15 August, 2011


Banks lend money to their customers for various purposes with a view to making profit after meeting all relative costs (Cost of fund, establishment cost, administrative cost, etc.) Bank collects fund from depositors i.e. Banks borrow fund from depositors. So advanced money comes from outside of the Bank repayable on demand and or as per schedule fixed earlier along with Interest. So we must recover money from the borrower after proper utilization to refund the same to the depositors and also to accommodate new customers afresh and to continue Bank's activities on revolving /cyclic process.
But it is experienced that in most of the cases money advanced to the borrower is very difficult to recover as per agreed terms due to failure of proper identification of following factors:

(a) Failure to identify genuine borrower.
(b) Failure to identify honest and sincere borrower for honoring financial commitment.
(c) Failure to identify capacity of the borrower to run the business successfully
(d) Failure to assess inherent risks (Financial, business, management & security risk) in the business and its mitigating factors.
(e) Failure in proper utilization of fund.
(f) Failure in protecting diversion of fund.
(g) Lack of supervision, follow-up and monitoring process..

All the above causes for non-recovery and poor recovery of loans are not under the control of the bank's authority. But some of the above causes are controllable by the bank which may improve recovery position. In this respect Bank officials must discharge their due responsibilities to study credit proposal keeping in mind to address the above points.

Despite strict compliance of the points mentioned above if we find that timely repayment of bank's dues is not made we must identify reasons whether the loan has become non-performing due to some genuine uncontrollable reasons or willful default.
If it happens for acceptable reasons we may go for re-schedule arrangement or nurse the same by allowing further facility with more time. The rescheduling arrangement must be allowed as per directives Central Bank. The main features are as follows:

Rescheduling proposals may be considered if-
(a) Borrower is not a willful defaulter.
(b) Borrower's cash flow statement, audited balance sheet & income statement justifies proposed rescheduling arrangement.
(c) Bank satisfy to the borrower's proposal.

Rescheduling incase of terms loan:
(a) Borrower must deposit 15% of overdue amount or 10% of outstanding whichever is less for 1st time rescheduling.
(b) Borrower must deposit 30% of overdue amount or 20%
of outstanding whichever is less for 2nd time rescheduling.
(c) Borrower must deposit 50% of overdue amount or 30% of total outstanding whichever is less for subsequent rescheduling arrangements.

Rescheduling for demand loan and continuous loan: 
Amount over dues                          Down payment
Up to Tk. 1.00 core                       15%
From Tk. 1.00 to 5.00 crore          10% (but not less than Tk. 15 lac)
For Tk. 5.00 crore & above           5% (but not less than Tk. 50.00 lac)

If any demand loan/continuous loan is converted into term loan, in that case down payment shall be 30% of overdue installment or 20% of outstanding amount which ever is less and 50% of overdue installments or 30% of outstanding amount for subsequent rescheduling arrangement. The rescheduling accounts must be monitored with special care and if any failure is noticed following actions may be taken:

(a) Periodical reminders shall be given.
(b) Guarantor (if any) shall be informed: He may be requested to peruse the borrower and arrange adjustment of Bank's dues.
(c) Seek assistance of local elite persons (if any) to assist the Bank for recovery of stuck-up loans.
(d) Frequently visit customer's business centre.
(e) Repeatedly visit customer's residence so that borrower may understand that either he shall have to repay/adjust the liability or make suitable arrangement afresh.
(f) Final notice may be given.
(g) Legal notice through Bank's penal lawyer may be given.
(h) Notice for encashment of security may be given.

If the account is by way of pledge and pledgor makes default in payment of debt, the Bank has to sell pledged goods through public auction as per directives of Head Office and sale proceeds to be deposited in borrower's account towards reduction of debt.
If the account is collateralized by Mortgage of immovable property (Land & building) having irrevocable power of attorney to sell the mortgaged property Bank shall have to arrange for auction by publishing notice in 02 daily News Papers and shall ensure getting best price. In this case Bank's enlisted lawyer's opinion should be obtained so that provisions mentioned in the law may be followed meticulously.
All other securities such as liened FDRs, Credit balances and balances of scheme deposits may be appropriated after due notice to the borrower as well as Guarantors /account holders etc.

After appropriation of proceeds (Sale proceeds of pledged goods/mortgaged property/ FDRs/scheme deposit/Credit balance etc.) for realization of balance outstanding if any, Bank may go for filing suit against the borrower/Guarantor before claim is barred by limitation.

The Bank should be very cautious in maintenance of non-performing loan accounts so that suit may be filed within next one year when:-
(a) Minimum 10% of overdue amount in the 1st year
(b) Minimum 15% of overdue amount in the 2nd year
(c) Minimum 25% of overdue amount in the 3rd year is not recovered/realized.

If the total period of loan repayment according to the repayment schedule is less than 03 years and if amount of realization within that total period is less than 20%, the Bank file suit within next one year.
If any suit is instituted after the period mentioned above, the Court shall inform the matter in writing to the Ca9 of the Bank immediately and if such suit could not be filed within the stipulated period due to failure of an officer to carry on his duty, appropriate authority shall have to take disciplinary action against such officer liable and inform the Government and the Court about action taken within 90 days of receiving information.

Recovery process in case of borrower's death:
After a borrower's death (in case of an individual or sole proprietor of a concern), no further withdrawal or debit in his advance account should be permitted. If the borrower's successors and heirs approach the bank for continuation of the facility, the case will have to be examined from all angles.
If the bank agrees to the request, debit balance in the account of the deceased may be transferred to a new account in the name of his heirs or successors along with the securities held in the account. Legal opinion shall have to be taken before this is done. If the desired facility is refused or no application is made by the heirs or successors in this behalf, the securities, if any, may have to be sold and the guarantee, if any to be invoked/encashed. For the balance, if any, a suit shall have to be filed for obtaining decree of the court, if adjustment is not possible out of the court. It should be noted that the heirs of the deceased borrower are responsible to pay the debt only to the extent of the assets of the deceased, which come to their hands.

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