A.COVERAGE:

All NPA accounts including suit filed and decreed accounts and those transferred to the Shadow Register will be eligible for compromise settlement.  However, all suit filed / decreed cases shall be settled by way of consent decree through the court.   Investments of the bank can also be settled under this policy.

Settlement in an account which has been identified by H.O. as ‘Wilful Defaulter’, will require permission of Management Committee of Board of Directors.

1. Modifications in Recovery Policy

In order to reduce the Gross NPA level of the Bank as well as to recover substantial amount from shadow balance accounts it has been felt necessary to revise the existing Recovery Policy for settlement of NPA accounts and Written off accounts so as to achieve the corporate target of the Bank during the residual part of the current financial year and also for future settlement of the proposals:

(a) There will be no cut-off date, any NPA account can be settled provided the loan account did not slip into NPA category within one year from the date of first disbursement.

(b)  MRA will be calculated (except doubtful / loss / written-off accounts)as under :

(i) Ledger Balance + 6% interest (simple) from the date of NPA upto the date of receipt of the proposal at the Branch.

(ii) No interest will be calculated for doubtful/loss/written off accounts.

(c) Sacrifice means:

MRA as calculated In terms of (b) above minus the proposed amount offered by the borrower e.g.

(i) Suppose an account has been declared NPA on 31.03.2008, the outstanding balance in the account on that date is Rs.1.10 lac. The party has given a proposal on 31.10.2008 and offered an amount of Rs.80000.00 towards settlement. In the instant case, the sacrifice will be as under:

However, if the borrower has paid any amount after the account has become NPA the said amount shall be deducted from the sacrifice amount and interest will be calculated on run down balance.  The legal costs and other expenses if any, incurred in the account shall be added with the total dues.

(ii) Suppose an account is under Doubtful / Loss / Written off category as on the date of proposal and the outstanding balance on that date is Rs.1.10 lac.  The party has offered Rs.80,000.00 towards settlement in the instant case, the sacrifice will be as under:

However, if the borrower has paid any amount after the account has become NPA the said amount shall be deducted from the sacrifice amount.  The legal costs and other expenses if any, incurred in the account shall be added with the total dues.

(d) The net present value of the security (NPA/ Shadow balance accounts):

In the accounts where immovable properties are mortgaged to the Bank, consideration should be given to net realizable   present value of securities for which valuation should be done by the Bank’s approved Valuer where valuation is more than three years old.

In case the Branch Manager feels that the distressed realizable value is lower than the value estimated by the Valuer considering audited Balance Sheet not older than one year, if available, and or other reasons i.e. local situations, etc., he should take a proper view and finalise on the net realizable present value of the property. After considering realizable value by the Branch, if the same is lower than 20% than the distressed sale value done by the Valuer, in that case the Branch Manager should obtain approval of the authority one stage higher before deciding on the settlement. Similarly the Regional Heads will also obtain permission from General Manager (Recovery) for case within his Discretionary Power.

The next higher authority has to communicate his decision to the Branch within three days from receipt of the Branch letter.

In respect of movable assets like stock, debtors and also plant and machinery charged to the Bank, Branch should primarily depend on the audited Balance Sheet   not older than one year as also physical verification done by the Branch. As regards net worth of the borrowers and guarantors, the Branch primarily depends on the statement submitted by the borrower / guarantor. Often confusion arises at the back of the mind that worth of the borrower/guarantor, which was considered at the time of original sanction, should be the basis. In this regard it is suggested that the Branch should take a pragmatic view about the present worth of the borrower and guarantor while taking decision for settlement of the account as the Branch is neither aware of the present condition of the assets of the borrowers/guarantors nor the same is charged to the Bank. As such, the Bank has to move through legal process and obtain charge on the properties, which will be time consuming.  Accordingly, taking into account the time value of money a pragmatic approach should be taken in this regard and if necessary he may call for the Tax Returns from the guarantor/borrower or market report to arrive at a decision.

(e) Our existing system of calculation of MRA for compromise settlement of the accounts under the category of Small borrowal accounts with outstanding ledger balance upto Rs.1.00 lac and for accounts under Govt. Sponsored schemes, Agriculture and Priority Sector advances having outstanding balance not exceeding Rs.5.00 lac, the outstanding ledger balance should be recalculated notionally on the basis of original principal amount disbursed and repayment made thereagainst without taking into account any interest element. However, this special provision will not cover cases of fraud and malfeasance.

