: i) Guard against risks of adverse selection of new assets: Meaning proper evaluation and appraisal of the credit proposals, so that the chances of new assets turning bad are minimized. ii) Prevent deterioration of existing performing assets: By keeping sustained and continued watch on the assets, and taking appropriate actions as necessary in time, so that asset degeneration is minimized and iii) Tackling the existing NPAs through remedial and corrective measures: With the intention of achieving the desired objectives of maximizing recovery, and containing net NPAs to below or less than 1% by March 2013.
Management of NPAs Compromise Settlements NPA analysis
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The objectives of NPA analysis are as follows: NPA analysis helps us to systematise recovery and control. It also tells us that the NPAs can be broadly segregated into two groups: Click on each of the circles to know more about it.
Objectives of NPA analysis: i) to take stock of the situation, by building up the data base. ii) segregating the accounts into identical lots, with regard to approach to be adopted for recovery. iii) prioritization as per prospects of recovery. iv) Last, but not the least, for monitoring and control proposes. The above analysis helps us to systematise recovery and control. It also tells us that the NPAs can be broadly segregated into two groups. Click one each to know more. a) Recoverable through regular follow up: By inducing recovery through reminders, both written and oral. Under this head would also fall those accounts which are fit for rehabilitation. b) Not recoverable through regular follow up: The accounts falling under this head need to be tackled under one of the following processes: i) Fit for initiation of legal action. ii) Fit for negotiated settlements either directly or through initiation of legal action, which will eventually lead to negotiated settlements. iii) Fit for waiver of legal action, leading to eventual write-off. iv) Fit for other solutions: like sale of security, merger and acquisition etc.
Management of NPAs Compromise Settlements Flow diagram of recovery process
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Of the various processes, recovery through negotiated settlements offers the best scope for maximizing NPA reductions at the minimum expense. Voice-over Text From the borrowers angle, the desire is to avoid: Costly and time consuming legal process, Loss of credibility in the market, The financial default fueled stigma,
The fear of being damned by banks for all time to come, and The psychological aversion to be branded as a litigant type. Motivates one to seek compromise settlements with the bank. It has to be emphasized here that compromise settlement does not mean acceptance of any offer. It has to be a negotiated settlement in which the banks aim is to make best out of the worst. Of the various processes, recovery through negotiated settlements offers the best scope for maximizing NPA reductions at the minimum expense. From the Banks point of view, the process of compromise settlements enables saving of valuable time, apart from projecting a helpful / positive image of the Bank. In addition, recycling of the recovered funds add to the interest kitty of the Bank. From the i) ii) iii) iv) v) borrowers angle, the desire is to avoid: Costly and time consuming legal process, Loss of credibility in the market, The financial default fueled stigma, The fear of being damned by banks for all time to come, and The psychological aversion to be branded as a litigant type. Motivates one to seek compromise settlements with the bank.
It has to be emphasized here that compromise settlement does not mean acceptance of any offer. It has to be a negotiated settlement in which the banks aim is to make best out of the worst.
Management of NPAs Compromise Settlements Quiz
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Here is an opportunity to check your understanding of what you have learned so far. Voice-over Text Select the correct options for the statements below. Click Submit to check your answers.
Here is an opportunity to check your understanding of what you have learned so far. Select the correct options for the statements below. Click Submit to check your answers. The corporate policy is to contain the net NPAs below _________. a) 4% b) 1 % c) 6% d) 7%
Management of NPAs Compromise Settlements Practice
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Here is an opportunity to practice your understanding of what you have learned so far. Voice-over Text Key in the correct answer in the space provided. Click Submit to check your answers.
Here is an opportunity to practice your understanding of what you have learned so far. Key in the correct answer in the space provided. Click Submit to check your answers. 1. Monitoring mechanism must function with greater thrust so that as soon as default takes place in any loan account alerts are sounded and steps to prevent slippages are initiated. 2. Stress Asset Management Branch (SAMB) to play an effective role in targeting high value NPA accounts for upgradation and recovery. 3. Recovery through negotiated settlements offers the best scope for maximizing NPA reductions at the minimum expense.
Management of NPAs Compromise Settlements Definition of negotiation
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Let us look about definition of negotiation. All of us, every day, negotiate on a lesser or a larger scale, in our daily lives. Be it shopping for a new dress, purchasing vegetables, inducing our children to do better in the examinations adjusting time in the office environment (e.g. coming a little late and making up the time in the evenings, with the permission of the superior), or even, deciding on the menu for dinner, the process of negotiation is at work. Look at the some other definitions of negotiation.
Let us look about definition of negotiation. Let us never negotiate out of fear but let us never fear to negotiate - President John F.Kennedy All of us, every day, negotiate on a lesser or a larger scale, in our daily lives. Be it shopping for a new dress, purchasing vegetables, inducing our children to do better in the examinations adjusting time in the office environment (e.g. coming a little late and making up the time in the evenings, with the permission of the superior), or even, deciding on the menu for dinner, the process of negotiation is at work. Negotiation can be defined in simple terms as follows: A process by which two or more interested parties seek an acceptable exchange for the items they own or control. It is concerned with resolving conflict between two or more parties, usually by exchange of concessions.
Management of NPAs Compromise Settlements Objective of negotiation
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The objective of negotiation is to maximize benefit. Hence, the underlying principal is that the parties involved act in such a manner that both sides end up with better off than before, except when mis-judgement, incompetence, or in some cases, downright dishonesty, force the issue otherwise. Voice-over Text Negotiation, obviously, goes beyond selling, since it is concerned, as stated above, with resolving issues to the benefit of all parties. Of course, negotiation may precede selling. Trust is an important requirement for successful negotiation.
The objective of negotiation is to maximize benefit. Hence, the underlying principal is that the parties involved act in such a manner that both sides end up with better off than before, except when mis-judgement, incompetence, or in some cases, downright dishonesty, force the issue otherwise. Negotiation, obviously, goes beyond selling, since it is concerned, as stated above, with resolving issues to the benefit of all parties. Of course, negotiation may precede selling. Trust is an important requirement for successful negotiation.
Management of NPAs Compromise Settlements
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Fundamental requirements of negotiation Lets look about fundamental requirements of negotiation. Click on each tab to know in detail.
Lets look about fundamental requirements of negotiation. Click on each tab to know in detail. Whenever negotiation is considered, the following conditions will apply: i) Both the parties are willing , in principle, to do a deal: For example, when a borrower approaches with the idea of compromise settlement both he and the Bank, should in principle, agree to discuss the matter. There is both agreement and conflict between the parties: In the example of the compromise above, both the borrower and the Bank should agree that a settlement should take place. The conflict could be, and would be, regarding the compromise amount, payment terms, release of security etc.,
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iii) There are variables to trade by way of concessions: This means that both sides should not only indicate that they have something to give (by way of concessions), but also search for items in each sides possession that could be exchanged. Continuing with the example of the compromise offer, the variables on the borrowers side could be the compromise amount itself, or the repayment terms. On Banks side, they could be the accrued interest component, releasing a portion of the security etc. iv) Both parties are empowered to vary their terms: Sticking to the original positions held at the beginning of the negotiations, will only lead to failure. Depending upon the situation developing both sides should have the authority to vary the terms to close the settlement. In the example, in case the payment terms offered was say 12 months. While the banks position was 3 months, both the parties should have the power to vary their terms, so that settlement may be reached at say, 6-7 months, depending of course, on other factors.
Management of NPAs Compromise Settlements When should one negotiate?
