Study Material on
NPA & Recovery Management
एन ऩी ए और वसूऱी प्रबन्धन
संबंधी अध्ययन-सामग्री
IT 659
STAFF TRAINING COLLEGE
BANGALORE
कममचारी प्रशिऺण महाववद्याऱय
बंगऱूर
NPA & RECOVERY MANAGEMENT
INDEX
SL NO
PARTICULARS
PAGE
NO
1
Introduction to Non Performing Assets (NPA)
1
2
Non Performing Assets
2
3
Provisioning Norms
17
4
Causes of NPA
24
5
Loan Recovery Policy of the Bank
27
6
Safe Guarding the assets charged to the Bank
31
7
Waiver of Legal action
34
8
Management of Non Performing Assets (NPA)
40
9
SARFAESI Act
46
10 E-auction
58
11 Central Registry
68
12 Compromise/OTS & Recovery management
75
13 Loan Past Due (LPD)
88
14 Pass Sheet issue for LPD accounts
94
15 Debt Recovery Tribunals (DRT)
112
16 Lok Adalat
122
17 CIBIL
132
18 Credit Cards
136
19 Recovery Agents
139
20 Empanelment of Advocates
146
21 Important Guidelines/Recovery Contest/Special OTS Schemes
150
22 Delegation Powers
160
23 Circulars
162
Staff Training College, Bangalore
INTRODUCTION
The concept of `Non recognition of income‘ on bad and doubtful assets is not new to the Indian
Banking System. This practice was in vogue since a very long time, much before ―introduction
of prudential norms‖ on Income Recognition and Asset Classification/IRAC principles. But what
was not defined in certain terms, as to when these assets were to be classified `Loan Past
Due‘ or ‗Non Performing‘, so as not to recognize the income. Further the procedure prevailing
in the Bank was to recognize the income on accrual or realizable basis and not on realized basis. Therefore Banks were recognizing the income on accrual basis though quality of asset
(loan) was not good. This facilitated the Banks to present a rosy Balance Sheet, higher profit
rather than a true one, which lead to wide criticism by public and press.
After failure of several International Banks, the Bank for International settlement appointed a
Committee (known as Basle Committee) to look into the adequacy of capital of banks with international presence. The Basle Committee on Banking Supervision comprised representatives
of the Central Banks and Supervisory authorities of group 10 countries (Belgium, Canada,
France, Germany, Italy, Japan, Netherlands, Sweden, UK & USA).The report submitted by the
Committee in July 1988 contains a detailed frame work of recommendations agreed to between all group 10 countries for measurement of capital adequacy and establishment of minimum standards, to be achieved by the end of 1992, for Banks operating internationally.
Participating in global trades and other mercantile activities require, adhering to the international standards/yardsticks and also rating by international agencies on the ability of the domestic financial systems, to withstand the international instability and to access to the capital
markets as well. This called for a reform in financial sector with utmost priority in a liberalizing
economy.
Therefore Central Government constituted a Committee on Financial Systems under the
Chairmanship of Mr. M. Narasimham to examine various issues affecting financial systems and
suggest measures to improve the same. The Committee submitted its recommendations in November 1991 and the RBI inter alia accepted the major recommendations as regards Asset
Classification, Income Recognition for the purpose of provisioning and other related matters.
In order to bring further reforms in financial sector/systems, the government constituted another
committee in 1997 under the Chairmanship of Mr. Narasimham and it submitted its 2nd report in
April 1998 covering broad inter related issues of action that need to be taken to strengthen
Banking system, streamlining procedures and structural changes in the system.
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NON PERFORMING ASSET
An asset, including a leased asset , becomes a non performing asset when it ceases to generate income for the bank should be treated as Non Performing Asset (NPA) and any income
from such loan Asset should not be booked as income unless it is actually recovered.
IMPORTANT TERMINOLOGIES:
We furnish here below the various definitions, in tune with the updated guidelines received
from HO from time to time
1.
DUE DATE:
Due Date refers to the date on which interest/installment is payable by the borrower.
Interest has to be collected at monthly rests in respect of Working Capital and Term
Loans, except Agricultural Advances as per HO Circular 275/2005 dated 04.10.2005.
Normally interest falls due for payment immediately on the date of debit. In respect of
certain category of advances such as Project Finance, Agricultural Advances (including
Gold Loans), Loans granted to Staff, Education Loan etc., where repayment holiday is
granted, the due date should fall only after the expiry of the said specified period. The
installment of principal falls due for payment as per the terms of sanction. In case of
EMI Loans, due date refers to the due date for the stipulated installment which comprises both principal and interest. H.O. Circular 61/2011 dated 26.2.2011 may be referred in this regard.
2.
OVERDUE:
Any amount due to the Bank under any credit facility is ‗overdue‘ if it is not paid on the
due date specified as per the terms of sanction.
3.
90 DAYS NORMS:
With a view to moving towards international best practices and to ensure greater tranparency, the ‟90 days‘ overdue norm for identification of NPAs has been adopted from
the year ended March 31, 2004.
Accordingly, a Non Performing Asset shall be a loan or advance where:
a. Interest and/or installment of principal remain overdue for a period of more than
90 days in respect of a Term Loan
b. The account remains ‗out of order‘ in respect of an Overdraft/Cash Credit
(OD/CC)
c. The bill remains overdue for a period of more than 90 days in the case of Bills
Purchased and Discounted
d. In case of advance granted for agricultural purposes, interest and/or installment
of principal remains overdue for two crop seasons (in case of short duration
crops) and for one crop season (in case of long duration crops)
e. Any amount to be received remains overdue for a period of more than 90 days
in respect of other accounts.
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f.
The amount of liquidity facility remains outstanding for more than 90 days in respect of a securitization transaction undertaken in terms of guidelines on securitization dated Feb 1, 2006.
g. In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract. If these remain unpaid for a
period of 90 days from the specified due date for payment.
h. If the interest due and charged during any quarter is not serviced fully within 90
days from the end of the quarter.
4.
AGRICULTURAL ADVANCES:
In respect of Agricultural Advances, the following norms are applicable :
 A loan granted for short duration crops will be treated as NPA, if the installment
of principal or interest thereon remains overdue for two crop seasons.
 A loan granted for long duration crops will be treated as NPA, if the installment
of principal or interest thereon remains overdue for one crop season.
For the purpose of these guidelines, ―long duration‖ crops would be crops with crop
season longer than one year and crops which are not ―long duration‖ crops, would be
treated as ―short duration‖ crops.
The crop season for each crop, which means the period of harvesting of the crops
raised, would be as determined by the State Level Bankers‘ Committee in each state.
Depending upon the duration of crops, the NPA norms would also be made applicable
to all Direct Agricultural Advances as listed in Annexure II. In respect of agricultural advances, other than direct agricultural advances and term loans given to non agriculturists, identification of NPAs would be done on the same basis as non-agricultural advances, which, at present, is the 90 days delinquency norm.
4.1.
GOLD LOANS:
Gold Loans are normally granted for agricultural purposes. Interest and principal is to
be cleared within 12 months. However, in respect of GL-OD the tenability is retained at
24 months (Branches may refer Gold Loan Manual in this regard). Further gold loans
generally fall under Standard Assets. Accounts where interest and principal has become overdue for two crop seasons (in case of short duration crops) or one crop season (in case of long duration crops), such accounts are to be classified as NPAs. In this
regard, Branches may also refer Gold Loan Manual wherein it is advised that immediately after completion of the repayment period, the repayment period of loan can be extended by 6 months by the Branch provided interest debited till such time is recovered.
4.2.
RUNNING ACCOUNTS:
a.
Out of Order Accounts:
An account should be treated as ‗out of order‘ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing
power, but there are no credits continuously for 90 days or credits are not enough to
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cover the interest debited during the same period, such accounts should be treated as
‗out of order‟.
b.
Non submission / Delayed submission of stock statements:
Stock statements relied upon for determining Drawing Powers should not be older than
three months. The outstanding in the account based on Drawing Power calculated
from stock statements older than three months shall be deemed as irregular. The
Working Capital limits will become Non-Performing Assets if such irregular drawings
are permitted in the account for a continuous period of 90 days even though the unit is
working or the borrower‘s financial position is satisfactory.
c.
Delay in renewal / regularization of adhoc limits:
Regular and adhoc credit limits should be renewed / regularized within three months
from the due date / date of adhoc sanction. If the renewal / review are delayed for want
of financial statements and other data from the borrowers, Branch should furnish evidence to show that renewal / review of credit limits is already on and would be completed soon. An account where the regular / adhoc credit limits have not been reviewed / renewed within a period of 180 days from the due date / date of adhoc
sanction, will be treated as Non-Performing Asset. However, on review / renewal of
limits, the asset classification may be brought to performing status.
However, an account where the liability is in excess of sanctioned limit / drawing power
on account of exercising emergency power or temporary enhancement has been permitted for a given period can be classified as Standard Asset till such time.
d.
Regularization of Accounts just before the date of Balance Sheet:
In respect of borrowal accounts where a solitary or a few credits are recorded before
the Balance Sheet date, satisfactory evidence should be available about the manner of
regularization of the account to eliminate doubts on their performing status. Where the
account shows inherent weakness on the basis of the data available, it should be
deemed as Non Performing Asset.
Advances which have been regularized by repayment of interest/installment before Balance Sheet Date need not be classified as NPA, even though the account might have
been out of order/in default for more than 90 days or major part of the year provided
such regularization was through genuine sources. Sanctioning of additional limits
should not be resorted to just to avoid slipping of an account into NPA. So also,
transfer of funds from one account to another with the only intention of avoiding
slipping into NPA, should not be resorted. This however does not prohibit genuine
transfer of funds between one account to another.
4.3.
BILLS LIABILITY:
The Bills liability will become NPA if it remains overdue for a period of more than 90
days.
4.4.
TERM LOANS:
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A Term Loan account will become NPA if interest and/or installment of principal remain
overdue for a period of more than 90 days. Term Loans are those where the terms of
repayment are for a period of more than 36 months.
4.5.
OTHER ADVANCES:
Any amount to be received remains overdue for a period of more than 90 days in respect of other advances, such accounts will become NPA.
5.
ASSET CLASSIFICATION:
Advances are broadly classified into Performing and Non-performing Assets. Performing Assets are Standard Assets and Non-performing Assets are further classified into
Sub-standard, Doubtful and Loss Assets. An asset, including a leased asset, becomes
non performing when it ceases to generate income for the Bank. The above Asset
Classification intends to provide basis for Income Recognition and determining the Provisioning requirement for Non-Performing Assets.
Though, Prudential Norms were introduced in 1992 and more than a decade is over
since its implementation, there has been divergence in the assessment of NPAs by
Bank. In order to strengthen the system and to avoid such divergence, Reserve Bank of
India has advised the Banks to establish appropriate internal systems to eliminate the
tendency to delay or postpone the identification of NPAs. The system should ensure
that doubts in Asset Classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been
classified as NPA. Further Reserve Bank of India has advised that responsibility and
validation levels for ensuring proper Asset Classification is to be fixed by the Banks.
In order to ensure scrupulous compliance with the guidelines on Prudential Norms in a
uniform manner, the Asset Classification and Valuation of Securities should be confirmed by the Branch-In-Charge. Further, such asset classification and valuation of securities should be vetted by the Circle Office in respect of accounts falling under their
powers and HO powers in the format given in the Annexure I.
AUTOMATIC CLASSIFICATION OF NPA BY SYSTEM
Automatic Classification of NPA by the system is in place wherein the Asset Classification will be done by the system as per IRAC norms. In CBS, a system has been built, in
which, it will consider all IRAC norms to classify an account. The auto NPA report will
be made available on daily basis in Business Objects. Branches have to verify the report / review the Asset Classification done by the system and take necessary remedial