(f) In all other NPA / Written-Off accounts under non-Govt. sponsored Schemes / Non Priority Sector with outstanding ledger balance upto Rs.5.00 lac security will not be the criteria for consideration of the compromise proposal. MRA will be the ledger outstanding balance + 6% simple interest (in case of sub-standard accounts only) from the Date of NPA upto the date of receipt of the proposal. However Branch may settle the cases on receipt of following amount subject to sacrifice is within his delegated power considering above MRA.

(g) In all NPA accounts with outstanding balance above Rs.5.00 lac net present value of security shall be considered during settlement of the proposal.

(h) While considering compromise proposal rationale for compromise of the proposal shall be invariably kept in mind like depletion in value of net worth of the borrower/ guarantor, time value of money, litigation, realizable value of the security, market scenario/ borrower(s) or guarantor(s) present status (absconding/ dead etc)

(i) All accounts are eligible for settlement except wilful defaulter/ CBI/Police investigation requires approval of MCBOD.

(j) The cases referred to vigilance department will require the approval of the Executive Director.

(k) Settlement of staff guaranteed accounts also require the approval of the Executive Director.

(l) All proposals require the approval of MCBOD / CMD/ ED shall be vetted by the General Managers’ Committee.

(m) The delegated authority for approving Technical Write Off (other than OTS settled accounts) will be MCBOD.

(n) The delegated power of the different functionaries for compromise Settlement proposed as under:

B. OTHER PROVISONS:

(1) Before considering compromise proposal in any account, it should be ensured that all liquid / cash securities are adjusted (with due notice to the borrower whenever warranted) against outstanding dues.

(2) Any reversal of interest made in the account prior to the date of NPA, shall be taken into consideration at the prevailing rate while calculating the Book Dues.  The paying capacity / net worth of the borrower / guarantor, the state of the pending suit in the court should be kept in view at the time of calculation of Bank’s sacrifice, besides the realisable value of the securities.

(3) Though the legal and other expenses incurred in the account (to the debit of P&L A/c. – Law Charges) are not reflected in the outstanding ledger balance, endeavour should be made to recover these amounts as much as possible.

(4) Realisable value of the charged assets will be ascertained keeping in view the depreciation / obsolescence of the plant and machinery.  Valuation of immovable securities should not be old over three years.

(5) The norms given as above will also be applicable for the NPAs referred to the Lok Adalats.

(6) Deposits made in the NPA accounts after the date of NPA will be reckoned as part of the compromise offer.

(7) Fresh debits if any, in the NPA accounts after the date of NPA should be added while arriving at Minimum Recoverable Amount.

(8) Full cash margin shall be stipulated for any outstanding non-fund based facility while considering the compromise settlement.

(9) Depending on the present realisable value of movable and / or immovable security held in the account, effort should be made to recover as much as possible beyond the Minimum Recoverable Amount.

(10) In Revenue Recovery cases, where recovery charges of 5% to 10% are required to be paid to the State Government even if the account is settled through compromise, the RR authorities should be advised of the settlement with a request to withdraw the RR proceedings.   In such cases no charges are payable.

(11) As refund of court fee is uncertain or may be delayed indefinitely such expected refund shall not be reckoned as part of recovery under the settlement.  Efforts should be made to realise these amounts in addition to realisation of settled amount.

C.TERMS OF PAYMENT:

(1)If the settled amount is paid within a period of three months from the date of communication of sanction, no interest on the settled amount is payable. 

(2)Where the borrower is unable to pay the settled amount in one stroke, sanctioning authority may allow payment in instalments.   In such cases, 25% of the settled amount should be obtained as down payment (but in any case not less than 10% – to be decided by sanctioning authorities on case to case basis) within 30 days of communication of the sanction and the balance should be paid in suitable instalments within a maximum period of 24 months from the date of communication of sanction, with interest @ 9% (simple) on reducing balance on compromise amount from the date of communication of sanction till the date of final payment; subject to the condition that no interest will be payable if the entire settled dues is paid within three months from the date of communication of sanction.  In respect of Priority Sector NPAs, interest will be @ 6% (simple) from the date of communication of sanction till the date of final payment subject to the condition that no interest will be payable if the entire settled dues are paid within three months from the date of communication of sanction. 

(3)Sanctioning authorities may grant extension of time for payment, provided the waiver / sacrifice recalculated up to the date of extended period falls within his powers.   Otherwise, it will be referred to the next competent higher authority.  However, total payment period even with such extension of time should not exceed 24 months.