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Three basic questions which need to be asked are: Will negotiation meet my needs? Am I comfortable negotiating in this particular situation? Is the investment of time and energy now, on my part, worth the benefits I may receive, as a result of this negotiation?
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basic questions which need to be asked are: Will negotiation meet my needs? Am I comfortable negotiating in this particular situation? Is the investment of time and energy now, on my part, worth the benefits I may receive, as a result of this negotiation? If the answers to all the three questions are yes, negotiation should be proceeded with.
Three a) b) c)
Management of NPAs Compromise Settlements When should one not negotiate?
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As a note of caution, certain basic facts about negotiation should not be overlooked, while placing emphasis on the positive aspects. Click on the cards to know more.
As a note of caution, certain basic facts about negotiation should not be overlooked, while placing emphasis on the positive aspects: Click on the cards to know more. i) No negotiation, if one has no bargaining power That is if there is nothing really to negotiate for the ability to say NO, is as important, as the willingness to consider negotiation. ii) No negotiation, when broader objectives might be prejudiced There is no point in winning a battle if the War is lost. This is specially likely when one is emotionally involved in the discussions. iii) No negotiation, when one is not prepared The lack of preparation could be due to many factors-lack of all information, pressure of time etc.
Management of NPAs Compromise Settlements Three crucial elements of negotiation
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The three crucial elements always present in every negotiation are: Power, time and information. Click on each element to know more.
The a) b) c)
three crucial elements always present in every negotiation are: Power Time and Information
POWER: Power is defined as the capacity or the ability to get things done. TIME: Time has great bearing on the negotiation process. In virtually every negotiation, it is an observed fact that agreements and settlements occur at or beyond the dead line i.e. that psychological point of time at or beyond which either the objectives of negotiations are achieved, or the process breaks down. It is therefore, of advantages to know the other persons cut off point, so that best advantage can be derived. It is important to know that deadlines are more flexible than one really thinks-since, essentially, deadlines are imposed by oneself. However undue delay negates the whole process. INFORMATION: This is the third critical variable in the process of negotiation, and perhaps, one that is rather ignored. Negotiation is not a limited happening or an event. It is, in fact, an ongoing process, and so, it necessarily entails gathering of adequate information from all available sources, much before the actual negotiations usually start. Information gathering enables us to do sound planning and careful preparations, which are vital for any successful negotiation. To fail to plan is to plan to fail, may be a clich but is an inescapably true statement that for successful negotiation. Proper planning is a must, which in turn means that, information is essential. Basic planning should not be done while negotiating.
Management of NPAs Compromise Settlements Various facets of power
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There are various facets of power, some of which, relevant for compromise settlements, are shown here. Voice-over Text Click on each tab to know more about it.
There are various facets of power, some of which, relevant for compromise settlements, are shown here. Click on each tab to know more about it. i) The power of options: Negotiations should not be undertaken with out options, If all the exit doors are closed, loss of credibility could be the result in the event of the failure of negotiations. ii) The power of investment: There is a direct relation between the extent of investment of time and energy and the willingness to compromise. iii) The power of risk taking: Risk taking is best defined as mixing courage with common sense. Calculated risk-taking is an essential feature of any negotiation. Risk taking is NOT gambling, since the risk taking involves, apart from the knowledge of odds, a [philosophical] willingness to absorb a loss without regrets. iv) The power of morality: Most people brought up on ethical and moral values have common concepts of fairness through the simple question is it fair, or right? can shake up people. However, this power cannot work with people who have different values and for whom ethics and morals are really no consideration for decision making. v) The power of persistence: Patience and persistence always pay, while negotiating. vi) The power of persuasive capacity: Ones success in persuading some one else depends on three factors: a) The other person understands what is being said, b) The evidence must be indisputable, and c) The other persons needs and desires must be met. Of the three, the last is the most important. vii) The power of attitude: To be effective, one should adopt a healthy, assured, it is a game attitude, i.e. an attitude of caring, but not caring that much. Normally, life will not end even if everything goes wrong and so, getting worked up emotionally will only be a disservice to oneself. Moreover, proper attitude leads to increased confidence & reduced tension, making negotiation more fruitful.
Management of NPAs Compromise Settlements Planning for negotiation
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While planning for negotiation, one needs to ask oneself the following questions.
While planning for negotiation, one needs to ask oneself the following questions. Why negotiation? What is it about? Who will the negotiations be with? What are their objectives? What are ones own objectives? When to negotiate? How to negotiate? How high should be our expectations? What concessions can be given? In what order? Who should negotiate on ones behalf or as part of ones team? What is ones own deadline? Is it flexible? What could be the others deadline? Whether ones assumptions are valid?
Management of NPAs Compromise Settlements Styles of negotiation
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Ones choice of the style, or manner in which to conduct a negotiation, is a major element for winning better bargains. Basically, there are two fundamental choices: a) Competitive style which is so designed to maximize only one sides advantage, at a specific cost to the other side. Clearly an aggressive stance, it is referred t as a WIN-LOSE style of negotiation, since one side wins, and the other loses. b) Co-operative style which aims to ensure that both parties mutually benefit from the negotiation. Hence, it is known as a WIN-WIN style. Voice-over Text Besides, there is a third style, which could be termed as combative style, wherein normally, an immutable demand is made on the other party, which swiftly turns the negotiation into a debate and creates distrust. If the other party also happens to be equally stubborn, negotiation can only end up in a deadlock. There is also a fourth variety, LOSE-LOSE style, in which, neither side makes any gains; often, they could also end up worse off than when they started. There could be only two reasons for indulging in such tactics-either to gain a long term advantage, or due to unskilled negotiations.
Ones choice of the style, or manner in which to conduct a negotiation, is a major element for winning better bargains. Basically, there are two fundamental choices: a) Competitive style which is so designed to maximize only one sides advantage, at a specific cost to the other side. Clearly an aggressive stance, it is referred t as a WIN-LOSE style of negotiation, since one side wins, and the other loses. b) Co-operative style which aims to ensure that both parties mutually benefit from the negotiation. Hence, it is known as a WIN-WIN style. Besides, there is a third style, which could be termed as combative style, wherein normally, an immutable demand is made on the other party, which swiftly turns the negotiation into a debate and creates distrust. If the other party also happens to be equally stubborn, negotiation can only end up in a deadlock. On the other hand, if the other party surrenders or caves in, there is again no negotiation, but only a forcing of issues. There is also a fourth variety, LOSE-LOSE style, in which, neither side makes any gains; often, they could also end up worse off than when they started. There could be only two reasons for indulging in such tactics-either to gain a long term advantage, or due to unskilled negotiations.
Management of NPAs Compromise Settlements Personal qualities required of negotiators
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In general, irrespective of what is being negotiated, the negotiators must possess some personal qualities. They must: Say as little as possible Listen carefully, not only to the verbal messages, but also to what is unsaid- including body language, stress on words, etc., Exude confidence: which is the outcome of having sufficient information and proper planning. Have ambitious goals. Never concede, without gaining something in return. Have agile minds, with a capacity for sustained concentration. Have credibility and respect for the other side Have empathy for others Finally, there are four Ps; positive, placid, patient and prepared.
Which sum up the successful negotiator? Click on the Answer button.