steps to ensure correct classification of advances.
Classification of a performing asset as Non-performing asset on account of technical
issues should be addressed by the branch suitably with necessary supporting documentary evidences.
The branches should verify that the classification made by the system is in tune with
the Prudential Guidelines given in the circulars. Wherever guidelines are not complied
with or variance is observed, the branches are required to take up with the concerned
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Circle Office with necessary details. The same should be placed before the Branch
Auditors/Inspecting Officials for necessary rectification by way of MOCs.
5.1.
BORROWER-WISE CLASSIFICATION:
The Asset Classification into performing and non-performing is borrower-wise and not
account/facility wise. All the facilities granted to a borrower will have to be treated as
NPA and not the particular facility or part thereof which has become irregular. Accordingly, if one account of the borrower is NPA, the other accounts, which are otherwise
performing, should also be classified as NPA of the same category.
For example, ―if the borrower is having more than one account and if any one of the accounts is to be classified as Doubtful, all other accounts of the borrower should also be
classified as Doubtful, though such accounts may qualify for classification as Standard
or Sub-standard Asset.‖
Since the Asset Classification is borrower-wise, the total liability of the borrower in all
the facilities and the total value of securities available thereof should be aggregated for
Asset Classification and Provisioning.
It is observed that the accounts of a single borrower are having multiple customer ids.
This will hamper the process of merging of all the accounts of a borrower at HO level
during audit / finalization. An option has been made available in CBS for merging of
customer IDs. Branches may seek the help of user support group / TM section of Circles for any assistance in this regard. While carrying out the merging of customer ids,
branches should ensure that the asset classification of all the accounts of a borrower
under a customer id is the same.
In Branches, the crystallized liability on account of devolvement of LCs / Guarantees is
kept in a separate account without debiting to the operating accounts of the borrowers.
In such cases, the devolved liability should be treated as part of the borrowers principal
operating account and Asset Classification should be determined taking into account all
the liabilities / facilities of the borrower including Devolved LCs / Guarantees.
6.
PERFORMING ASSETS – STANDARD ASSETS:
Performing Assets are Standard Assets which do not disclose any problem and which
do not carry more than the normal risk attached to the business. The performing asset
is one, which generates income for the Bank.
An account is considered to be a Standard Asset when it is in order or where the overdue amount is within a period of 90 days and in respect of Direct Agricultural Advances
if the amount overdue is less than two crop seasons in case of short duration crops and
one crop season in case of long duration crops.
7.
NON-PERFORMING ASSETS:
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An account is to be treated as Non-performing Asset (NPA) when it ceases to generate
income for the Bank. Such Non-performing Assets should have well defined credit
weaknesses, which jeopardize the liquidation of the debt and characterized by distinct
possibility, that the Bank would sustain some loss, if the deficiencies are not corrected.
Non-performing Assets are further classified into three categories viz., Sub-standard,
Doubtful and Loss Assets.
7.1
SUB-STANDARD ASSETS:
In respect of loan account if any amount is overdue for a period of more than 90 days
from the due date, the account should be classified as SUB-STANDARD ASSET. A
sub-standard asset would be one, which has remained NPA for a period less than or
equal to 12 months.
In cases where the loan was sanctioned as a clean / unsecured loan, the account on
becoming NPA for the first time should be treated as Sub-standard only.
7.2.
DOUBTFUL ASSETS:
The following accounts should be classified as DOUBTFUL ASSETS.
7.3.
1.
With effect from 31.03.2005, an account would be classified as doubtful if it had
remained in the sub-standard category continuously for 12 months.
2.
A Non-Performing Asset where the erosion in the value of securities is more than
50% of value as assessed by the Bank / accepted by Reserve Bank of India
previously at the time of last inspection and where the value of securities available is more than 10% of the outstanding liability should be straightaway classified under doubtful category and provisioning should be made as applicable to
Doubtful Assets.
LOSS ASSETS:
A LOSS ASSET is one where the loss has been identified by the Bank or Internal / External Auditors or the Reserve Bank of India Inspectors, but the amount has not been
written off wholly or partly. In other words, such an asset is considered uncollectible
with little salvage or recovery value.
Further, in cases of exposures, where the realisable value of security, while sanctioning
of the facility is more than 10% of the outstanding exposure and has subsequently
eroded to 10% or less of the outstanding, then the account should be straightaway
classified as Loss Asset.
7.4.
Further accounts where there is a potential threat of recovery on account of erosion in
the value of security or non-availability of security and existence of other factors such
as fraud, Bills discounted with fake documents etc., should be classified as DOUBTFUL
ASSET (where the realisable value of securities is more than 10% of the outstanding liability) or LOSS ASSETS (where realizable value of securities is less than 10% of outstanding liability), irrespective of the period it has remained as Non-Performing Asset.
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Also, a NPA need not go through the various stages of classification in cases of serious
credit impairment and such assets should be straightaway classified as doubtful (where
the realizable value of securities is more than 10% of the outstanding liability) or loss
asset (where realizable value of securities is less than 10% of outstanding liability) as
appropriate.
8.
DATE OF NPA:
In view of the necessity to determine the overdue period from the due date, the DATE
OF NPA assumes more significance and absolutely necessary to ascertain as to
whether a Non-Performing Asset has completed 12 months in Sub-Standard category
to be classified as Doubtful Asset. Further, calculation of DATE OF NPA is more relevant as due date for payment of installments / Bills Purchased and Discounted will fall
on any date during a month.
Date of NPA and Year of Doubtful should be carefully updated in the system so that
Advances Supporting Sheets are generated correctly, at the time of drawing Balance
Sheet. Once date of NPA is determined it should not be altered subsequently. As such
date of NPA is determined, it should be freezed.
9.
CERTAIN SPECIFIC CATEGORY OF ADVANCES:
9.1
GUIDELINES ON ASSET CLASSIFICATION OF PROJECT LOANS IN RESPECT OF
PROJECTS UNDER IMPLEMENTATION
RBI has modified asset classification norms for project loans before commencement of
commercial operations. These guidelines will not be applicable to restructuring of advances classified as Commercial Real Estate, Capital Market exposure; and Consumer
& Personal advances.
For the above purpose, all project loans shall be divided into the following two categories:
(i) Project Loans for infrastructure sector
(ii) Project Loans for non-infrastructure sector
The branches and offices may refer to Circulars 98/2013 for more details.
9.2
AGRICULTURAL ADVANCES THROUGH PRIMARY AGRICULTURAL CREDIT SOCIETIES FARMERS SERVICE SOCIETIES (FSS)
In respect of agricultural advances as well as advances for other purposes granted by
the bank to PACS /FSS under the on-lending system, only that particular credit facility
granted to PACS /FSS which default for a period of two crop seasons in case of short
duration crops and one crop season in case of long duration crops, as the case may be,
after it has become due will be classified as NPA and not all credit facilities sanctioned
to a PACS/FS S.
The other direct loans and advances, if any, granted by the Bank to the member borrower outside the on-lending arrangement will become NP A even if one of the credit
facilities granted to the same borrower becomes NPA.
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9.3.
ADVANCES TO STAFF:
The interest/instalments on loans granted to staff members are generally recovered
regularly from the salary. Hence, staff loans are treated as Standard Assets. If, for reasons such as, Loss of Pay, Suspension, etc., no recovery is forthcoming, then the account should be classified accordingly taking into consideration the overdue position.
In the case of housing loan or similar advances granted to staff members where interest is payable after recovery of principal, interest need not be considered as overdue
from the first quarter onwards. Such loans/advances should be classified as NPA only
when there is default in repayment of instalment of principal or payment of interest on
the respective due dates.
9.4
ADVANCES AGAINST OUR OWN DEPOSITS / NSCs / IVPs / KVPs / LIFE INSURANCE POLICIES:
Loans / advances granted against our Own Term Deposits, NSCs eligible for surrender,
IVPs, KVPs, Life Insurance Policies are to be treated as Standard Assets. However,
Advances against gold ornaments, government securities and all other securities are
not covered by this exemption.
Further, interest on advances against Term Deposits, NSCs, IVPs, KVPs and Life Policies may be taken to income account on the due date, provided adequate margin is
available in the accounts.
9.5.
LOANS GRANTED UNDER GOVERNMENT SPONSORED SCHEMES:
For loans granted under Government sponsored schemes such as SGSY, PMRY etc.,
assets created out of our finance and the subsidy received from the Government which
is kept under Deposit/Sundry Liabilities should also be taken as security.
9.6
LOANS WITH MORATORIUM FOR PAYMENT OF INTEREST:
In the case of finance given for industrial projects or for agricultural plantations etc.,
where moratorium is available for payment of interest, payment of interest becomes
‗due‘ only after the moratorium or gestation period is over. Therefore, such amount of
interest do not become overdue and hence not NPA, with reference to the date of debit
of interest. They become overdue after due date for payment of interest, if uncollected.
9.7
TOD IN SAVINGS BANK/CURRENT ACCOUNT:
The temporary overdrawing allowed in Current/Savings Bank Account (including overdrawings on account of Cancard FTV debits) falls due for payment within 15 days and
become overdue thereafter. Depending on the overdue position, the account would get
classified as Performing or otherwise.
10.
RESTRUCTURING / RESCHEDULING OF LOANS:
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Detailed guidelines on the policy framework on restructuring of advances as approved
by the Board of Directors of the Bank have been furnished vide HO Circular
No.245/2010 dated 15.07.2010,356/2010 dated 12.10.2010,180/2011 dated
13.06.2011,324/2013 dated 06.07.2013 and 406/13 dated 21.08.2013.
Restructuring:
Restructuring is a process by which Bank grants to a borrower, for economic or legal
reasons relating to the borrower's financial difficulty, concessions the Bank would not
otherwise consider. The process normally involves modification of terms of the advance/securities which would generally include among others, alteration of repayment
period/rate of interest (due to reasons other than competitive reasons). As such, any of
the following actions distinctly or jointly shall be termed as restructuring:
 Rephasing/Rescheduling the repayment in case of an outstanding term loan with or
without change in balance repayment period/installments.
 Downward variation of interest payment terms (Not under competitive reasons).
 Conversion of irregularities or a portion in outstanding working capital limits into WCTL /
FITL payable over a period. Conversion of irregularities or portion in outstanding
working capital limits/term loans into debentures/equity.
 rescheduling the payment of interest outstanding/accruing on term loans into FITL / deferment or conversion into FITL / debentures / equity.
 Changes in terms of payment of interest/installment on the prevailing restructured facilities.
Restructuring cannot take place without the formal consent/application of the debtor.
However, the process of restructuring can be initiated by the Bank in deserving cases
subject to the customer agreeing to the terms and conditions.
No account will be taken up for restructuring by the Bank unless financial viability is established and/or there is reasonable certainty of repayment as per the terms of the restructuring package.
Standard Restructured Advances (Cir 98/2013)
Under Standard Restructured Advances:i. Restructured accounts not completed 2 years from the date of restructuring
ii. Accounts where moratorium is permitted, the details of accounts where moratorium is
not completed and 2 years period not completed from the date of restructuring only to
be furnished.
Non-Performing Restructured Advances:
Here, all advances restructured when the account was in NPA and restructured advances subsequently slipped to NPA and outstanding as NPA as at 31.03.2013 have to
be furnished under respective categories such as Sub Standard, Doubtful and Loss.
Repeated Restructuring:
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The restructuring of an account second (or more) time(s) is a repeated restructuring.
However, if the second restructuring takes place after the period up to which the concessions that were extended under the terms of the first restructuring, that will not be
considered as repeated restructuring.
10.1
Prudential Guidelines on Restructuring of Advances:
i.
Asset Classification norms:
Asset Classification norms for restructured accounts are as follows:

Restructuring of advances could take place in the following stages:
a) Before commencement of commercial production / operation;
b) After commencement of commercial production / operation but before the
asset has been classified as 'sub-standard';
c) After commencement of commercial production / operation and the asset has
been classified as 'sub-standard' or 'doubtful'

The accounts classified as 'Standard Assets' should be immediately re- classified as 'Sub-Standard Assets' upon restructuring.

The non-performing assets, upon restructuring, would slip into further lower asset classification category as per extant asset classification norms with reference to the pre-restructuring repayment schedule.

All restructured accounts which have been classified as Non Performing Assets
upon restructuring, would be eligible for upgrading to the 'Standard' category after observations of 'satisfactory performance' during the 'specified period'.

In case, however, satisfactory performance after the specified period is not evidenced, the asset classification of the restructured account would be governed
as per the applicable prudential norms with reference to the pre-restructuring
payment schedule.

Any additional finance may be treated as 'standard asset', up to a period of one
year after the first interest / principal payment, whichever is earlier, falling due
under the approved restructuring package. If the restructured asset does not
qualify for upgradation at the end of the above specified one year period, the
additional finance shall be placed in the same asset classification category as
the restructured asset.

In case of a restructured asset, which is a standard asset on restructuring and is
subjected to restructuring on a subsequent occasion, it should be classified as
sub-standard. If the restructured asset is a sub-standard or a doubtful asset and
is subjected to restructuring, on a subsequent occasion, its asset classification
will be reckoned from the date when it became NPA on the first occasion. How-
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ever, such advances restructured on second or more occasions may be allowed
to be upgraded to standard category after one year from the date of first payment of interest or repayment of principal whichever falls due earlier in terms of
the current restructuring package subject to satisfactory performance.
ii.
Special Regulatory Treatments on Asset classification norms:
a.
As per guidelines, the account will have to be classified as NPA upon restructuring. However in modification to this principle, special regulatory treatment (Para
b below) for asset classification will be available to the borrowers engaged in
important business activities subject to compliance with certain conditions enumerated in Para ―E-c‖ of enclosure II of HO Cir 245/2010. Such treatment is not
extended to the following categories.
i. Consumer and Personal advances.
ii. Advances classified as Capital Market Exposures.
iii. Advances classified as Commercial Real Estate exposures.
An existing ‗Standard asset‘ will not be downgraded to the ‗Sub-standard category‘ upon restructuring. For further conditions in this regard, refer the above
Circular.
b.
The promoters' sacrifice and additional funds required to be brought in by the
promoters should be minimum 20% of Bank‘s sacrifice or 2% of the restructured
debt, whichever is higher. This stipulation is the minimum and bank may decide on a higher sacrifice by promoters, depending on the riskiness of the project and promoters‘ ability to bring in higher sacrifice amount. Further, such
higher sacrifice may invariably be insisted upon in larger accounts, especially
CDR accounts. The promoters sacrifice should invariably be brought upfront.
In case the promoters fail to bring in their balance share of sacrifice within the
extended time limit of one year, the asset classification benefits derived by Bank
in terms of Enclosure-II (E) will cease to accrue and such accounts shall be
classified as per guidelines furnished in Enclosure-II (A) of this circular.
Further, the contribution by the promoter need not necessarily be brought in
cash and can be brought in the form of de-rating of equity, conversion of unsecured loan brought by the promoter into equity and interest free loans. (HO
Cir.356/10)
Promoters‘ personal guarantee should be obtained in all cases of restructuring.
Corporate guarantee cannot be accepted as a substitute for personal guarantee.(Cir.324/13)
iii.
Income Recognition norms:

Interest income in respect of restructured accounts classified as 'standard assets' will be recognized on accrual basis and that in respect of the accounts
classified as 'non-performing assets' will be recognized on cash basis.
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Staff Training College, Bangalore

iv.
In the case of accounts where the pre-restructuring facilities were classified as
'sub-standard' and 'doubtful', interest income on the additional finance
should be recognized only on cash basis.
(a) Prudential Norms for Conversion of Principal into Debt / Equity
Asset Classification Norms
A part of the outstanding principal amount can be converted into debt (debentures) or equity instruments as part of restructuring. The debt / equity instruments so created will be classified in the same asset classification category in
which the restructured advance has been classified. Further movement in the
asset classification of these instruments would also be determined based on the
subsequent asset classification of the restructured advance.
(b) Prudential Norms for Conversion of Unpaid Interest into 'Funded Interest
Term Loan' (FITL), Debt or Equity Instruments.
Asset Classification norms:
The FITL/ debt (debentures) or equity instrument created by conversion of unpaid interest will be classified in the same asset classification category in which
the restructured advance has been classified. Further movement in the asset
classification of FITL / debt or equity instruments would also be determined
based on the subsequent asset classification of the restructured advance.
Specified Period is redefined as a period of one year from the commencement
of the first payment of interest or principal,whichever is later,on the credit facility
with longest period of moratorium under the terms of the restructuring package.
Consequently, Standard accounts classified as NPA and NPA accounts retained
in the same category on restructuring by the Bank should be upgraded only
when all the outstanding loan/facilities in the account perform satisfactorily during the ―specified period‖, i.e. principal and interest on all the facilities in the account are serviced as per terms of payment during that period.
Satisfactory Performance:
Satisfactory performance during a specified period means adherence to the following conditions during that period:

Non-agricultural cash credit accounts: The account should not be out of order any time during the specified period, for duration of more than 90 days.
In addition, there should not be any overdues at the end of the specified period.

Non-agricultural term loan accounts: No payment should remain overdue for
a period of more than 90 days. In addition, there should not be any overdues at the end of the specified period.
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Staff Training College, Bangalore