(4)In respect of the settlement approved by the H.O. such extension of time will be considered by the different functionaries at H.O.

(5)Although borrowers are expected to pay interest for the period of delay, full / partial waiver of interest for the period of delay may be approved by the respective sanctioning authority, if they are convinced about the genuineness of borrower’s request; provided that interest for the period of delay together with sacrifice allowed in the original sanction is within the delegated power of such sanctioning authority.  Otherwise, the case should be referred to the next higher authority. 

(6)In case there is delay in payment of settled dues beyond the period stipulated as per terms of payment, such delay may be condoned by the sanctioning authority at the level of RM / CRM and above, provided such delay was found to be on valid and convincing grounds and payment/waiver of interest for the period of delay is decided as per clause (5) above.

• In respect of settlements approved by MCBOD, Chairman & Managing Director is empowered to condone the delay and approve full / partial waiver of interest for the period of delay.

D. RELEASE OF SECURITY:

The charged securities in an account will be released only on full realisation of the settled dues, unless otherwise stipulated in the terms of sanction.  Proposals for release of securities in full or in part will be considered by the sanctioning authority after duly taking into account the following

• Latest valuation of securities so released and to be released
• It should be ensured that full value of securities proposed to be sold is routed through the Bank.
• In case of partial release of security, it should be ensured that the value of the securities held by the Bank after such partial release will be covering the remaining compromise amount in the account in the same proportion.
• It should be ensured that the residual securities, which are left with the Bank are good and marketable.

E.DEVIATION CLAUSE:

• Any proposal at the branch level which does not conform to the norms either in respect of Minimum Recoverable Amount or in the mode of payment as mentioned above should be referred to the next higher authority.
• Compromise proposals which neither conform to the basic norms nor fulfill the above condition can be referred for consideration to the Recovery Department H.O.
• Any account becoming NPA within a period of 12 months from the date of disbursement or Quick Mortality accounts can be settled by the General Manager (Recovery).

F. General Managers’ Committee will vet the settlement proposals requiring approval of MCBOD/ CMD/ ED. The General Managers’ Committee will comprise with the following members:

• General Manager ( Recovery)
• General Manager ( Credit)
• General Manager ( CBG)
• General Manager ( IRM)
• General Manager ( CPPMI)

Out of the above General Managers, the General Manager (Recovery) and two other General Managers will form quorum for the meeting.  

(1) The authority exercising the delegated powers shall not use such discretion in respect of loans sanctioned earlier by him / her and such accounts will have to be referred to the next higher authority.

(2) In case of group accounts, sacrifice in all the group accounts put together will be the factor to determine the authority for sanctioning the proposals.

(3) The powers delegated as given above will also be used for settling the NPA accounts referred to the Lok Adalats.

G. EXAMINATION OF STAFF ACCOUNTABILITY:

It should be ensured that aspects of staff accountability are properly examined before recommending / sanctioning any compromise settlement proposal.  Head of the branch / Head of the Region should give the certificate as follows:

This is to state that I have examined the affairs of the account under consideration and have to certify as under–  

• No fraud has been suspected / detected in the sanction / disbursement of the credit facilities.
• No irregular actions on the part of any of the staff members which contributed to the account becoming NPA, have come to my notice.’
• No other staff lapses were observed by me.
• I, therefore, recommend waiver / write off of the amount as proposed in the Process Note.

(Signature of the Branch Manager / RM / CRM)

i) It has been decided that the NPA having the ledger balance up to Rs 50.00 lac shall be examined by the  Regional Head and the SAR shall be initiated by the Branch Manager  provided the Branch Manager/ Regional Head did not handle the account or accord sanction in the  account.

ii) If the NPA accounts having the ledger balance above Rs 50.00 lac, , SAR shall be examined by the concerned General Manager in charge of the concerned credit department provided the loan was not sanctioned/ handled by him  and shall be dealt with/ decided accordingly by the said General Manager  on the basis of reports sent by the Regional Head.

iii) The Regional Head in case of (i) & General Manager in case (ii) finds/ fixes any Staff Accountability, the matter should be referred to the Committee of General Managers for deciding Vigilance/ Non-Vigilance  nature of contemplated disciplinary action.

All accounts slipped into NPA category, Staff Accountability shall be examined within the period of Six months from the date of slippage to NPA and must be dealt with within 30 days. If there is no Staff Accountability, the matter should be closed immediately in the said account.