In general, irrespective of what is being negotiated, the negotiators must possess some personal qualities. They must: i) Say as little as possible ii) Listen carefully, not only to the verbal messages, but also to what is unsaid- including body language, stress on words, etc., iii) Exude confidence: which is the outcome of having sufficient information and proper planning. iv) Have ambitious goals. v) Never concede, without gaining something in return. vi) Have agile minds, with a capacity for sustained concentration. vii) Have credibility and respect for the other side viii) Have empathy for others Finally, there are four Ps POSITIVE PLACID PATIENT PREPARED Which sum up the successful negotiator? Summing up negotiation is not only an art, but also a well defined scientific process. It entails possession of many traits, which need to be utilized in broadly defined methods, to enable maximization of benefit. The principles outlined above have universal applicability, for any process of negotiations. The possible negotiations scenarios with reference or compromise settlement, and use of the principles for maximization of returns to the Bank, constitute the next part.
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Here is an opportunity to check your understanding of what you have learned so far. Voice-over Text Select the correct options for the statements below. Click Submit to check your answers.
Here is an opportunity to check your understanding of what you have learned so far. Select the correct options for the statements below. Click Submit to check your answers. The four 4P are ___. a) Positive, placid, patient and prepared b) Placid, principle, prepared, and positive. c) Patient, prepared, placid and possessive.
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Here is an opportunity to practice your understanding of what you have learned so far. Voice-over Text Read the statement given below and select the correct option. Click Submit to check your answers.
Here is an opportunity to practice your understanding of what you have learned so far. Read the statement given below and select the correct option. Click Submit to check your answers. 1. 2. 3. 4. The objective of negotiation is to maximize benefit. - True There are four crucial elements of negotiation - False Competitive style is also known as WIN-WIN style. - False The statement given below is said by President John F.Kennedy. - True Let us never negotiate out of fear but let us never fear to negotiate
Management of NPAs Compromise Settlements What is compromise settlement?
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Compromise settlement refers to a negotiated settlement where a borrower offers to pay and the Bank agrees to accept in full and final settlement of its dues an amount less than the total amount due to the Bank under the relative loan contract. Thus, the settlement invariably involves certain sacrifice by the Bank (by way of write off and / or waiver) of a portion of its dues. Recovery of advances through compromise settlement is accepted as an effective non-legal remedy by the Bank in cases where it is appropriate to adopt this option. It is not possible, at the same time, to lay down precise guidelines which can be followed uniformly in all compromise cases, as each offer is unique in the context of the circumstances necessitating its consideration as a recovery option. However, certain basic principles and other parameters to be kept in view by the branches and their controllers. Why compromise? Click Answer button.
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Compromise settlement refers to a negotiated settlement where a borrower offers to pay and the Bank agrees to accept in full and final settlement of its dues an amount less than the total amount due to the Bank under the relative loan contract. Thus, the settlement invariably involves certain sacrifice by the Bank (by way of write off and / or waiver) of a portion of its dues. Recovery of advances through compromise settlement is accepted as an effective non-legal remedy by the Bank in cases where it is appropriate to adopt this option. It is not possible, at the same time, to lay down precise guidelines which can be followed uniformly in all compromise cases, as each offer is unique in the context of the circumstances necessitating its consideration as a recovery option. However, certain basic principles and other parameters to be kept in view by the branches and their controllers. Why compromise? Given the fact that the extant legal system is not conducive to expeditious recovery, mainly due to the protracted process, and not rarely, full recovery being impossible, a pragmatic solution is called for. Compromise offers this practical, realistic solution.
Management of NPAs Compromise Settlements Advantages of compromise
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Let us look at some advantages of compromise. Click on each tab to know more. i) Saves money, time and manpower Banks are mainly concerned with recovery of dues, to the maximum possible extent, at minimum expense. By entering into compromise settlements, the objective is achieved. Also, a lot of executive time is saved because most of the usual problems / delays associated with court action are avoided. ii) Projects a helpful image of the Bank A well-concluded compromise settlement, which results in a WIN-WIN for the Bank as well as the borrower, is a strong positive propaganda for the Bank. iii) Expedites recycling of funds Compromise settlements aim at quick recovery. Recovery means funds becoming available for recycling and additional interest generation. iv) Cleanses Balance Sheet With the NPA level going down, and the additional funds becoming available for recycling as fresh advances, the asset quality of the Bank is bound to go up. Improved asset quality signifies higher profits by reduced provisions and increased interest income. With additions to the reserves, the capital position also improves, improving the Capital Adequacy position.
Let us look at some advantages of compromise. Click on each tab to know more. i) Saves money, time and manpower Banks are mainly concerned with recovery of dues, to the maximum possible extent, at minimum expense. By entering into compromise settlements, the objective is achieved. Also, a lot of executive time is saved because most of the usual problems / delays associated with court action are avoided. ii) Projects a helpful image of the Bank A well-concluded compromise settlement, which results in a WIN-WIN for the Bank as well as the borrower, is a strong positive propaganda for the Bank. The impression generated is that the Bank is capable not only of sympathy, but also empathy. iii) Expedites recycling of funds Compromise settlements aim at quick recovery. Recovery means funds becoming available for recycling and additional interest generation. iv) Cleanses Balance Sheet With the NPA level going down, and the additional funds becoming available for recycling as fresh advances, the asset quality of the Bank is bound to go up. Improved asset quality signifies higher profits by reduced provisions and increased interest income. With additions to the reserves, the capital position also improves, improving the Capital Adequacy position.
Management of NPAs Compromise Settlements Disadvantages of compromise
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Lets look about disadvantages of compromise. To sound a note of caution, compromise does not have only advantages. There are definitely drawbacks, some of which are: 1. Compromise involves loss, since full recovery is not possible. In fact, full recovery is not even envisaged, but sacrifice is. Voice-over Text 2. It may be viewed as a reward for default, specially if chronic default cases are settled by negotiations. 3. It may have a demonstrative effect, and so may vitiate the culture of repayment. 4. There is also the possibility of misuse or, even, malafides, since assessment of situation is highly subjective.
Lets look about disadvantages of compromise. To sound a note of caution, compromise does not have only advantages. There are definitely drawbacks, some of which are: 1. Compromise involves loss, since full recovery is not possible. In fact, full recovery is not even envisaged, but sacrifice is. 2. It may be viewed as a reward for default, specially if chronic default cases are settled by negotiations. 3. It may have a demonstrative effect, and so may vitiate the culture of repayment. 4. There is also the possibility of misuse or, even, malafides, since assessment of situation is highly subjective.
Management of NPAs Compromise Settlements Negotiating for compromise
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Compromise entails discussion, or a series of discussions, between the Bank and the borrower, considering various relevant factors. The discussions are aimed at coming to a settlement about the amount which the borrower is willing to give, and that which the Bank is willing to accept. Naturally this process involves sacrifice on both sides, and, therefore, proper negotiation is a must. It does not imply that any offer made is accepted. It should always be borne in mind that while the Bank has only one option- to recover the money lent-the borrower has two alternatives to pay or to default. If he thinks that he can get away by defaulting, he will have no reason to repay. Hence, it is essential that by constant and regular follow up, and by convincing him that default would entail unwarranted costs by way of litigation, loss of credibility, adverse market publicity etc., the borrower should be made to realize that it is in his own best interests to repay. Only if the borrower is convinced that there is no escape, he will come to the negotiating table, even when he is in default due to various circumstances quite beyond his control.
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Compromise entails discussion, or a series of discussions, between the Bank and the borrower, considering various relevant factors. The discussions are aimed at coming to a settlement about the amount which the borrower is willing to give, and that which the Bank is willing to accept. Naturally this process involves sacrifice on both sides, and, therefore, proper negotiation is a must. It does not imply that any offer made is accepted. It should always be borne in mind that while the Bank has only one option- to recover the money lent-the borrower has two alternatives to pay or to default. If he thinks that he can get away by defaulting, he will have no reason to repay. Hence, it is essential that by constant and regular follow up, and by convincing him that default would entail unwarranted costs by way of litigation, loss of credibility, adverse market publicity etc., the borrower should be made to realize that it is in his own best interests to repay. Only if the borrower is convinced that there is no escape, he will come to the negotiating table, even when he is in default due to various circumstances quite beyond his control.