In the case of agricultural accounts, at the end of the specified period, the
account should be regular.
Fully Secured
When the amounts due to the Bank (Present value of principal and interest receivable as per restructured loan terms) are fully covered by the value of security (Tangible securities – Primary as well as collateral), duly charged in its favour
in respect of those does, the dues are considered to be fully secured. However,
for this purpose, the Bank guarantees, State Government guarantees and Central Government guarantees will be treated at par with tangible security.
The condition of being fully secured by tangible security will not be applicable in
the following cases:
a) Borrowers in Small Enterprises (Manufacturing) Sector, where the outstanding is
up to Rs.25 lakhs.
b) Infrastructure projects, provided the cash flows generated from these projects
are adequate for repayment of the advance, the Bank has in place an appropriate mechanism to escrow the cash flows, and also has a clear legal first claim
on these cash flows.
Time Norms:
While a restructuring proposal is under consideration, the usual asset classification norms would continue to apply. The process of re-classification of an asset
should not stop merely because restructuring proposal is under consideration.
The asset classification status as on the date of approval of the restructured
package by the competent authority would be relevant to decide the asset classification status of the account after restructuring / rescheduling / renegotiation.
The incentive for quick implementation of the restructuring package,
NON-CDR – If the approved package is implemented by the Bank within 120
days from the date of receipt of application.
CDR – Within 120 days from the date of approval under CDR mechanism.
The above norms have to be adhered as maximum for the time limits. Efforts
should be to formulate and implement the restructuring package within the
above time frame. Undue delay in framing any package would attract supervisory concerns.
However, it is clarified that no such incentive would be available on withdrawal
of asset classification benefits on restructuring with effect from
April
1,2015,except in cases of restructuring by change of date of commencement of
Commercial operation(DCCO) of infrastructure and non-infra project loans.
Provisions for Restructured Accounts
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Staff Training College, Bangalore
Normal Provisioning norms are applicable for restructured accounts according to
the asset classification. Provision for 'Diminution in fair value' of restructured advances will be made at Head Office.
REHABILITATION / NURSING PACKAGE:
Following are the norms for accounts under Rehabilitation / Nursing package:
12.
(a)
The existing facilities shall continue to be classified under the same category of Asset Classification before sanctioning of the package.
(b)
Additional limits sanctioned as per the package should be classified as
Standard Asset for a period of one year and hence there is no need for
making any Provision for a period of one year from the date of disbursement of the additional facilities.
(c)
After one year from the date of disbursement under the package, all the
accounts including the additional limits are to be reviewed. If the account
has been conducted in accordance with the terms of the package, then it
can be upgraded as Standard Asset. If not, should be classified as NPA
including the additional facilities, depending upon the overdue status.
UPGRADATION OF ACCOUNTS:
Accounts classified as Non-Performing Asset for the previous Balance Sheet are to be
reviewed and basing on the performance / recovery during the period, they may either
have upward or downward movement as on the subsequent Balance Sheet date.
Upward movement is only on account of recovery of overdue amounts or satisfactory
conduct of the running account. Upgradation within the NPA category is not permitted
except in respect of Loss Assets, where fresh securities are acquired covering more
than 10% of the liability outstanding, in which case, the account would be classified as
Doubtful Asset.
It is brought to the notice of Reserve Bank of India, that in case of NPAs, some Banks
consider upgradation to Standard only after one year of satisfactory performance. It
has been clarified by Reserve Bank of India that if arrears of interest and principal are
paid by the borrower, as per original repayment schedule, in case of loan accounts
classified as NPAs, the account should no longer be treated as Non Performing and
should be classified as STANDARD ACCOUNT. However extant instructions in respect of re-classification of loan accounts subjected to restructuring would remain unchanged.
13.
INCOME RECOGNITION:
Income recognition refers to accounting of Interest Income, Commission and Other Income at Branch level for various Advances and other Services. As per the Prudential
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Staff Training College, Bangalore
Norms, Income Recognition is based on the record of recovery rather than accrual of
interest i.e., entries passed in the Books of Accounts of the Bank.
The following norms are applicable to account Interest Income:
1)
For accounts classified as Standard Asset, interest debited during the year can
be recognized as Income by crediting to Interest Collected Account. However, in respect of Central Government Guaranteed Accounts, though they are treated as Standard Asset, the performance in the account is to be reviewed for a period of 90 days
preceding to the Balance Sheet date and if the account is to be classified as NPA, but
for the availability of Government Guarantee, Income is to be recognized only to the extent of recovery.
2)
In respect of loans against our own Deposits, Life Insurance Policies, NSCs,
IVPs, KVPs etc., if requisite margin is not maintained, interest to the extent of recovery
only can be recognized as Income.
3)
In respect of accounts classified as NPA, interest should not be recognized on
accrual basis but is accounted as Income only when it is actually received.
14.
INTEREST SUSPENSE:
Interest should not be debited to NPA Accounts from the date on which Account is
identified as NPA.
In respect of Accounts classified as NPA for the first time, interest debited to the extent
not recovered is to be reversed to respective Advances Accounts as per the guidelines
of the Recovery Wing.
Interest Suspense sub-head has been discontinued vide Circular No. 71/2005 dated
16.03.2005 issued by Recovery Wing, Head Office. However, in respect of FITL accounts, where unrealized / undebited portion of interest is kept in interest suspense, the
same should not be credited to the FITL account. In other words, for such category of
accounts, the interest suspense account will continue till the interest is recognized.
For the Balance Sheet, in respect of accounts classified as NPA for the first time, all
unrealized interest should be reversed to respective loan account by debiting Interest
Collected account.
In view of the above guidelines, there would not be any interest suspense account (except FITL).
In all cases, other than Loan Past Due Accounts, recoveries made should be first adjusted towards interest debits. On further recovery, unrecognized interest income
should be accounted by debiting interest due in the NPA account to the extent of recovery. In case of OTS permitted accounts, where the amount is payable on instalments, the same shall be accounted towards principal and interest as per sanction.
However, in respect of LPD accounts, as per policy of the Bank, any recovery will go
towards reducing the outstanding balance.
15.
FUNDED INTEREST TERM LOAN ACCOUNTS (FITL)
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In almost all revival/restructuring packages, FITL would have been created to fund the
unrecovered. Risk Management Wing vide Circular 4/2009 have indicated that the unrealized income represented by FITL/Debt or Equity instrument shall have a corresponding credit in an account styled Sundry Liabilities (Interest Capitalization)
These accounts of the borrower would generally be in the Sub Standard/Doubtful 1/2
Category. In some cases they would be even in the Standard Category.
Hence all FITLs have to be either maintained as above or fully provided irrespective of
the fact that the accounts are under any Category.
In respect of all NPA accounts, whatever interest reversed at the time of account becoming NPA should be debited to Interest Collected Account and credited to Party‘s account. Hence no Interest Suspense will be created in respect of NPA account except in
respect of FITL. Wherever FITL is permitted to the borrowal accounts, such interest portion only to be shown as Interest Suspense. A separate Limit Code is available for reporting FITL in Advances Supporting Sheet. The Interest Suspense shown in the Supporting Sheet should tally with FITL shown in the Supporting Sheet.
16.
PROVISIONING:
As per the guidelines of Reserve Bank of India, provision is to be made based on Asset
Classification as under:
STANDARD ASSETS:
As per the guidelines of Reserve Bank of India, a general provision for Standard Assets
are to be made as detailed hereunder:
Category of Standard advances
Direct advances to Agriculture and SME Sector
Advances to Commercial Real Estate
Provision for restructured a/cs classified as standard advances
in respect of new restructured standard accounts(flow) with effect from June 1, 2013
Provision for restructured a/cs classified as standard advances
in a phased manner for the stock of restructured standard accounts as on March 31,2013 as under:
 With effect from March 31,2014(spread over four quarters of 2013-14)
 With effect from March 31,2015(spread over four quarters of 2014-15)
 With effect from March 31,2016(spread over four quarters of 2015-16)
All other Loans and advances
Provision
0.25%
1.00%
5.00%
3.50%
4.25%
5.00%
0.40%
In respect of NPAs i.e., Sub-Standard, Doubtful and Loss Assets provision is required
to be made based on the Asset Classification, Securities and ECGC / CGMSE Cover
available.
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Staff Training College, Bangalore
SUB-STANDARD ASSETS:
A general provision of 15% on total outstanding should be made without making any allowance for CGMSE/ECGC guarantee cover and securities available. The ‗unsecured
exposures‘ which are identified as ‗Sub-Standard‘ would attract additional provision of
10%, i.e., a total of 25% on the outstanding balance.
Unsecured exposure is defined as an exposure where the realisable value of security,
as assessed by the Bank / approved valuers / Reserve Bank‘s Inspecting Officers, is
not more than 10%, ab-initio, of the outstanding exposure. ‗Exposure‘ should include all
funded and non-funded exposures (including underwriting and similar commitments).
Security will mean tangible security properly discharged to the Bank and will not include
intangible securities like guarantees, comfort letters etc.
The infrastructure loan accounts which are classified as sub standard assets will attract
a provisioning of 20 % instead of the provision prescription of 15/25 %, provided the
branches have in place an appropriate mechanism to escrow the cash flows and also
have a clear and legal first claim on these cash flows.
While reporting the value of securities in the supporting sheets meant for Sub-Standard
Assets, total value of securities (for both fund and non fund based limits) should be reported. While calculating the provision, the value of securities should be compared with
total of fund and non fund based liability and –
o
If the value of security is more than 10% of the total liability (i.e., fund and non
fund based), provisioning at 15% is made.
o
If the value of security is less than 10% of the total liability and as on the date of
sanction also, it was less than 10%, provisioning at 25% is made.
Intangible securities like Rights, Licenses, authorizations charged to us as collateral in
respect of projects (including infrastructure projects) should not be reckoned as tangible security. Further, Letter of Comfort of Government given by Banks should not be
taken as primary or collateral security for advances. (Please refer Cir No: 236/2008).
DOUBTFUL ASSETS:
Provisioning at 100% is made for the deficit portion i.e., to the extent to which advance
is not covered by the realizable value of the Security / ECGC / CGTSI/CGMSE cover to
which the Bank has a valid recourse and the realizable value is estimated on a realistic
basis.
As regard the secured portion, provision is made on the following basis, at the rates
ranging from 25% to 100% of the secured portion depending upon the Year of Doubtful.
Period for which the advance has remained in
‗Doubtful‘ category
Up to one year
Provision Requirement (%)
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18
Staff Training College, Bangalore
One to Two year
40%
More than three years
100%
Whenever collateral security of our own term deposits is taken as security the branches should update correct security column, so that the system does not calculate 25% /
40% / 100% of its value for arriving at the provisioning requirement.
Advances covered by ECGC guarantee
In the case of advances classified as doubtful and guaranteed by ECGC, provision
should be made only for the balance in excess of the amount guaranteed by the Corporation. Further, while arriving at the provision required to be made for doubtful assets,
realizable value of the securities should first be deducted from the outstanding balance
in respect of the amount guaranteed by the Corporation and then provision made
as illustrated hereunder
Outstanding Balance
Rs.4 lakhs
ECGC Cover
50 percent
Value of Security held
Rs.1.50 lakhs
Provision required to be made
Outstanding balance
Rs. 4.00 lakhs
Less: Value of security held
Rs. 1.50 lakhs
Unrealized balance
Rs. 2.50 lakhs
Less: ECGC Cover (50% of unrealizRs. 1.25 lakhs
able balance)
Net unsecured balance
Rs. 1.25 lakhs
Provision for unsecured portion of Rs. 1.25 lakhs (@ 100 percent of unadvance
secured portion)
Provision for secured portion
Total provision to be made
25 , 40 , 100 % on value of security
(other than our own deposit) depending
upon year of doubtful
1.25 lakhs + as per above column
LOSS ASSETS:
Provision at 100% of net liability would be made at Head Office.
All required provisions for NPAs are automatically calculated by the system.
All fraud cases reported under Loans and Advances should be classified as
Doubtful or Loss assets depending upon the availability of security without fail.
Fraud cases should not be reported as Standard or Substandard, even if repayments are forthcoming as per terms and conditions.
17.
VALUATION OF SECURITIES:
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Staff Training College, Bangalore
Regarding valuation of securities by outside valuer, Branches to refer Circular
148/2009 dated 22.04.2009 of our Credit Policy Section, RM Wing, Head Office
wherein detailed guidelines for valuation of different category of securities have
been furnished.(Read with changes/addl.guidlines as per Cir.355/12 dated
15.11.2012, 375/2011 dated 20.12.2011 and 393/12 dated 18.12.2012)
The correct realizable value of all the securities should be considered while arriving at
the quantum of provision for Doubtful Assets and any mistake in the valuation of security leads to change in provisioning requirement. Hence, the following points must be
taken into consideration while arriving at the value of securities.
[a]
Branches should take into account the value of primary and collateral securities and
also the EMT of house property etc., wherever applicable while arriving at the total value of securities.
[b]
The value of stock available as on the date of Balance Sheet as per the latest available
Stock Statements reckoned for the purpose of arriving at Drawing Power should be
considered.
[c]
Wherever Life Insurance Policy, Shares, Deposits and other movables have been taken
as security either by way of primary or collateral, realizable value of such securities
should also be taken into account.
[d]
In respect of securities not charged to the Bank, but Attachment Before Judgment (ABJ)
has been granted by the Court against borrower/ guarantor's assets, to the extent of
realizable value of such assets can be considered as Security.
[e]
In cases where Second charge is available to us, the surplus of the securities over the
first charge holder can be considered as security for our advances.
[f]
For loans granted under Government Sponsored schemes such as SGSY, PMRY etc.,
the assets created out of our finance and the subsidy received from Government and
kept under Deposits/Sundry Liabilities are available as Securities. Branches have to
correctly report such securities in the respective Advances Supporting Sheets without
fail.
[g]
In the case of Bills facility, bills secured by Documents of title or guarantee / co – acceptance of other Banks / FIs or other collateral securities, the liability to the extent of
securities available should be classified under ―Secured‖.
The Nature and Value of Securities as per Branch records such as Credit files, Stock statement submitted, Valuation Report, Review reports, renewal proposals submitted etc., and as
reported in the Advances Supporting Sheet should be one and the same.
In case any divergence is observed in the Nature and Value of Securities reported in Advances
Supporting Sheets and the one reported in review reports/renewal proposals etc., the matter
would be viewed seriously.
Wherever tangible securities are available as cover for our advances, Branches have to ensure that they are enforceable in all respects i.e., all procedural/legal formalities such as creation of EMT, I/II Charge and Hypothecation are properly completed.
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Staff Training College, Bangalore
Remarks:
Intangible securities like Rights, Licenses, Authorizations charged to us as collateral
should not be considered for classifying advances as secured in Balance Sheet.
18.
CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISES
(CGMSE) replacing CGTSI:
In terms of Circular No.187/2007,213/2010 and 406/2102, all eligible accounts covered under
the scheme, the extent of cover available should be reported in appropriate column in Advances Supporting Sheets.
CGMSE cover is to be calculated only after taking into consideration the realizable value of
securities available. If the value of security available to cover advances is more than the net
liability, the CGMSE cover should not be considered. In other words, priority should be given
to value of security over the cover under CGMSE.
The Credit Guarantee scheme(CGS) seeks to reassure the lender that, in the event of a MSE
unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender,
the Guarantee Trust would make good the loss incurred by the lender upto 75/80/85% of the
credit facility.
19.
ECGC COVER:
ECGC Cover is to be calculated correctly - for Pre-Shipment and Post Shipment Credit - as
this has an impact on Provisioning requirement and Risk Weighted Assets for Capital Adequacy requirements. Hence, Branches having Export Advances have to calculate ECGC cover as
per the prevailing guidelines given below:[1]
Pre-Shipment Advances
i)
Under the Export Credit Insurance for Banks (Whole Turnover Packing Credit) (ECIBWT-PC) guarantee obtained by the Bank, ECGC covers loss to the extent of;
(a)
75% of the Principal amount.
(b)
90% of the Principal amount in the case of advances to small scale exporters.
ii) Interest is not covered.
For PC advances sanctioned / outstanding from 1.7.2012 onwards, in respect of each
account the ECGC covers loss to the extent as under:
(1) 75% for advances upto Rs.3869.28 lakhs
(2) 65% for advances beyond Rs.3869.28 lakhs .
(3) 90% of the principal amount in case of advances to small scale exporters
(Annual Export Turnover not exceeding Rs.50 Lakhs).
Ref:98/2013.
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Staff Training College, Bangalore
[2]
Post Shipment Advances:
Subsequent to discontinuation of ECIB (WT-PS) with effect from 1.1.1998 & in the
backdrop of advantageous over Export Credit Insurance for Banks (Individual Post Shipment Credit) (ECIB (IN-PS)) introduced as per Cir 144/2009, all Post Shipment Advances
granted on or after 01.07.2012 i.e.advances granted by our branches in India as per
RBI guidelines by way of purchase/discount/negotiation of export documents or advances granted against export documents sent on collection basis are covered under
ECIB(WT PS) as per Cir.235/2012 dated 31.07.2012. The percentage of loss payable
by the Corporation/ECGC will be:
For Policy holders: 95%
and
For non-policy holders: 75%
For reporting ECGC Cover available, priority is to be given to value of securities. ECGC
Cover is to be considered proportionately for the remaining liability to cover the entire
net liability in case the total value of securities is not sufficient to cover Net Liability.
In the case of claims rejected by ECGC, Branches should not reckon the cover again
unless the claims have been resubmitted with proper justification duly responding to the
observations made by ECGC.
POSITIONS OF CLAIMS LODGED WITH ECGC.
As per RBI guidelines Bank has to place a review note on position of claims lodged with ECGC
under EICB (WT-PC) / other guarantees for Pre-shipment credits and ECIB(WT-PS) / ECIB (IN
– PS) / other guarantees for Post shipment advances as at half year end March and September to the Board of Directors.
Branches handling Foreign Exchange Transactions (Exports) are required to submit the details
in the Statements Part I & II available in the Balance Sheet File to Circle office.
*****
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ANNEXURE – I
CONFIRMATION ON ASSET CLASSIFICATION
From
To
Canara Bank
____________ Branch
CANARA BANK
CIRCLE OFFICE………
Sub: Confirmation on Asset Classification
Name of the Borrower
Limits and Liabilities
:
:
Sl. Nature of Tenable
No account
till
* Mention date
Limit
Liability
Overdue in
Overdue
the acsince *
count
Value of
securities
Interest
applied Remarks #
upto
# Date of stock statement / valuation report to be furnished.
Sanctioning Authority
Details of Collateral Securities:
Land & Building
Rs.
(As per valuation report dated _________________)
Plant & Machinery
Rs.
(As per valuation report dated _________________)
Other Assets
Rs.
(As per valuation report dated _________________)
Asset Classification in the last Balance Sheet:
Asset Classification now proposed by the Branch:
In case of any change from the previous asset classification,
furnish reasons in detail:
We request that the proposed asset classification may be confirmed.
BRANCH-IN-CHARGE
CONFIRMATION BY CO
NOTE:
The above format has to be prepared in triplicate by the Branches.
2 copies to be sent to the respective Circle Offices ( CO) confirming the Asset
Classification. After confirmation 1 copy is to be sent to the Branch for their
records retaining 1 copy by the CO.
NPA and Recovery Management
23
CAUSES OF NPA
DIAGNOSIS
Before analyzing the causes of the incidence of high NPA in public sector banks for evolving
remedial measures, one must take into account the prevailing ground realities in the banking
scenario as reported results cannot be examined in isolation. Banks being derivative institutions, the health of real sector is reflected on the health of banking system. The Banks‘
health/well being is inextricably linked to the other sections of economy. If the credit discipline in the real sector is weak and state intervention is not supportive to banks then there is
every possibility that the banking system will be weak and unsound. Further, lack of experience, expertise, timely and adequate credit delivery and effective monitoring will also be
contributory factors for low recovery and escalation in NPA level in future. Before, drawing a
map and blue print for a path to effective NPA management it is desirable to find out the major causes that build up high level of NPA .Herein under a list showing some of the reasons
for creation or NPA is furnished:
SYNOPSIS
A BANK RELATED
BORROWER RELATED
a) Internal Factors
- Pre sanction level – Appraisal
- Delay in decision/disbursement
- Non compliance of sanction terms
- Improper documentation
- Ineffective Credit Monitoring and Supervision
b) External factors
1.
2.
Internal Factors
- Finance
- Production
- Marketing
- Management
External factor
Legal systems.
Interference by External Agencies
- Government Policy
- Recession
- Delay in realization
B. General causes
C. Causes for priority sector NPA
D. Reasons for slow recovery
ANALYSES OF THE CAUSES
BANK RELATED
A. INTERNAL
1) PRE-SANCTION LEVEL – APPRAISAL
i)
ii)
iii)
Market Survey and enquiry in respect of particular Trade industry or activity is not
done properly and effectively, no personal visit to place of activity of the borrower.
Details of assets particulars not furnished by the borrower/guarantor or not verified.
Excessive reliance on Balance Sheet, valuation reports without cross verification on
authenticity of information.
Help of Credit rating agencies not taken for assessment of the party and project.
NPA and Recovery Management
24
iv)
v)
vi)
vii)
viii)
ix)
Calling the borrowers too often to branch and asking for details, documents and information on piecemeal basis and in the process irritate the borrower.
Existing mind set of the officials to encourage deposit linked advance instead of,
based on project‘s strength.
Lack of confidence, skill, knowledge on the part of Bank officials to assess true
credit requirement or otherwise and thereby faulty credit appraisal leading to inadequate or excessive finance. Technically qualified persons/officers are not involved
in the process.
Reckless lending, anxious lending and sanctions not on merit but forced or otherwise.
Unrealistic/rigid repayment schedule for term loan not commensurate with the repayment capacity of the borrower.
Tools like CIBIL, CERSAI etc pertains to some of the specified products are not being used before sanction of credit facilities.
2) DELAY IN SANCTION AND DISBURSEMENT:
Delay in decision making in sanction/disbursement of credit facilities resulting in time over
runs, calling for additional finance, project becoming unviable.
3) NON COMPLIANCE OF SANCTION TERMS BEFORE DISBURSEMENT:
i)
Casual approach to documentation
ii)
Non obtention of securities stipulated like EMT, II charge on properties or movables.
iii)
Non registration of Bank‘s lien/charge with ROC, Registry Office, RTA.
iv)
ECGC/Gen Insurance/statutory requirements not complied with.
d) CREDIT MONITORING AND SUPERVISION:

Lack of close or serious monitoring of submission and scrutiny of stocks Statement,
QOS, MTR etc and production and sale statements for term loan.
Lack of inclination and energy to go beyond the accounting entries transactions of each
borrowal account.
Periodical/surprise inspection of securities like vehicle, machinery, hypothecated goods,
visits to place of business/activity are not done.
Failure to notice or delayed detection of warning signals in conduct of business activity
and failure to initiate immediate remedial steps.
Not initiating recovery action when assets are available/borrower is having capacity/inclination to repay.
Timely help of external recovery agencies/government agencies not availed/sought for.
Follow up for recovery of instalments/interest before they become due not being done.
Laxity in sending advance demand notices/personal follow up.
In an anxiety to reduce existing NPA, existing standard assets are neglected for follow
up and recovery.







e)
i.
ii.
iii.
STAFF
Inadequate, skilled and trained manpower for appraisal/follow up and recovery.
Lack of will power/willingness to take recovery work.
Frequent disturbance of staff working in advances department.
B. EXTERNAL:
NPA and Recovery Management
25
-
Time consuming and slow legal system for recovery of Bank Dues.
Lack of exchange of information/coordination amongst the financial institutions and
banks.
Improper identification of borrower under directed lending.
Government Agencies do not help in recovery, directed and target oriented lending.
3. BORROWER RELATED:
INTERNAL:
Finance - Inappropriate financial structure/planning/budgeting.
- Inefficient working capital management i.e. diversion, misutilisation etc.
Production - Improper location
- Inappropriate/obsolete plant and machinery
- Obsolete technology – Low priority for upgradation
- Low priority for research and development
- Lack of quality control
- Poor utilisation of assets/production capacity
Marketing - Lack of planning/skill in marketing/sales promotion
- Inappropriate product/lack of knowledge of market
Management – Lack of management skill/experience
- Bad labour relation
- Lack of cohesion among partners/management personnel.
- Lack of cost control/manpower planning/supervision.
- Lack of integrity in Management
EXTERNAL
– On Imports/exports
- On taxation and licensing
- On Labour/wages
Inordinate delay in realisation of debts by units, specially by small units on supplies
made to larger industrial undertakings, Government Departments and public sector undertakings, or other debtors etc.
Problems faced by exporters/importers due to devaluation of rupee and currency fluctuation in international markets.
Recession in some industries/economy
Opening of economy, resulting in inability of domestic industry to cope with the competition.
Court directives on environmental/pollution activities and closure of some industries.
Natural calamities
Government policy
-
-
GENERAL CAUSES:
- Uncertain political situation
- Labour unrest/strikes and problems of law and order in certain areas.
- Lack of infrastructure facilities, particularly inadequate supply of power and other essential inputs.
- Delayed release of allocated funds by Central/State Governments for various projects
resulting in time/cost overrun.
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LOAN RECOVERY POLICY OF THE BANK (CIR.NO.254/2013)
OBJECTIVES OF LOAN RECOVERY POLICY:
1.
2.
3.
4.
Minimizing the accretion of fresh NPAs.
Upgradation of existing NPAs.
Enforcement of securities invoking provisions of SARFAESI Act.
Enforcement of securities as per the terms of loan documents (in respect of secured assets not covered under SARFAESI Act.)
5. Recovery by compromise / One Time Settlement.
6. Recovery through Legal Action
7. Invoking claims with ECGC/CGTMSE
8. Minimize provisions by improving recovery / security coverage
9. Sale of NPAs to Asset Reconstruction companies.
10. Sale/Purchase of NPAs to / from Banks / FIs / NBFCs
11. Implementation of / Adherence to guidelines prescribed by the Bank / RBI / Government
from time to time (in respect of management of NPAs/OTS Scheme)
12. Guidelines on review / monitoring and follow up of NPA accounts
13. Review of Delegation of powers to various functionaries in the Bank with regard to transfer of account to LPD / filing of suit / waiver of legal action / write off / purchase of NonBanking Assets, etc.
14. Elimination of non-recoverable loans.
METHODS OF RECOVERY :
1. Minimising accretion of fresh NPAs.
a) Effective monitoring of borrowal accounts.
b) Personal contacts / persuasion / follow up for recovery of installments / interest
due.
c) Proper classification of accounts under SPECIAL WATCH category and close
monitoring thereof.
d) Recovery of critical amount to avoid slippage.
e) Re-phasement of existing loan / facilities, if the need is genuine.
f) Ensure timely renewal / regularization of credit limits.
g) Ensure prompt submission of stock statements.
h) Debt restructuring of standard assets under CDR / SME-DR Schemes.
2. Upgradation of existing NPAs.
a) Upgradation of accounts by recovering the overdue amount.
b) Restructuring / Rephasing of accounts wherever possible as per extant guidelines.
c) Implementation of Rehabilitation / Restructuring package permitted by BIFR /
CDR and ensure recovery as permitted.
3. Enforcement of securities as per the provisions of SARFAESI Act.
4. Enforcement of securities as per the terms of loan documents (in respect of secured assets not covered under SARFAESI Act).
5. Recovery through Non-Legal methods :
a) Settlement through compromise
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b) Invoking claim with ECGC / CGTMSE
c) Sale of NPAs to Asset Reconstruction companies.
d) Sale of NPAs to Banks / FIs / NBFCs.
6. Recovery through legal methods :
Legal action through courts / DRTs etc. is the last resort adopted for recovery of dues.
Before initiating legal action, steps to be taken to dispose off the movable securities / exercise right of set off against the deposits available. Further, Bank has to examine the
pros and cons of filing suit and the prospects of recovery and initiate any of the following
measures :
a) Filing suits in appropriate civil courts.
b) Filing cases in DRTs in respect of cases where claim is Rs.10.00 lakhs and
above.
c) Invoking the provisions of Revenue Recovery Act, wherever applicable.
d) Referring the cases to Lok Adalat for settlement through conciliation.
e) Winding up of the company
f) Invoking provisions of Section 138 of NI Act where cheques issued towards repayment of debt is dishonoured for want of funds.
g) Filing insolvency petitions wherever desirable.
h) Wherever suits are filed for recovery  Seek interim orders from the court / DRT for ABJ / restraint orders, appointment of court receiver, etc.
 Obtain decree / RC expeditiously.
 File appeal / review / revision petition wherever necessary within the limitation
period.
 Execute decree / RC immediately to bring the securities for sale, attach and
sell the assets owned by the Judgement debtors/JDRs,
 Seek Garnishee orders,
 Seek arrest of JDR s etc.
 Purchase and sale of non-banking assets acquired in loan recovery proceedings.
FUNCTIONS OF RECOVERY COMMITTEES / GENERAL GUIDELINES FOR FOLLOW
UP OF NEWLY SLIPPED NPA ACCOUNTS
Once an account is classified as NPA, it should be reviewed immediately thereafter by a
committee at HO/CO
The constitution and functions of the committee and guidelines are as under:
A.
THE RECOVERY COMMITTEE AT HO:
CONSTITUTION:
Wing heads of Recovery Wing, Strategic Planning and Development Wing, Risk
Management Wing, Priority Credit Wing.
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The Committee will look into OTS and other proposals involving sacrifice falling under the
powers of CGM-HO-CAC/ED-CAC/ CAC of the Board/Management committee of the Board.
The Committee shall meet as and when required depending upon the no. of compromise
proposals submitted by Recovery Wing and required to be placed before above mentioned
authorities/CACs for orders.
B. The Recovery committee at CO:
a) Constitution:
Circle-head - Chairman
Executive overseeing Credit - Member
Executive overseeing Recovery - Member
Executive overseeing Credit Review - Member
Executive in charge of ARMB * - Member *(wherever applicable)
Any other executive as decided by the Circle-head - (i.e.Chairman)
b) Functions:
The Committee at CO shall review the NPA position, slippages, Recovery performance, progress in SARFAESI Action, etc. of the Circle and identified branches in addition to review
and follow up of special watch accounts. The Committee shall also review the performance
of ARM branches.
The Committee shall also review the monthly report submitted by the concerned monitoring
Sections /Cells at CO about the slippages to NPA, revival measures, position of SWL accounts, etc. The Committee shall review individually the accounts with liability of Rs.10.00
lacs and above slipped to NPA subsequent to last review.
While reviewing the accounts, the Committee shall take into consideration all aspects like
reasons for the account becoming NPA, viability of the unit, chances of revival, upgradation,
staff lapses if any, etc. The Committee shall also look into the aspects of rehabilitation/ revival / restructure of account and convey its decision to Branches immediately.
c) Periodicity of the Meeting: Once in a month
4) Reporting System:
The Recovery Committee at Circle Office shall submit the proceedings of the meeting to Recovery Wing, HO for information / review.
2. General guidelines for follow up of newly slipped NPA accounts:
Notice under SARFAESI Act shall be issued by the branches in respect of all eligible accounts at the earliest after obtaining due permission from appropriate authority [for other
cases issue recall / legal notices] irrespective of any proposals for OTS on hand. This aspect
has to be monitored by the monitoring Section/ Cell in co-ordination with SARFAESI Cell of
the Circle. Simultaneously, the concerned Credit Section / Monitoring Cell shall look into and
decide on the viability of the unit, chances of revival / rehabilitation / restructuring / upgradation of accounts, staff lapses if any etc., and to decide the future course of action in each account within 45 days of account becoming NPA.
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Wherever chances of revival / rehabilitation / restructuring are possible, specific note may be
placed before the respective sanctioning authorities concerned and decision conveyed to
branches for further implementation. In all other cases, accounts should be transferred to
LPD and recovery steps including enforcement of securities under SARFAESI etc. to be initiated. All the above steps are required to be completed within a maximum period of 60
days of account becoming NPA. For deferring any action including legal action beyond the
stipulated period, specific permission from ED / C & MD shall be obtained through the concerned Sanctioning / Monitoring Section at HO for accounts with liability of Rs.1.00 Crore
and above.
Wherever Branch / Circles consider for continuation of accounts as Non-LPD on account of
prospects of likely revival / recovery, they may take decision for allowing operation in the accounts by permitting, Holding on Operations, as per guidelines provided in Credit Policy of
the bank.
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SAFEGUARDING THE ASSETS CHARGED TO THE BANK
I.
Securities charged to the Bank by way of hypothecation / pledge / mortgage are required to be inspected periodically even after the account becoming NPA so that corrective and timely action could be initiated to protect the security as well as the interest of the Bank.
II. The moment the bank acquires some interest on the asset charged as security, the
asset is to be insured. Taking insurance cover is the primary responsibility of the
owner of such assets and branch shall ensure that the securities are adequately insured by the borrower at all times. Nevertheless, Bank has pecuniary interest in the
assets charged, normally take care of insurance. Taking into consideration the availability of security and its value, review has to be made with regard to renewal as well
as adequacy of insurance. The extant guidelines in this regard are to be scrupulously
followed.
III. The chances of recovery by Bank may greatly suffer and shall put in a weak position
on account of disposal / removal of securities without the knowledge of the Bank, by
borrowers. Likewise old and obsolete securities may affect the security value which
may lead to down grading the quality of the financial assets and calling for higher
provision.
IV. Further, non-availability of securities may frustrate the chances of recovery through
execution of decree / order when passed / RC issued.
V. Seizure and sale of the securities at the appropriate time would prevent further deterioration in the value of securities. Wherever movable assets charged to the Bank are
taken possession, necessary arrangements are to be made for safe keeping and
safeguarding the same. Further, expeditious steps are to be taken for disposal of the
same to realize the dues and to avoid recurring expenditure in safeguarding the
same.
VI. In respect of suit filed accounts, wherever it is observed that borrowers / guarantors
have assets that are disposable but are not charged to the Bank and the charged assets are not likely to yield sufficient amount to satisfy the suit claim or otherwise the
Bank apprehends that the defendants are likely to alienate / dispose of such assets /
securities, steps to be initiated to seek / obtain an order for attachment before judgment (ABJ) or restraint order or appointment of Receiver as the case may be.
VII. In respect of securities held under II Charge, the extant guidelines on inspection,
safeguarding, valuation of the securities to be followed. Wherever the I charge holder/s is / are other than our Bank, in such cases, the matter should be taken up with
them periodically not only with regard to inspection, protection and valuation of securities, but also to ascertain total outstanding dues with them, to know the extent of
spill over available to bank, enforcement of security in case of need etc. Regarding
valuation of securities, which are charges to the Bank by way of II charge or subsequent charge, the security available to the Bank should be computed after providing for the full liability with the first charge holder/prior charge holder.
VIII.In respect of advances under Consortium / Multiple Banking Arrangements, where
security is created on Paripassu basis, inspection, protection, valuation, enforcement
of securities shall be done in accordance with the terms agreed interse by the mem
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ber Banks / FIs. Further, Branches shall collect latest details of dues (including inter
est), valuation of securities, status of account, etc., at periodical intervals to ensure
proper classification of asset, provisioning, decide on further course of action for re
covery etc.
Government Departments and authorities entrusted with the function of recovering
taxes and other dues like PF, ESI are making claims over the securities of the Banks
on the grounds that Government dues have priority over the Bank dues as secured
creditors. There are various decisions clearly establishing that the Crown Debts do
not have priority over the dues of secured creditors (unless specifically provided by
the State in the relevant Act itself). The demand / attachment / restraint orders from
the Government Departments are on the rise affecting process of recovery. Hence, to
safeguard Bank‘s rights on the securities and to avoid interference / claims from
Government / Local bodies / other statutory authorities, branches should build up information in applicable cases with regard to payment of upto date statutory dues like
property tax, water tax, sales tax, income tax, customs duty, excise duty, PF, ESI arrears etc., by the borrower and periodically review the position to ensure that no
Crown Debt is outstanding affecting our security.
COUNTER CLAIMS
i.
There may be instances where deficiency of services, negligence, inadequate
finance, delay in sanction and disbursement of loan, charging excessive interest, act of omission / commission in transactions relating to the customers
etc., which may lead to claims by the parties.
ii.
Such claims if not addressed in time, may lead to litigations involving cost and
adverse effect on the image of the Bank. Hence, such claims are to be examined on priority and with all earnestness and the same shall be settled on
merits. Where Bank has got a strong case, the same should be contested to
ensure that no liability devolves on the Bank.
iii.
Wherever, borrowers / guarantors have dues with the Bank and if such parties make claims or counter claims in the pending suits, then while negotiating
for settlement of our dues, the sustainability of such claims of the said parties
is to be examined legally and the same has to be factored while arriving at
OTS amount.
iv.
Unconditional withdrawal of suit / case / claims of the borrowers / guarantors
against the Bank, shall be a pre-condition before /while settling the dues to
the Bank under Compromise.
RIGHT OF RECOMPENSE
I.
The guidelines of RBI lay emphasis on the early detection of sickness and prompt
remedial action in respect of sick and weak units by extending adequate and intensive relief measures to rehabilitate them. Accordingly, our Bank has laid down a policy on rehabilitation / restructuring of sick / weak units.
II. While rehabilitating /restructuring Sick Industrial Company (SIC) / Weak unit / Sick
SSI /Sick SME / Accounts under CDR etc., after ensuring commercial, financial via-
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bility and technical feasibility, Bank extends reliefs and concessions as per the laid
down norms /guidelines to such units so as to bring them back to normal health.
Bank provides concessions / reliefs to such units during the package implementation
period also and can recoup whole / a part of the sacrificed amount by way of Right of
Recompense (RoR).
III. In order to give effect to the above, an enabling clause be incorporated in all restructuring proposals / rehabilitation (agreement) providing for recovering the sacrifice
amount either in part or in whole and also mode of recovery.
These guidelines are to be borne in mind by the branches / offices while considering
revival /rehabilitation of sick / weak units and other CDR cases.
ISSUE OF „NO DUE CERTIFICATE‟ IN RESPECT OF ACCOUNTS SETTLED UNDER
OTS
a. Wherever borrower repays entire contractual dues, Bank shall, at the request of the
borrower issue ‗No Due Certificate‘.
b. Wherever borrower settles dues with the Bank as per ‗One Time Settlement Scheme
of RBI‘ or as per the compromise policy of the Bank by availing concessions, in such
cases also Bank, at the request of the borrower may issue ‗No Due Certificate‘. However, such certificate should contain a clause indicating that the borrower has settled
the dues under One Time Settlement Scheme of RBI / Bank as the case may be.
c.
In respect of group accounts settled under compromise / OTS, unless the borrower repays amount under
each account in terms of OTS, ‗No due Certificate‘ should not be issued.
d. In respect of written off account, ‗No Due Certificate‘ should not be issued Unless
the dues are paid / settled subsequently.
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WAIVER OF LEGAL ACTION
I.
Every endeavour shall be made to recover the dues in the ordinary course. However,
where securities are not available to realize our dues or borrowers are not having any
assets or means to repay the dues or chances of recovery in the normal course / by
compromise are remote and initiating legal action for recovery is not prudent, in such
exceptional situations, Bank may consider waiver of legal action as a last resort.
II. As the waiver of legal action would be a step towards writing off the dues, sufficient
care shall be taken by the branches before recommending waiver of legal action.
Branches shall submit the proposals for waiver of legal action in the prescribed form
to the appropriate authorities sufficiently in advance, before the date of limitation sets
in.
III. By waiving legal action, bank loses only its right of recovery through legal process.
However, it does not vitiate its right of appropriation of the amount received in the ordinary course of business or other recovery measures. Hence, recovery steps in the
normal course should be continued even after waiver of legal action.
IV. In respect of loan sanctioned to / availed by and / or guarantee / co-obligation furnished by any employee during his / her service in the Bank, the delegated power for
waiver of legal action/write-off and waiver of unapplied interest vests with CAC of the
Board only.
THE POLICY OF THE BANK FOR WRITE OFF / PRUDENTIAL WRITE OFF
1. Write Off:
I.