I. SETTLEMENT IN RESPECT OF INVESTMENT PORTFOLIO:

Compromise settlement in respect of investment portfolio of the Bank shall be governed by all the provisions of the policy applicable to settlement in NPA / Written off accounts.       

J. MISCELLANEOUS:

(1) Those compromise proposals which have already been received by the branches, but on which no decision has yet been taken, may be considered under the provisions of this revised policy.

(2) Accounts in which settlements had been approved by R.O. or branch authority in the past but where entire settled dues could not be recovered yet (although stipulated time schedule had already expired), in such accounts fresh
negotiation for arriving at a modified / amended settlement terms can be undertaken only by one step higher authority to the original sanctioning authority.

(3) Generally, no settlement proposal should be rejected.  However, in case the sanctioning authority decides to reject any settlement proposal, proper reasoning for such rejection should be recorded and a written communication clearly stating the reasons for rejection should invariably be sent to the borrower.

(4) CMD/ED are authorised to make changes in this policy as deemed necessary in a changed situation including the sacrifice/accepting lower settlement amount than approved by MCBOD.  However, sacrifice should not be more than 25% of original approved sacrifice.

(5) CMD/ED may also exercise relaxation of sacrifice beyond their discretionary power but not more than 25% of the limit in deserving cases.

K. Guidelines of RBI on engagement of Recovery Agents by all scheduled commercial banks

For management of recovery, Recovery Agents are engaged by the Bank after exercising due diligence in the matter.   In order that the Recovery Agents engaged by the bank are properly trained to handle with care their responsibilities, RBI has issued guidelines on engagement of Recovery Agents under their circular DBOD no. Leg.BC.75/09.07.005/ 2007-08 dated 24.04.2008 (copy enclosed, marked Annexure–2)  As per the said guidelines (vide Para-2(xi) of the RBI circular) Recovery Agents and the personnel engaged by Recovery Agents, are to undergo a 100 hours of training programme on a certificate course devised by Indian Institute of Banking & Finance (IIBF) and on completion of the course to pass the examination conducted by the IIBF and obtain a certificate from the said institute within a period of one year.   

In pursuance to the same, the following course of action is to be taken:

• Advise the Recovery Agents in our panel to undergo a minimum 100 hours training programme on a certificate course devised by IIBF from any of the Training Institutes accredited by IIBF and obtain a certificate from IIBF within March 2009.  The cost for this is to be borne by the Recovery Agents.  The Recovery Agents would be depanelled from our list if the

IIBF certificate in their name is not obtained and submitted to Bank within March 2009.

• Application for fresh empanelment of Recovery Agents will be considered by the Bank if the Recovery Agent and his personnel have undergone the IIBF 100 hours training course and certificate obtained from IIBF.

L.Sale of Non-Performing Financial Assets to Securitisation Companies (SCs), Asset Reconstruction Companies (ARCs), Banks, Financial Institutions (FIs) and NBFCs

One of the strategies for recovery of bad loans (NPA and Written off accounts held in Shadow Register) is for sale of Non-Performing Financial Assets to Securitisation Companies (SCs), Asset Reconstruction Companies (ARCs), Banks, Financial Institutions (FIs) and NBFCs.

The RBI guidelines on sale of financial assets (including Non-Performing Financial Assets) to Securitisation Companies (SCs) and to Asset Reconstruction Companies (ARCs) are given in Circular DBOD No. BP.BC.96/21.04.048/2002-03 dated 23.04.2003 (details given in Annexure–3A).

The RBI guidelines on sale of financial assets (including Non-Performing Financial Assets) to Banks / FIs / NBFCs (excluding SCs / ARCs) are given in Circular DBOD No. BP.BC.16/21.04.048/2005-06 dated 13.07.2005 , Circular DBOD No. BP.BC.97/ 21.04.048/2006-07 dated 22.05.2007 & RBI circular no: DBOD NO. BP.BC.34/21.04.048/2007-08 dated October,04,2007  (details given in Annexures–3B and  3C respectively). RBI guidelines/ instructions for sale of assets to Securitisation / Assets Reconstruction Companies are applicable from time to time.

The Bank will follow the RBI guidelines on sale of non-performing financial assets to SCs / ARCs / Banks / FIs / NBFCs and decision on all such matters will be taken at the Head Office end.

The revised policy given here in above will remain in force till next review.