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Fundamentals of negotiating for compromise We shall now examine the various scenarios of negotiation. Three aspects present in any compromise offer need to be kept in mind. Click on the next button to learn more. Offer made by the borrowers A: being the net present value [NPV] of the cash flows arising out of the proposal, multiplied by the probability of the materializing. Possible recoveries from alternate sources B: being the net present value of cash flows arising from the best alternative: e.g: legal action, forced sale, winding up, merger, rehabilitation etc. What the bank expects C: being the aspiration level i.e. the goal which the Bank attempts to attain, in monetary terms as recovery. Obviously, A has to be measured against B and C, either for acceptance or rejection.
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We shall now examine the various scenarios of negotiation. Three aspects present in any compromise offer need to be kept in mind. Click on the next button to learn more. i) Offer made by the borrowers A: being the net present value [NPV] of the cash flows arising out of the proposal, multiplied by the probability of the materializing. Possible recoveries from alternate sources B: being the net present value of cash flows arising from the best alternative: e.g: legal action, forced sale, winding up, merger, rehabilitation etc.
ii)
What the bank expects C: being the aspiration level i.e. the goal which the Bank attempts to attain, in monetary terms as recovery. Obviously, A has to be measured against B and C, either for acceptance or rejection.
iii)
Management of NPAs Compromise Settlements Possible negotiation scenarios
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In view of these variables, A, B and C, as described in the previous screen, five possible scenarios can be thought of from the view points of borrower and Bank. a) A>B>C Offer by borrower > possible recovery from alternate sources > Banks aspiration level i) Borrower: Has offered reasonable settlement, unaware of Banks own goals or has deliberately pitched the offer higher than the alternative available. ii) Bank: Low expectation would naturally be happy at the offer. Under this scenario, there is hardly any scope for negotiation, unless the Bank is able to discern the real reasons for which the borrower has made this high offer, and tries to extract a little more, if possible. Click on next button to see next scenario. b) A>C>B i.e. Offer by borrower > Banks aspiration level > Possible recovery from other alternatives i) Borrower: Has given high initial offer to quickly settle the deal. Possibly has other pressing work to attend to, or desires to preserve goodwill for future plans [more ambitious than at present]. Let us get it over with seems to be motto.
Voice-over Text
ii)
Bank: By keeping the aspiration level higher than the alternatives available, Bank has done its homework and is prepared.
c) B > A > C i.e. Recovery from other alternatives > Offer by borrower > Banks aspiration level ii) Borrower : Is possibly aware of the low expectations of the Bank, and so pitches the offer higher than Banks expectations possible due to: a) Wanting quick settlement, and/or b) Wanting to save the securities offered to the Bank. iii) Bank: Possibly in a hurry to settle the compromise, Bank does not appear to have done its homework. Under this scenario, Bank is not in a position of strength and so is unable to negotiate a settlement that would maximize the recovery. d) B > C > A i.e. Recovery from other alternate sources > Banks aspiration level > Offer by borrower i) Borrower: Is possibly aware that the Banks expectations are low and is, therefore, trying to drive a hard bargain. ii) Bank: Has not examined all options properly, since the expectations are lower than the alternatives available. Possibly in a hurry to settle. e) C > A > B i.e. Banks aspiration level > Offer by borrower > Recovery from alternate sources i) Borrower: Keeps the offer low, but higher than the alternatives available, because he is interested in a proper settlement. Is also possibly aware that the banks options are limited. ii) Bank: Has set ambitious goals, after properly doing its homework and evaluation of all possible alternatives, wishes to drive a hard bargain.
In view of these variables, A, B and C, as described in the previous screen, five possible scenarios can be thought of from the view points of borrower and Bank. a) A>B>C Offer by borrower > possible recovery from alternate sources > Banks aspiration level iii) Borrower: Has offered reasonable settlement, unaware of Banks own goals or has deliberately pitched the offer higher than the alternative available. iv) Bank: Low expectation would naturally be happy at the offer. Under this scenario, there is hardly any scope for negotiation, unless the Bank is able to discern the real reasons for which the borrower has made this high offer, and tries to extract a little more, if possible.
Click on next button to see next scenario. b) A>C>B i.e. Offer by borrower > Banks aspiration level > Possible recovery from other alternatives iii) Borrower: Has given high initial offer to quickly settle the deal. Possibly has other pressing work to attend to, or desires to preserve goodwill for future plans [more ambitious than at present]. Let us get it over with seems to be motto. iv) Bank: By keeping the aspiration level higher than the alternatives available, Bank has done its homework and is prepared. c) B > A > C i.e. Recovery from other alternatives > Offer by borrower > Banks aspiration level iv) Borrower : Is possibly aware of the low expectations of the Bank, and so pitches the offer higher than Banks expectations possible due to: a) Wanting quick settlement, and/or b) Wanting to save the securities offered to the Bank. v) Bank: Possibly in a hurry to settle the compromise, Bank does not appear to have done its homework. Under this scenario, Bank is not in a position of strength and so is unable to negotiate a settlement that would maximize the recovery. d) B > C > A i.e. Recovery from other alternate sources > Banks aspiration level > Offer by borrower iii) Borrower: Is possibly aware that the Banks expectations are low and is, therefore, trying to drive a hard bargain. iv) Bank: Has not examined all options properly, since the expectations are lower than the alternatives available. Possibly in a hurry to settle. e) C > A > B i.e. Banks aspiration level > Offer by borrower > Recovery from alternate sources iii) Borrower: Keeps the offer low, but higher than the alternatives available, because he is interested in a proper settlement. Is also possibly aware that the banks options are limited. iv) Bank: Has set ambitious goals, after properly doing its homework and evaluation all possible alternatives, wishes to drive a hard bargain.
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Here is an opportunity to check your understanding of what you have learned so far. Voice-over Text Key in the correct answer in the space provided. Click Submit to check your answers.
Here is an opportunity to check your understanding of what you have learned so far. Key in the correct answer in the space provided. Click Submit to check your answers. 1. A well-concluded compromise settlement, which results in a WIN-WIN for the Bank as well as the borrower, is a strong positive propaganda for the Bank.
Screen No.
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Here is an opportunity to practice your understanding of what Voice-over Text you have learned so far. Match the table 1 with table 2. Click Submit to check your answers. Here is an opportunity to practice your understanding of what you have learned so far. Match the table 1 with table 2. Click Submit to check your answers. TABLE 1 C>A>B TABLE 2 Offer by borrower > possible recovery from alternate sources > Banks aspiration level Recovery from other alternatives > Offer by borrower > Banks aspiration level Banks aspiration level > Offer by borrower > Recovery from alternate sources Recovery from other alternate sources > Banks aspiration level > Offer by borrower
B>C>A
B>A>C
A>B>C
Management of NPAs Compromise Settlements Basic determinants
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The basic determinants are causes for default, Need for a Compromise, Process of Compromise, Modes of repayment and Value of security. Click on each tab to know more about it. a) Causes for Default Either willful or as a result of extraneous circumstances beyond control of borrower. b) Need for a Compromise (i) Borrowers Angle To avoid litigation. To retain his relationship with Bank. To save his credibility, as well as something financially. To avoid default fueled stigma. Psychological aversion to be branded as a litigant type. Financial strength of the Bank to pursue a legal case to its logical conclusion. (ii) Banks Angle Maximum recovery at minimum expense. Saves time, money & manpower. Enables recycling of funds otherwise blocked. In case where Banks position is weak, compromise is definitely in Banks interest. c) Process of Compromise A negotiated settlement & not an acceptance of any offer. Objective To strike a deal with minimal sacrifice. d) Modes of repayment Largely determined by capacity of obligants. However, endeavour should be to recover major portion of settled amount in one lumpsum. Probable modes: i) Entire amount in one shot within a reasonable specified time frame. ii) Down payment, (at least 40%) plus balance in installments within a maximum period of 12 months. iii) Full payment in installments. e) Value of security