Maintenance of accounts where there are no further chances of recovery either by legal
process / persuasion does not serve any purpose considering the carrying cost of such
assets and also wastage of valuable man-power which can be used for better purposes.
II. Continuation of such accounts in the books of the Bank may only inflate NPA level affecting various critical business parameters. Writing off such assets makes the Balance
Sheet cleaner and leaner. Hence, after exhausting all avenues of recovery, Bank may
consider writing off such dues after proper sanction from the appropriate authorities.
2. Prudential Write Off:
I.
The guidelines of RBI on prudential write off are detailed in RBI‘s Master Circular on
Prudential Norms and Income Recognition which are as under:
•
•
In terms of Section 43(D) of the Income Tax Act, 1961, Income by way of interest in
relation to such categories of bad and doubtful debts as may be prescribed having
regard to the guidelines issued by RBI in relation to such debts, shall be chargeable
to tax in the previous year in which it is credited to the Bank‘s profit and loss account
or received, whichever is earlier.
This stipulation is not applicable to provisioning required to be made as indicated
above.
In other words, amount set aside for making provision for NPAs as above are
not eligible for tax deductions.
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•
Therefore, the Bank should either make full provision as per the guidelines or write-off
such advances and claim such tax benefits as are applicable, by evolving appropri
ate methodology in consultation with the Auditors/ tax consultants. Recoveries made
in such accounts should be offered for tax purposes as per the rules.
II. In the light of the above guidelines, Bank may write off advances at HO level, even
though the relative advances are still outstanding in the branch books. However, it is
necessary that provision is made as per the classification accorded to the respective accounts. In other words, if an advance is a loss asset, 100% provision will have to be
made thereof.
III. In tune with the above guidelines and to avail the tax benefits, Bank has put in place a
policy on Prudential Write Off in consultation with the Auditors taking into consideration,
category of assets, age of assets and also based on the guidelines received from RBI.
IV. The details of accounts and amount prudentially written off shall be kept in Head Office
Books under ―Advances – Technical Write Off‖. This amount shall be utilized for transferring to the branches either in full or in part (reckoning the recoveries made, if any) to
square off the liabilities in the books of branches as and when the NPA account is taken
to logical conclusion by the competent authorities.
MAINTENANCE OF REGISTER OF „UNDESIRABLE BORROWERS‟ & RECOVERY UNDER WRITTEN OFF ACCOUNTS
I.
Write off is an internal mechanism of the Bank to clear off the non-performing assets
from the Balance Sheet. As a matter of general policy, no fresh finance is being granted
to the borrowers whose liabilities are written off (save exceptions as provided in Chapter
No. XIV of HOC 254/13). However, chances of such borrowers approaching the Bank at
a later stage for seeking fresh finance cannot be ruled out.
II. Hence to prevent such defaulted and undesirable borrowers from seeking / availing fresh
finance, it is necessary to maintain a Register of ―UNDESIRABLE BORROWERS‖ as per
the extant guidelines.
III. Writing off dues in the accounts does not vitiate the legal rights of the bank for recovery
of its dues from the borrowers. Any recovery in the written off accounts will directly add
to the profit of the Bank.
IV. Notwithstanding writing off of the dues (other than the accounts settled and recovered
Under OTS Schemes), branches should continue their efforts to recover the dues either
by persuasion or by initiating / pursuing legal action wherever legal remedies are in
force, if they come to know that the party has got resources. In this connection the Register of undesirable parties should be made use of and updated with details of contacts
and recoveries made.
V. Further, wherever applicable, any recovery subsequent to write off should be shared with
CGTMSE / DICGC / ECGC as per the extant guidelines. Our share of recovery should
be remitted to Balance Sheet Section, FM Wing, HO by furnishing relevant references, in
case, the recovery is effected in the same financial year in which account was written off.
If the recovery is made in the subsequent years, it should be credited to Commission –
Miscellaneous account at the Branch.
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GRANTING OF FRESH CREDIT FACILITIES TO OTS BENEFICIARIES
(Chapter No. XIV of HOC 254/13)
I.
As per the extant guidelines no further direct / indirect finance should be made available
to the parties where accounts have been settled / closed under OTS / compromise by
extending concessions.
However, the exceptions are as under:
II. Package / relief extended as per RBI parameters to sick units under tiny/ decentralized
sector should not be treated as concession. Similarly interest concession extended in the
normal circumstances taking into account the business prospects shall not be considered as write off / sacrifice for the purpose.
III. Need based fresh finance up to Rs.50000/- may be considered by the respective sanctioning authority to the borrowers who are non-wilful defaulters, undertaking agricultural
and allied activities, those belonging to weaker section for undertaking all gainful activities and have repaid at least 10% of the principal amount of the previous loan before
permitting concession / compromise and only after 3 months from the date of clearance
of the dues under OTS.
IV. The applicant borrower should not be a defaulter with other Banks in the service area of
the branch concerned and should submit ‗No Due Certificate‘ from Service Area Banks,
Co-operative Societies and other nearby branches / Banks.
V. Fresh loans may be considered as far as possible in joint names viz., along with the
spouse or along with the eldest members in the family (in the absence of spouse) to ensure family responsibility. (Refer - HO Circular No.152/2003 dated 14th July, 2003).
VI. Need based credit facilities to the non-wilful defaulters can be considered on a very selective basis, for such of those who have cooperated with the Bank / other Banks /FIs
under OTS / Compromise / CDR Package etc.
Such Proposals shall be considered on a very selective basis, purely based on merits of
the individual cases. While considering fresh need based finance, Bank shall ensure the
technical, commercial and economic viability of the unit / project. While examining the
proposal, our normal appraisal and assessment shall be carried out thoroughly. Such
proposals shall be permitted at HO by GM-HO-CAC and above authorities in respect of
accounts falling upto their respective powers. In other words, CAC of Circle Heads and
below authorities are not empowered to permit such finance to Non Willful defaulters
even though it falls under their sanctioning powers.
SALE OF ASSETS TO ASSET RECONSTRUCTION COMPANIES (ARCs)
The provisions of SARFAESI Act, 2002, enable the Banks to sell their financial assets to
Asset Reconstruction / Securitisation Companies (ARC/SC).
1) Basing on the guidelines issued by RBI, our Bank has drawn a policy for sale of financial
assets to Asset Reconstruction/Securitisation Companies. The broad guidelines are as under:
a) Bank may sell to Asset Reconstruction / Securitisation Companies (created under
SARFAESI Act and registered with RBI/Companies Act) the financial assets, such as:
- An NPA, including non-performing bond /debenture.
- A Standard Asset where;
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1. The asset is under consortium / Multiple Banking Arrangements
2. At least 75% by value of the asset is classified as NPA in the books of other Banks
/FIs and
3. At least 75% (by value) of the Banks / FIs, who are under the consortium / Multiple
Banking Arrangements, agree to the sale of the asset to SC /ARC.
b) The assets to be sold are identified by the Recovery Committee at HO.
c) The valuation of the financial assets is to be got done by the valuer approved by the Bank
2) The financial asset may be sold to an SC / ARC on ‗without recourse‘ basis, i.e., entire
credit risk associated with the financial asset is also transferred to SC / ARC, as well as on
‗with recourse‘ basis, i.e., subject to unrealized part of the asset reverting to the Bank. However, it should be ensured that the effect of the sale of the financial asset is such that the
asset is taken off the books of the Bank and after the sale, there should not be any known
liability devolving on the Bank.
3) For selling the financial assets quotations have to be obtained at least from two SC / ARC
and sale should be finalized with the SC /ARC offering the highest quotation.
4) The sale of the financial asset to SC /ARC should be conducted in a prudent manner on
such terms and conditions as may be agreed upon between the Bank and SC / ARC.
5) The authority for finalizing the sale of assets to SC /ARC shall be at HO level. Fixing of
minimum Reserve price for sale of assets to ARCs has to be approved by the appropriate authority as per the delegated powers for sacrifice.
6) The sale of the financial assets basing on the highest quotation shall be finalized / routed
through the Recovery Committee and Advisory Committee at HO.
7)
On selling the financial assets, the balance amount shall be written off and unapplied
interest shall be waived.
8) It should be ensured that subsequent to the sale of the financial asset to the SC / ARC,
no operational, legal or any other type of risks relating to such financial assets sold is assumed by the Bank.
9) Subsequent to the transfer of a financial asset, no expenses in the nature of security expenses or insurance etc., should be incurred by the Bank.
10) The assessment of the value offered by the SC / ARC for the financial assets should be
made as per the extant guidelines.
11) In case, our Bank is a part of Consortium /Multiple Banking Arrangement / Joint Financing, if 75% (by value) of the Banks /FIs in such Consortium / Multiple Banking Arrangement / Joint Financing decide to accept the offer from the SC / ARC, then our Bank is also obliged to accept the offer.
12) A transfer of a financial asset to SC / ARC should not be made under a contingent price
under any circumstances, whereby in the event of a shortfall in the realization of the financial asset by the SC / ARC, our Bank would have to bear a part of the shortfall.
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13) The Bank may receive cash and / or bonds and / or debentures issued by the SC / ARC
as sale consideration for the financial assets sold to them. Such asset should be classified
as investment in the books of the Bank.
14) The bonds and / or debentures received as sale consideration from the SC / ARC towards the sale of financial assets should be classified as investments in the books of, accounts. Apart from the above, the Bank can also invest the sale consideration in security receipts, Pass-through Certificates (PTC) issued by the SC / ARC. These securities also
should be classified as investments in the books of the Bank.
15) Whenever the financial asset is sold to an SC / ARC, an agreement should be entered
into with the SC / ARC to the effect that any surplus realized by the SC / ARC on the eventual realisation of the financial asset concerned should be shared in an agreed proportion as
per the agreement entered between the Bank and SC / ARC. The SC / ARC should also be
advised to provide for a report on the value realized from the asset. However, the sharing
should be done only when the profit materializes on the actual sale.
GUIDELINES ON PURCHASE / SALE OF NON-PERFORMING FINANCIAL ASSETS
FROM / TO BANKs /FIs / NBFCs
In order to increase the options available to Banks for resolving their NPAs and to develop a
healthy secondary market for non-performing assets, RBI has issued specific guidelines on
13th July 2005, for purchasing / selling non performing financial assets from / to other Banks
/ FIs / NBFCs (excluding Securitisation Companies and Reconstruction Companies).
A financial asset in terms of above guidelines means a non performing asset or investment
in the books of the selling Bank including under multiple / consortium banking arrangements.
Basing on the guidelines issued by RBI, with the approval of the Board of Directors, our
Bank has drawn a policy for purchase / sale of non performing financial assets from / to other Banks / FIs / NBFCs (excluding Securitisation Companies and Reconstruction Companies). In accordance with the policy, guidelines for purchase and sale of assets are as under:
a) Guidelines for Purchase of assets:
All the instructions issued by RBI in respect of non performing assets are to be complied
with. However, as our Bank is already saddled with good number of non performing assets,
both number-wise and quantum-wise, purchasing of further assets from Banks / FIs is not
contemplated as of now.
b) Guidelines for Sale of assets:
Selling of assets to Banks / FIs shall be strictly according to the procedures / guidelines issued by RBI in this regard. Bank has already formulated a policy for selling of assets to Asset Reconstruction Companies duly approved by the Board of Directors. The same guidelines shall be followed for sale of financial assets to Banks / FIs / NBFCs with following exceptions.
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i. Non-performing financial assets should have remained in the books of the Bank atleast for
two years.
ii. While selling NPAs, Net Present Value of the estimated cash flows associated with the
realisable value of the available securities net of the cost of realization should be worked
out. The sale price should generally not be lower than the NPV arrived at. The economic
value of financial assets shall be reasonably estimated based on the assessed cash flows
arising out of repayments and recovery prospects.
iii. Sale of non-performing financial assets should only be on cash basis. The entire sale
consideration should be received up-front and the asset can be taken out of the books of the
Bank only on receipt of the entire sale consideration.
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MANAGEMENT OF NPA
A. NON LEGAL REMEDIES
I. SUPERVISION AND FOLLOW UP:
A) ROLE OF BRANCH OFFICIAL IN REDUCING OVERDUE AND INCREASING RECOVERY:
There is need for sensitiveness and concern towards overdue position of the branch in the
minds of the branch personnel .Change of attitude regarding the loans granted by the earlier
incumbents and also under various Government sponsored schemes will help to achieve
better follow up. Involvement of the staff members will definitely help in improving recovery.
The monthly forum of staff meeting has to utilised for this purpose. Post-sanction follow up
and inspection of securities even in respect of overdue/recalled advance should be continued for effective control on security.
B) STRATEGIES TOWARDS BETTER RECOVERY:
Area approach –
 Profile of each account should be prepared area wise. If an area is visited, as far as possible all the borrowers in that area having overdues are to be met for recovery/inspection/discussions.
 Obtaining salary certificates, decree copies from the courts, withdrawing the amounts
deposited in courts, etc. can be done easily through personal visits. Officers/clerks who
are good in public relations should be identified for such work.
 As far as possible, minimise suit filed cases and resort to compromise settlements,
where found advantageous, as funds will be immediately available for recycling. Litigation has become more disadvantageous to the Banks, on account of inordinate delays
and high costs involved.
 Utilization of non-business working day, with the involvement of all the staff members for
follow up and recovery. This should be utilised with specific action programme for each
account.
II. RESTRUCTURING OF ADVANCES
Attention of branches/ offices invited to H.O. Cir. No.67/2009 dated 28.02.2009 wherein policy framework on restructuring of advances of the Bank for guidance and proper adherence
were advised.
In view of certain additional guidelines/ clarifications received from the RBI, feedback received from Circles as also experience gained from the past in restructuring, certain guidelines were reviewed by our H.O. and modified guidelines on Restructuring of Advances has
been approved and these revised guidelines are issued by way of H.O. Circular 245 / 2010.
Also see H.O. Circulars 356 / 2010, 41/2012(on Agri.),324/13(certain modifications),etc.
Restructuring of advances is an effective process employed to safeguard the quality of the
asset portfolio besides to assist the already created physical/real assets in the economy to
maintain its economic value. Timely detection and recognition of the need for restructuring
play a very important role in the success of restructuring. Hence the process of timely identification, establishing
NPA and Recovery Management
40
overall viability of the enterprise in the shortest time frame forms the key components of the
process of restructuring. The guidelines put in place in the Bank‘s policy encompass the
phases of restructuring, both of advances to industrial and non industrial including Agricultural and Retail lending. The policy frame work also contains various relief measures that
can be considered while restructuring.
Restructuring of advances is an on-going exercise to preserve the economic value of the
assets of the assisted enterprises and not to evergreen a weak credit facility. At the same
time, measures under restructuring have direct financial implication on the Bank due to provisioning requirements. Further, certain regulatory relief on compliance of certain conditions
are also available in respect of classification of assets. Hence, unavoidable and justifiable
measures only be considered by the Bank. Restructuring with financial relief should not be
construed as the only means to make an activity viable.
Branches/Offices are to be utmost prudent while entertaining restructuring proposals.
III. SEIZURE & ENFORCEMENT OF SECURITIES
Though seizure and enforcement of securities charged to us are unpleasant acts, at times
these become inevitable as effective measure of recovery and in safeguarding the interest
of the institution.
Enforcement of securities by bank, an extreme remedy of recovery and is to be resorted to
only after exhausting all possible efforts to recover the dues, in normal course. Enforcement
of securities can be made in two ways viz.
1) With out the intervention of court under Hypothecation.
2) Through court by filing suit.
SEIZURE & DISPOSAL/ENFORCEMENT WITHOUT THE INTERVENTION OF THE
COURT:
The importance of the enforcement of the security before going to court hardly needs emphasis. Apart from resulting in substantial recovery, it will save legal expenses like court fees
and commissioner‘s/Receiver‘s expenses which will have to be incurred in the event of enforcing securities through court.
Branches should be aware of the fact that mere attempt to seize the securities in
many cases have resulted in good recovery and hence there should not be dearth of efforts,
by the branches in this direction.
Seizure and sale of securities at the appropriate time would prevent further deterioration in
the value of securities, does ensuring maximum recovery.
A. Seizure – Based on Loan Agreements / Documents :
Our loan documents/agreements entitle the Bank to take possession of the moveable securities hypothecated in the event of default by the borrower in repaying the dues as per the
terms. The question of seizure arises mainly in respect to hypothecated securities like machinery, vehicles, stock etc. This right of the Bank has been upheld by Courts also.
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Before taking a decision for seizure of the hypothecated securities, the following aspects are
to be taken note of.
 The services of authorized seizure agents must be available and if not available / not felt
necessary, Branch officials must be sure of taking possession on their own
 There should be availability of storing facility/space for safe keeping the seized goods.
 The securities/goods to be seized should command reasonable price and should be
easily disposable within the reasonable time.
 Unless there is ready market, as far as possible the seizure of livestock, perishable
goods should be avoided.
 Most important aspect is that seizure process should be smooth and peaceful. It is advisable to keep Police authorities informed in advance of the intended seizure, to avoid
possible future problems. If felt necessary, branch may seek the assistance of police
0fficials for this purpose. However, in exceptional cases if law and order problem is apprehended, seizure may be avoided.
1. Procedure for seizure:

