RECOVERY MANAGEMENT

OCTOBER,2013
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REHABILITATION & RECOVERY

Despite close monitoring, some accounts will become sick. Then decision is to be taken whether there is scope for nursing the account back to health and recover banks dues. What is Sickness ? In case of an SSI, a unit will be identified as sick on the basis of following criteria :
i. ii. It is in operation for at least two years, and The amount has remained continuously overdue or out of order for more than 12 months OR the accumulated cash losses exceeds 50% of its net worth. The company should be in existence for a period of 5 years. The accumulated cash losses are equal or more than its net worth.
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In case of large units :

i.
ii.

BIFR
Board of Industrial & Financial Reconstruction (BIFR) :
BIFR was set up under the SICA,1985. Under SICA, sick companies have to report their sickness to BIFR under the following circumstances :
i. ii. When the accumulated losses exceeds 50% of its net worth When their net worth is completely wiped-off.

Implications :
a. b. Immunity from legal cases Appointment of Operating Agency to work out Rehabilitation of the sick unit.
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DEBT RE-STRUCTURING - SMEs

SME : Investment in P & M between Rs.25 lacs to Rs.10 crs. in case of a Manufacturing unit and between Rs.25 lacs to Rs. 5 crs. in case of a Service unit. Eligibility : Corporate or non-Corporate SMEs who are viable & potentially viable, are eligible irrespective of level of borrowings from a Single Bank or multiple banks. Viability Benchmark : The rehabilitated firm should turn financially viable in 7 years,with the repayment period not exceeding 10 years.
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DEBT RE-STRUCTURING - SMEs

Time-frame : restructuring package to be implemented within 60 days from the date of borrowers request for rehabilitation.

Review : on a quarterly basis

OTS / Out of Court Settlement : OTS / Out of Court settlement can be implemented for recovery of NPAs below Rs.10 crs.

CORPORATE DEBT RESTRUCTURING (CDR)

Unlike BIFR which is constituted under an Act, CDR is a nonstatutory, voluntary organisation comprising of banks & FIs. Under CDR, rehabilitation schemes can be worked out for even a standard account. Eligibility : It takes up cases involving debts of Rs.10crs. & above from the banking system. Minimum 2 banks funding. 60% of the financing banks who have lent at least 75% of the total borrowing approves reference to the CDR
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SARFAESI ACT,2002
The Act allows the SC / RC to acquire financial assets from any bank / FI on mutually agreed terms.

Salient Features :
Incorporation of SPVs namely SC / RC Securitization of financial assets Funding of Securitization Asset Reconstruction Enforcing security interest i.e. taking over the assets given as security for the loan WITHOUT COURT INTERVENTION. Establishment of central registry for regulating &registering the securitization transactions.
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LEGAL ACTIONS
When all efforts to recover banks dues fail, banks resort to legal & other remedies. Options available are :
Civil Courts Criminal Courts Lok -Adalats Debt Recovery Tribunals (DRTs) Act,1993 SARFAESI Act,2002 Sale of Debt to other banks / NBFCs/ARCs Compromise / Write-off
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THANK YOU