Voice-over Text
Should be independently & realistically assessed. In case of immovable property [real estate] realizable value should be aimed at, giving due weightage to location, condition & occupancy.
The basic determinants are causes for default, Need for a Compromise, Process of Compromise, Modes of repayment and Value of security. Click on each tab to know more about it. a) Causes for Default Either willful or as a result of extraneous circumstances beyond control of borrower. If willful - Compromise best avoided, as a wrong message will otherwise spread. If others Compromise route advocated. b) Need for a Compromise (ii) Borrowers Angle To avoid litigation. To retain his relationship with Bank. To save his credibility, as well as something financially. To avoid default fueled stigma. Psychological aversion to be branded as a litigant type. Financial strength of the Bank to pursue a legal case to its logical conclusion. (ii) Banks Angle Maximum recovery at minimum expense. Saves time, money & manpower. Enables recycling of funds otherwise blocked. In case where Banks position is weak, compromise is definitely in Banks interest. c) Process of Compromise A negotiated settlement & not an acceptance of any offer. Objective To strike a deal with minimal sacrifice. If security is considered realizable, legal action instead of the soft option of compromise is recommended, since such a firm stand would establish Banks determination to recover its dues, besides throwing out red signals to other potential willful defaulters. d) Modes of repayment Largely determined by capacity of obligants. However, endeavour should be to recover major portion of settled amount in one lumpsum. Probable modes: Entire amount in one shot within a reasonable specified time frame. Down payment, (at least 40%) plus balance in installments within a maximum period of 12 months. Full payment in installments.
e) Value of security Should be independently & realistically assessed. In case of immovable property [real estate] realizable value should be aimed at, giving due weightage to location, condition & occupancy.
Management of NPAs Compromise Screen No. 31 Settlements Steps to be taken before acceptance of a compromise proposal for consideration Let us look about the steps to be taken before acceptance of a compromise proposal for consideration. Click on each tab to know.
Let us look about the steps to be taken before acceptance of a compromise proposal for consideration. Click on each tab to know. a) Means of borrower(s) guarantor(s) Gathering factual information about obligants is a MUST, for enabling Bank to get the most favourable deal. Services of outside agencies to ascertain details may be engaged, with approval of appropriate authorities.
b) Status of Activity To be reckoned with at the very first stage of negotiation. When unit is being run on profitable lines, compromise option to be examined only if Banks legal position is weak. When activity is continuing on limited scale and/or stopped/almost stopped, a pragmatic approach needs to be adopted.
Management of NPAs Compromise Settlements Giving shape to a proposal
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Voice-over Text
Meaningful negotiations for compromise would take into account the aspects such as the period when the account turned bad, when the account was transferred to Recalled Assets account etc. To repeat, the guiding principle should always be to realise the maximum, so that the Banks real loss, if not zero, is near zero.
Depending upon the merit of each case, any of the following concessions can be considered: All proposals should clearly spell out the basis on which the concessions have been considered and recommended. Once the compromise amount, and the concessions are finalized, the net loss needs to be determined. This is necessary since the discretionary powers vested in various authorities are based on the concept of Net Loss. Net loss is arrived at by adding all expenses incurred/accrued, and deducting all recoveries. Obviously, the net loss comprises two components: Actual loss: representing the write-off amount, and Notional loss: representing the accrued but unapplied interest amount. The proposal should also detail how the repayment is proposed, whether in one lumpsum or spread over installments. In case of the latter, notional interest needs to be calculated upto the date of payment of final installment. It should be made immensely clear to the borrower that accepting the compromise proposal does not prohibit the bank from pursuing other alternative methods for recovery, in case the borrower defaults in repayment.
Meaningful negotiations for compromise would take into account the aspects such as the period when the account turned bad, when the account was transferred to Recalled Assets account etc. To repeat, the guiding principle should always be to realise the maximum, so that the Banks real loss, if not zero, is near zero. Depending upon the merit of each case, any of the following concessions can be considered: i) ii) waiver of penal interest, if charged waiver of notional interest, i.e. interest accrued from the date of transfer of the account to RECALLED ASSETS account, till date of settlement. Remission of a part of principal dues. This would entail writing off of a part of the outstandings as on date of transfer to RECALLED ASSETS account.
iii)
All proposals should clearly spell out the basis on which the concessions have been considered and recommended. Once the compromise amount, and the concessions are finalized, the net loss needs to be determined. This is necessary since the discretionary powers vested in various authorities are based on the concept of Net Loss. Net loss is arrived at by adding all expenses incurred/accrued, and deducting all recoveries. Obviously, the net loss comprises two components:
a) Actual loss: representing the write-off amount, and b) Notional loss: representing the accrued but unapplied interest amount. The proposal should also detail how the repayment is proposed, whether in one lumpsum or spread over installments. In case of the latter, notional interest needs to be calculated upto the date of payment of final installment. It should be made immensely clear to the borrower that accepting the compromise proposal does not prohibit the Bank from pursuing other alternative methods for recovery, in case the borrower defaults in repayment. In respect of suit filed accounts, the compromise settlements should be through the Court, by way of Compromise Degree, with suitable clauses which would enable the Bank to resort to legal action/resume the action without prior reference to the opposite party, in the event of default.
Management of NPAs Compromise Settlements Path taken by a compromise proposal
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Lets look at the path taken by a compromise proposal. Click on each of the pages in the flip book to learn more.
Lets look at the path taken by a compromise proposal. Click on each of the pages in the flip book to learn more. i) After the negotiations are completed, the branch has to submit a formal proposal on the format designed for the purpose and forward to the controllers. Care should be taken to ensure that there are no gaps in the proposal. This would facilitate speedy action. More particularly:a) The history of the account should be comprehensively recorded, to bring out the actual reasons for the account going bad. Brief History is not simply a column to be filled in. b) The value of the securities, primary and secondary, both original and the present realizable value, as assessed by the branch, should be given correctly, since this is crucial for decision making. c) The status of the documents, enforceability etc. should be properly commented upon, in those cases where a suit has not been filed. d) To assess whether the compromise offer is reasonable, the total realiseable amount should be arrived at, by considering the interest chargeable to the account since the unit became sick and/or defunct. ii) At the controlling office, the proposal goes to a Screening Committee, on compromise, where the proposals are critically evaluated. iii) The proposal, with the recommendations of Screening Committee, is put up to the appropriate authority through the usual channel for approval.
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Advances to PSUs backed by State Govt. Guarantee In respect of advances to State PSUs which have the backing of the guarantees of the concerned State Governments, the following procedure will be adopted for compromise settlements of such loan amounts.
Voice-over Text
In respect of advances to State PSUs which have the backing of the guarantees of the concerned State Governments, the following procedure will be adopted for compromise settlements of such loan amounts. (a) In these cases, the Bank may accept, at the minimum, the following amounts by way of compromise settlement: (i) The principal amount due to the Bank. For this purpose, principal amount is defined as under: Description Accounts in which no interest has been applied after 31.3.1993 (account in Recalled Assets or live ledger as on date) Accounts in which interest has been applied after 31.3.1993 (accounts in Recalled Assets or live ledger as on date) Principal Amount The amount outstanding in Recalled Assets account or in live ledger.
The amount outstanding in Recalled Assets account or in live ledger excluding amount held in INCA, and unrealised interest of previous year (as reported in the annual advances return)