While sending the notice itself, it is to be made clear to the borrowers/parties that incase
of their failure to clear the dues within a specified date, the Bank will be constrained to
take such steps or action, like taking possession and disposal of securities, initiating legal action etc, without any further notice.

When it is a decided to seize the securities, the branch has to ascertain the exact location/whereabouts of the securities hypothecated.

If available / felt necessary, services of seizure agents may be enlisted. Permission of
Circle Office may be obtained for entrusting work to seizure agents.

The official/representative of the bank going for taking possession of securities, should
carry with him an authorization letter issued by the branch and also a letter addressed to
party requesting for surrendering the hypothecated securities.

The hypothecated securities have to be taken possession of peacefully in the presence
of at least two witnesses, respectable and known to the bank..

An inventory of all seized goods is to be prepared and the same has to be signed by the
witnesses. The borrower may also be persuaded to sign the inventory. If the borrower
refuses to sign the inventory, same could be recorded in the inventory itself.

In case of removal of machinery etc. wherever required, the assistance of qualified mechanics can be sought.

After the inventory is made, the goods are to be shifted and stored in separate godowns
under Bank‘s lock and key or to be entrusted to clearing agents/Mukadam firms for safe
keeping.

Thereafter, a letter has to be addressed to the borrowers/guarantors recording the fact of
taking possession of the securities by attaching a copy of the inventory taken. In the said
letter it should be made clear that the Bank will proceed to dispose of the goods if the
dues are not paid on or before a date, to be specified in the letter.
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
Whenever the seized securities are vehicles, tractors, rigs etc. due intimation of seizure
has to be given to concerned R.T.O.s by Registered post for claiming exemption of Road
taxes etc. The copy of the RC/tax card copies lodged with the branch, should also be
sent the RTO and they should be informed of the specified address where the vehicle is
kept.

Wherever securities seized are covered by insurance, the fact of seizure and the present
location/address of the godown where it is stored are to be informed to concerned insurance company immediately.