(iii) Interest on the principal amount, as defined above, will be computed at a rate equivalent to Banks Cost of Carrying Loan (CCL) and on a simple interest basis. (b) Thus, the elements of the compromise will be only the rate of interest due on the principal (at CCL, instead of the contracted rate) and the method of computation of the interest. (Simple interest, instead of compounding). (c) The Cost of Carrying Loan (CCL) comprising const of resources and operating cost, will be calculated for each year by the Performance Planning & Review Department, Corporate Centre and advised to circles on request. (d) Approval: All debt asset swap proposals to be subject to administrative approval of appropriate authority. No swap proposals to be sanctioned below CCC. In case of debt-asset swap as part of OTS, the proposal will go through the normal process of screening/delegation of powers / control reporting as applicable to compromises (Not applicable to below CCC) (e) Control reporting: Approvals for debt-asset swap to be reported to appropriate authority in the usual manner.
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Here is an opportunity to check your understanding of what you have learned so far. Key in the correct answer in the space provided. Click Submit to check your answers. At the controlling office, the proposal goes to a Screening Committee, on compromise, where the proposals are critically evaluated.
Screen No.
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Here is an opportunity to practice what you have learned so far in this e-course. The graphic shown here is cross word puzzle. Voice-over Text You will be given 2 questions. Select your answers from the cross word puzzle. Click Submit to check your answers.
Here is an opportunity to practice what you have learned so far in this e-course. The graphic shown here is cross word puzzle. You will be given 2 questions. Select your answers from the cross word puzzle. Click Submit to check your answers. 1. Actual loss representing the write-off amount. 2. Notional loss representing the accrued but unapplied interest amount.
Management of NPAs Compromise Settlements Basic principles to be kept in view
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Let us look at some important guidelines on compromises. Click on the numbers one by one.
Let us look at some important guidelines on compromises. Click on the numbers one by one. 1. Under compromise, bank will endeavour to recover its dues to the maximum extent possible with minimum sacrifice after exercising its right to set off and / or lien against any deposits of the borrower/guarantor lying with the bank. Quantum of compromise amount should be determined based on the realisable value of the security charged to the bank as also banks ability to take possession of the security and sell it. Value of security should be assessed properly. If considered necessary, services of outside approved assessor/ valuers can be engaged at reasonable cost. The latest status of the activity of the borrowing entity which seeks a compromise will be taken into reckoning at the very first stage of the negotiation. In case the borrower has other group companies, influence of these companies or the parent company will be used for a better settlement. Normally, an initial deposit of atleast 5% of the outstanding will be taken from the borrower as an evidence of his intention to pursue the compromise settlement. Entire compromise amount should be paid preferably in a lumpsum or in installments spread over a maximum period of 12 months. Interest at an agreed rate will be charged on the installments. Normally at least 40% inclusive of 5% initial payment would be payable upfront. Source of funds to identified and recorded. Compromise settlement will be arrived at with the borrower/ other obligants subject to a condition that in the event of any failure to honour any of the terms of the settlement, bank will be entitled to exercise against the borrower/ other obligants all rights, remedies available prior to the compromise settlement. This will include collection from the borrower of the entire amount due prior to the compromise settlement, together with interest there on at the applicable rate. The sanctioning authority must satisfy itself that all possible steps to recover the dues have been taken and that compromise is in the larger interest of the Bank.
2.
3.
4. 5.
6.
7.
8.
Management of NPAs Compromise Settlements Approach to Compromise
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Banks approach to compromise as a recovery option will be based on an analysis of the Banks strength and/ or weaknesses in a given case. The parameters for such an analysis are: Voice-over Text Quality of assets charged to Bank Collateral cover i.e. its value and marketability Means of borrower / guarantor (s) and State of legal action.
Banks approach to compromise as a recovery option will be based on an analysis of the Banks strength and/ or weaknesses in a given case. The parameters for such an analysis are: a) b) c) d) Quality of assets charged to Bank Collateral cover i.e. its value and marketability Means of borrower / guarantor (s) and State of legal action.
Management of NPAs Compromise Settlements Extent of Concessions
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Voice-over Text
The extent of concessions which the Bank may extend while accepting a compromise offer will depend on a number of factors. The guiding principle, in all compromise cases, will always be to realize maximum so that the Banks loss is the minimum. Based on the factors mentioned above and depending on the merits of each case, any one or more of the following concessions may be considered. All compromise proposals will clearly spell out the basis on which the negotiated amount of settlement has been arrived at. All compromise settlement have the following three phases. Click on each to know more.
The extent of concessions which the Bank may extend while accepting a compromise offer will depend on a number of factors. The guiding principle, in all compromise cases, will always be to realize maximum so that the Banks loss is the minimum. Based on the factors mentioned above and depending on the merits of each case, any one or more of the following concessions may be considered: i) ii) iii) iv) Waiver, either in full or part, of penal interest charged; Wavier of or reduction in the rate of interest from the date the account became sick or was transferred to RECALLED ASSETSaccount. Partial or complete waiver of interest charged / accrued after the unit ceased to function. Remission of a part of the principal dues in addition to part or full remission of interest;
All compromise proposals will clearly spell out the basis on which the negotiated amount of settlement has been arrived at. All compromise settlement have the following three phases. Click on each to know more.
Documentation: After concluding the compromise agreement, the settlement will be documented as appropriate as per legal requirement. Screening Procedure: The committee system of screening / processing proposals for compromise will be followed. Approving Authority: The authority approving the compromise will not be the one who sanctioned the advance in question in his individual capacity.
Management of NPAs Compromise Settlements Valuation of immovable properties
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Whenever compromise proposals are entertained by the branches, the following procedures should be followed with regard to valuation of immovable properties mortgaged to the Bank in addition to the extant guidelines:The Branch Manager, Divisional Manager and the Field Officer (if posted) should personally visit and inspect the immovable properties and satisfy that the valuation given by the valuer in his report is not altogether out of line with the market rates prevailing in the area. The compromise proposal should carry a certificate to this effect. The valuation report given by the approved valuer if found to be in large variance with the assessment make by the branch officials during personal visits, the case should be referred to another approved valuer. The two valuation reports received should be referred to the controllers for appropriate guidance.
Voice-over Text
Whenever compromise proposals are entertained by the branches, the following procedures should be followed with regard to valuation of immovable properties mortgaged to the Bank in addition to the extant guidelines:a) The Branch Manager, Divisional Manager and the Field Officer (if posted) should personally visit and inspect the immovable properties and satisfy that the valuation given by the valuer in his report is not altogether out of line with the market rates prevailing in the area. The compromise proposal should carry a certificate to this effect. b) The valuation report given by the approved valuer if found to be in large variance with the assessment make by the branch officials during personal visits, the case should be referred to another approved valuer. The two valuation reports received should be referred to the controllers for appropriate guidance.
Voice-over Text
Management of NPAs Compromise Screen No. 41 Settlements Debt recovery tribunal DRT cases: sale proclamation notice public auction - acceptance of compromise proposals The debt recovery officer issues notice for setting sale proclamation and orders sale by public auction on completion of attendant formalities and after exhausting all avenues to recover the dues by other process like attachment, settlement, compromise tic., It is, therefore, emphasized that after issuance of notification for public auction and eventual sale thereof, branches should not entertain any request from borrowers / guarantors or third parties nor agree for postponement or cancellation of public auction for any reason whatsoever and more so without the knowledge or substantial recovery of our dues including the costs of such public auction, poundage and expenses if any, incurred by the Tribunal.
The debt recovery officer issues notice for setting sale proclamation and orders sale by public auction on completion of attendant formalities and after exhausting all avenues to recover the dues by other process like attachment, settlement, compromise tic., It is, therefore, emphasized that after issuance of notification for public auction and eventual sale thereof, branches should not entertain any request from borrowers / guarantors or third parties nor agree for postponement or cancellation of public auction for any reason whatsoever and more so without the knowledge or substantial recovery of our dues including the costs of such public auction, poundage and expenses if any, incurred by the Tribunal.
Screen No.
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Here is an opportunity to check your understanding of what you have learned so far. Voice-over Text Key in the correct answer in the space provided. Click Submit to check your answers. Here is an opportunity to check your understanding of what you have learned so far. Key in the correct answer in the space provided. Click Submit to check your answers. 1. The maximum installments period for compromise amount is 12 months.
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Here is an opportunity to check your understanding of what you have learned so far. Voice-over Text Read the statements given below. Match the word to the correct statement. Click Submit to check your answers. Here is an opportunity to check your understanding of what you have learned so far. Read the statements given below. Match the word to the correct statement. Click Submit to check your answers. Documentation: After concluding the compromise agreement, the settlement will be documented as appropriate as per legal requirement. Screening Procedure: The committee system of screening / processing proposals for compromise will be followed. Approving Authority: The authority approving the compromise will not be the one who sanctioned the advance in question in his individual capacity.
Management of NPAs Compromise Settlements Overview Following the acceptance Banks consultants related strategies, processes, etc., procedure be followed for proposals in the circles.
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Voice-over Text
of the recommendations of the to the Banks structure, systems, it has been decided that a revised processing compromise / write-off
Following the acceptance of the recommendations of the Banks consultants related to the Banks structure, systems, strategies, processes, etc., it has been decided that a revised procedure be followed for processing compromise / write-off proposals in the circles. The procedure will be applicable to the following types of proposals: i) ii) iii) iv) v) vi) Compromise proposals, Proposals for write off of outstanding loan balances, including unapplied interest, Proposals for waiver/ withdrawal of legal action, put up prior to writeoff, Proposals for waiver of execution of any decree put up prior to writeoff, Proposals for waiver of recourse to any security available for recovery of loan put up prior to write-off. The procedure prescribed will now be applicable to removal of outstanding entries from the advances Under Collection Account (AUCA) relating to advances earlier written off.
Management of NPAs Compromise Settlements Process of Screening Committees
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Lets learn about the process of screening committees. Click on the number 1,2,3 and 4.
Lets learn about the process of screening committees. Click on the number 1,2,3 and 4. (i) The system of screening of proposals i.e. examination and recommendation by a committee, will be applicable for all the categories of proposals mentioned in previous slide. (ii) The extant compromise committee at LHO will be discontinued in view of the fact that screening of the proposals for compromise/write-off, etc., to be approved by Local Board (LB) and above levels, will be covered by examination of the proposals by Circle Credit Committees (CCC) comprising CGM, GMs and Circle Credit Officer (CirCO). In this regard, based on RBIs stipulation covering compromise/write-off proposals to the effect that such proposals for sanction by ED/CMD/Management Committee/ Board of a Bank should be first processed by a Committee of Senior Executives of the bank i.e. CGM/GM. It is decided that examination and recommendation by CCC of compromise/write-off proposals for approval by LB and above levels, will comply with this requirement. (iii) The extant procedure of screening of proposals by a Committee at the lower level will be continued with certain modifications. Under the revised procedure, proposals from the branches will be first examined and recommended by a Screening Committee. The proposal will thereafter be submitted to the sanctioning authority through the controllers, who will examine and recommend the proposal. Specific details of the revised procedure, applicable to proposals from branches in the two networks and put up for approval by different authorities. (iv) The extant process will continue for appraisal, scrutiny, further examination and recommendation of proposals of the category specified. There should be no delayering in the handling of the proposals. Proposals from the branches in a network will be dealt with by the functionaries in the same network.
Screen No.
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Here is an opportunity to check your understanding of what you have learned so far. Key in the correct answer in the space provided. Click Submit to check your answers. 1. The system of screening of proposals will be applicable for all the categories of proposals.
Screen No.
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Here is an opportunity to practice your understanding of what you have learned so far. Select the correct options for the statements below. Click Submit to check your answers. Here is an opportunity to practice your understanding of what you have learned so far. Select the correct options for the statements below. Click Submit to check your answers. 1. The extant procedure of screening of proposals by a Committee at the lower level will be continued with out modifications - False 2. The extant process will continue for appraisal, scrutiny, further examination and recommendation of proposals of the category specified. - True 3. Under the revised procedure, proposals from the branches will be first examined and recommended by a Screening Committee. - True
Management of NPAs Compromise Settlements Assessment
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Voice-over Text
Read the given questions carefully. Answer the question according to the type of the question. Follow the instruction given on each question. Click Next to move on to the next questions. Click Submit to submit your assessment. All the best!
Read the given questions carefully. Answer the question according to the type of the question. Follow the instruction given on each question. Click Next to move on to the next questions. Questions: Key in your answers in the spaces provided. 1. The quality of loan asset is the most important factor for the basic viability of the banking system. 2. Risk taking is best defined as mixing courage with common sense. 3. Negotiations should not be undertaken with out options. 4. The maximum discount for doubtful or loss NPAs for a period of more than 10 years is 75 % Click True or False for the given questions. 1. There are four crucial elements for every negotiation. False 2. Time has great bearing on the negotiation process. True Choose the correct answer from the given options. 1. Power is defined as the capacity or the ability to get things done. a) Power b) Time c) Information 2. An initial deposit of atleast ___% of the outstandings will be taken from the borrower as an evidence of his intention to pursue the compromise settlement. a) 2 b) 3 c) 5 3. The ___________ must satisfy itself that all possible steps to recover the dues have been taken and that compromise is in the larger interest of the Bank. a) borrower b) sanctioning authority c) bank
4. The corporate policy is to contain the net NPAs below or equal to 1%, a) 1 % b) 2 % c) 3 %
Management of NPAs Compromise Settlements Summary
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Let us quickly recap what you have learned in this e-course.
Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by the Reserve Bank of India. The objectives of NPA management is: Maximum recovery of NPAs in the earliest possible time, and Gross NPAs below or equal to 2.27 % by March 2012.
The objectives of NPA analysis are as follows: To take stock of the situation, by building up the data base, Segregating the accounts into identical lots, with regard to approach to be adopted for recovery , Prioritization as per prospects of recovery, and, Last, but not the least, for monitoring and control purposes. Negotiation is a process by which two or more interested parties seek an acceptable exchange for the items they own or control. The three crucial elements always present in every negotiation are: Power, time and information. Competitive style which is so designed to maximize only one sides advantage, at a specific cost to the other. Clearly an aggressive stance, it is referred to as a WIN-LOSE style of negotiation, since one side wins, and the other loses. Co-operative style which aims to ensure that both parties mutually benefit from the negotiation. Hence, it is known as a WIN-WIN style. Compromise settlement refers to a negotiated settlement where a borrower offers to pay and the Bank agrees to accept in full and final settlement of its dues an amount less than the total amount due to the Bank under the relative loan contract The basic determinants are causes for default, Need for a Compromise, Process of Compromise, Modes of repayment and Value of security. The net loss comprises two components: Actual loss: representing the write-off amount, and Notional loss: representing the accrued but unapplied interest amount. Under compromise, bank will endeavour to recover its dues to the maximum extent possible with minimum sacrifice after exercising its right to set off and / or lien against any deposits of the borrower/guarantor lying with the bank. Bank approach to compromise as a recovery option will be based on an analysis of the Banks strength and/ or weaknesses in a given case.
Management of NPAs Compromise Settlements Course Completion
Screen No.
50
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Chapter/ Module Lesson/ Screen title Voice-over Text

Management of NPAs Compromise Settlements Welcome

Welcome to the course on Management of NPAs Compromise Settlements.

Welcome to the course on the Management of NPAs Compromise Settlements.

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Management of NPAs Compromise Settlements Objectives

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Management of NPAs Compromise Settlements Non Performing Asset (NPA)

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Management of NPAs Compromise Settlements Policy Guidelines

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Management of NPAs Compromise Settlements Objectives of NPA management

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Management of NPAs Compromise Settlements NPA analysis

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Management of NPAs Compromise Settlements Flow diagram of recovery process

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Management of NPAs Compromise Settlements Quiz

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Management of NPAs Compromise Settlements Practice

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Management of NPAs Compromise Settlements Definition of negotiation

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Management of NPAs Compromise Settlements Objective of negotiation

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Management of NPAs Compromise Settlements

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Management of NPAs Compromise Settlements When should one negotiate?

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Management of NPAs Compromise Settlements When should one not negotiate?

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Management of NPAs Compromise Settlements Three crucial elements of negotiation

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Management of NPAs Compromise Settlements Various facets of power

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Management of NPAs Compromise Settlements Planning for negotiation

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Management of NPAs Compromise Settlements Styles of negotiation

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Management of NPAs Compromise Settlements Personal qualities required of negotiators

Which sum up the successful negotiator? Click on the Answer button.

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Management of NPAs Compromise Settlements Quiz

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Management of NPAs Compromise Settlements Practice

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Management of NPAs Compromise Settlements What is compromise settlement?

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Management of NPAs Compromise Settlements Advantages of compromise

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Management of NPAs Compromise Settlements Disadvantages of compromise

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Management of NPAs Compromise Settlements Negotiating for compromise

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Management of NPAs Compromise Settlements

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Management of NPAs Compromise Settlements Possible negotiation scenarios

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Management of NPAs Compromise Settlements Quiz

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Management of NPAs Compromise Settlements Practice

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Management of NPAs Compromise Settlements Basic determinants

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