Wherever it is found desirable, the fact of going for seizure of hypothecated securities
may be informed to the concerned police authorities by way of a letter. The branches can
also seek their help and assistance for seizure, wherever they foresee any trouble.
2. Seizure and safe keeping through outside agencies



Wherever the services of reputed clearing/seizing agencies (Mukaddam firms) are available, the work of seizing and safe keeping of securities can be entrusted to them.
Permission from concerned CO has to be obtained for entrustment of work to these
agencies.
Seizing and safe keeping charges payable to these agencies are to be pre-determined
as per guidelines of CO.
In case the borrowers physically resist taking possession of securities by the Bank‘s Officials/representatives, it is not advisable to take forcible possession as neither law nor the
loan documents permit taking such forcible possession. In such an event, the proper course
open to the Bank would be to immediately write to the borrower/guarantor recording borrower‘s conduct/details of resistance. Thereafter, immediate steps are to be taken to enforce
securities through the court by filing a suit. Evidence of such letters will be useful for speedy
court proceedings.
3. Sale of seized/pledged securities:
Once possession of hypothecated securities is taken, for all purposes it may be treated as
pledge. Bank has got a right to sell the pledged/seized securities. When it is decided to sell
the securities, a notice has to be given to the owner before the sale is effected. Notice of
sale is at must, in view of provisions of Sec 176 of the Contract Act and it should contain on
or after a given date. The notice should also state that if the sale proceeds are not sufficient
to cover the entire dues, the Bank would proceed against the borrowers for recovery of the
balance dues. The copy of the notice should also be endorsed to the guarantors/co-obligant.


It is advisable to obtain a valuation report of the securities by a competent person before
proceeding further to sell.
If the quantity of goods is small it is not advisable to go for a professional valuer. However, the valuation may be obtained by a person in the line, so that the cost of valuation is
kept to the minimum.
A sale could be by public auction or by private sale.
i. Private Sale
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In case of a private sale, wherever necessary, depending upon the items, offers may be
called through Newspaper publication with the due permission from CO. Alternatively, we
may get offers from a large number of persons but not less than 4 to 5 parties, by wide circulation of sale notice. After the offers are obtained, a list of the offers is to be prepared and
sent to CO for information.
The highest offer has to be referred to borrower/guarantor calling upon them to redeem the
pledged/seized securities within a specified date. In such a letter it is not necessary to disclose the name of the offeror, the amount of the offer alone could be disclosed.
ii. Public Auction/e-auction:
Wherever the liability is huge and security involved is also substantial, bank may resort to
public auction. This may be done either by the branch itself or by engaging a professional
auctioneer.
In case of public auction also, wide publicity either in Newspaper or through circulation is to
be given so as to attract large number of persons to participate in the auction. Permission
from CO has to be obtained for the above step and their guidance has to be sought for fixing
up of the upset price. In the case of public auction it is advisable to circulate the terms and
conditions of sale in advances to all the participants in the auction. It should also be made
clear to the parties that the bank reserves its right not to accept any offer or to cancel the
auction. If the highest offer is reasonable and above the floor price fixed, then the sale may
be concluded.

After the sale is effected, the bank must write to the borrower/guarantor giving the details
of amount realised, amount adjusted towards expenses and credited to loan account.
Such letter should call upon all the parties to repay the balance amount if any, with interest. If any surplus is available, the same may be credited to the party‘s account or kept in
SL suspense under intimation to borrower/s.

Care should be taken to see that the notice of sale/auction is displayed on the Notice
Board of the branch.
B. Enforcement of Security of FDRs, LIC Policy, Shares etc:
There is no much difficulty in enforcing these securities which are pledged to the bank as
these are easily realisable. However, before bank enforces the security, a proper notice
should be given to the debtors informing that if the loan is not cleared on or before a given
date, bank shall proceed to enforce the security without further notice. Thereafter, if it is deposits, branch can adjust the same and inform the borrower of such adjustment. If it is LIC
policy, it has to be surrendered to LIC. LIC insists on production of a copy of the notice
served by the bank to the borrower, intimating such surrender. In case of shares, it can be
sold through stock exchange through stock brokers. After realisation/sale, the proceeds are
to be adjusted to party‘s liability and party has to be informed and called for remitting the
balance liability, if any forthwith. Surplus, if any available may be credited to the party‘s account under intimation.
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C. Book debts as security:
Whenever book debts are hypothecated/supply bills discounted are outstanding, by virtue of
the power of attorney obtained by the bank or power of attorney clause contained in the hypothecation agreement, branch can call upon the debtors of the borrower to pay the book
debts to the to the bank and the discharge that will be given by the branch will be good discharge to such debtors. However, if the debtors fail to pay the amount to the Bank without
justifiable reasons and if the debt is still due to the borrower, Bank will have no alternative
but to file a suit to recover the same by impleading the debtors in the suit and seeking attachment of the receivables through court.
General:
 For effectiveness/results, seizure and enforcement of security/vehicle are to be resorted
to in time and in the initial stages of irregularities. In respect of securities like vehicles/rigs which are subject to fast deterioration, if this recourse is adopted with delay.
Bank may be put into greater loss owing to poor realisation.
 In case of loans against vehicles/rigs, if 3 or more instalments remain unpaid, if no rephasement is considered, branches should initiate steps for seizure of the vehicle.
Necessary guidance/help may be sought from the CO in this direction. It is made clear that
any decision not to enforce the securities in such cases should have the approval of the CO.
There is no compulsion to transfer the account to LPD/R&L Section before resorting to enforcement of securities.
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SECURITISATION & RECONSTRUCTION OF FINANCIAL ASSETS & ENFORCEMENT
OF SECURITY INTEREST ACT, 2002 [SARFAESI ACT]
[Ref.Circulars 2/2007, 296/2007,47/2008,28/2009,159/2012,55/2013]
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) empowers the Banks/ FIs to enforce the securities against
the borrowers and realize their dues without intervention of the Court. The provisions of the
Act aim at improving the health of Banks and Financial Institutions by reducing NPAs.
The important features of the said Act are:
a) Bank can take action under SARFAESI Act in respect of all NPA accounts except in the
following cases:
 Claim / liability below Rs.1.00 lac
 Security interest (mortgage) created in agricultural land
 Pledge of movables within the meaning of Section 172 of Indian Contract Act
 In case where the amount due is less than twenty percent of the principal amount
and interest thereon.
b) The Bank, shall issue notice to the borrower through its authorized officer to discharge his
dues to Bank within 60 days and also notify him that in the event of his failure to do so, it
may exercise the following rights:
 Take possession of the secured assets or
 Takeover the management of secured assets or
 Appoint any person to manage the secured assets, the possession of which has
been taken over or
 Demand the amount in writing from any person who has acquired any of the secured
assets from the borrower and from whom the amount is due.
a)
When the account is under consortium lending, the Lead Bank or any other
consortium member Bank may initiate the action, provided Banks/FIs representing
60% in value of amount outstanding agree for such measures.
b)
Where the account is pending before BIFR/AAIFR, if the secured creditors
representing 3/4th in value of the amount outstanding against the borrower agree,
then proceedings under the Act can be initiated by the Lead Bank or any other Bank
as may be decided by the member Banks. Once possession notice is given in such
account, then BIFR / AAIFR has to be approached for abatement of the proceedings.
c)
On expiry of the notice period of 60 days, the authorized officer, may initiate
the following steps for taking possession and sale of movable / immovable propery:
Movable Property:
 Draw inventory
 Prepare panchanama duly witnessed by two persons
 Give a copy of the panchanama to the borrower or his representative
 Keep the assets in the safe custody duly insured
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 Obtain valuation only from the valuer approved by the Bank
 Issue 30 days notice of sale to the borrower / guarantor (who has created security interest).
 Thereafter, the sale can be effected either by inviting tenders or by holding public
auction or by obtaining quotations or by private treaty.
 The sale notice shall be published in 2 leading newspapers one of which should be in
vernacular language.
 Certificate of sale shall be issued to the successful bidder on receipt of bid amount.
Immovable Property:
 Possession Notice should be given to the borrower.
 If the borrower refuses to accept the notice, then affix the Possession Notice on the
outer door or at a conspicuous place of the property or where borrower resides.
 Possession notice should be published in 2 leading newspapers one of which should
be in vernacular language.
 30 days notice for sale of immovable assets should be given to the borrower.
 Obtain valuation only from the valuer approved by the Bank.
 Fix reserve price of the property.
The delegated power for fixation of reserve price is as under(254/13):
Authority> DM-COAGM-CODGM-COGM-COAGM-HOCAC
CAC
CAC
CAC
CAC
Total dues
50
100
400
1500
Full
 However, if the value of securities is below Rs.100.00 lacs, though the powers for
transferring the account to LPD/filing suit falls under the delegated powers of Head
Office, GM-CO-CAC/DGM-CO-CAC(CH-CACs is empowered to fix reserve price.
 In case of reserve price fixed by Head office, if the sale price obtained by the AO is
above the reserve price fixed by HO, sale confirmation can be done by CH-CACs.
 Thereafter the property shall be sold either by inviting tenders or by holding public
auction or by obtaining quotations or by private treaty.
 Sell the property duly observing the prescribed guidelines.
 On receipt of sale proceeds, issue sale certificate duly complying with guidelines in
force.
 Circles can permit CM / AGM working in VLB / ELB coming under their Circles to act
as the Authorized Officers for the nearby branches also.(Refer to HO Circular 2/2007
dated 01.01.2007 for detailed guidelines on SARFAESI Act)
 Any representation / compliant received against 60 days Demand Notice, should be
replied within fifteen days.
 The authority that is empowered to permit transfer of account to LPD / filing suit is
empowered to permit initiating action under SARFAESI Act. However, Circle Heads are
empowered to accord permission to initiate action under SARFAESI Act in respect of HO
power accounts.
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Terminology/Definitions:
Borrower:
(2/2007)
Property:
(2/2007)
Authorised
Officer:
(2/2007)
As per SARFAESI Act, borrower means any person:
(a) Who has been granted financial assistance by bank, or
(b) Who has given any guarantee or created mortgage or pledge as security to the bank in respect of any loan, or
(c) Who becomes borrower of a securitisation company or the reconstruction company consequent to acquisition by it.
As per SARFAESI Act, property means
(i) immovable property;
(ii) movable property;
(iii) any debt or right to receive payment of money, whether secured or
unsecured;
(iv) receivables, whether existing or future;
(v) intangible assets, being know-how, patent, copyright, trade mark, license, franchise or any other business or commercial right of similar nature.
As per SARFAESI Rules, ‗Authorised Officer‘ means an officer not less
than a Chief Manager (Scale IV) of the Bank as specified by the Board of
Directors of the Bank. Accordingly, the Board of Directors of our Bank
has authorised the following officials as Authorised Officers, for the purpose of SARFAESI Act:
(i) In case of VLBs/Corporate Service Branches(CSBs), the ‗Authorised
Officer‘ shall be the Chief Manager (scale-IV), of the branch. In case of
VLBs/CSBs not having an executive in the rank of scale-IV for any reason, till the time of posting of such executive, the ‗Authorised Officer‘ for
such branches shall be the next higher authority in the Regional Office /
Circle Office (Operations) / CSB as the case may be, having direct supervision over the concerned branch.
(ii) In case of ELBs, the ‗Authorised Officer‘ shall be the Assistant General Manager of the branch. In case, the Assistant General Manager is
not posted in ELBs, till the time of such posting, the ‗Authorised Officer‘
shall be the executive nominated/identified by the Circle.
(iii) In case of other branches, the ‗Authorised Officer‘ shall be an officer
of scale-IV or above, in the Regional Office / Circle Office (Operations),
as the case may be, having direct supervision over the concerned
branch.
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Appropriate
Authority:
(2/2007)
The controlling authority from whom permission is to be obtained by a
branch for proceeding under SARFAESI Act is mentioned as Appropriate
Authority in this circular. Proceedings sought to be initiated under
SARFAESI Act are analogous to seeking permissions for filing suits.
Hence, prior permission for proceeding under SARFAESI Act is to be
obtained from the Appropriate Authority who is authorised to permit
transfer of accounts to LPD and filing of suits.
In the event of the ―Authorised Officer‖ as indicated above, and the Appropriate Authority viz, the authority who gives permission for initiating
steps (i.e. issuing of notice, etc.,) under the SARFAESI Act, being one
and the same official, then the Appropriate Authority for such cases shall
be the authority who is one level higher than the ―Authorised Officer‖.
Secured Creditor means the Bank. In case of consortium accounts, secured creditor means the consortium or group of Banks/ Financial Institutions.
Security Interest means right, title and interest of any kind upon property,
created in favour of the secured creditor and includes any mortgage,
charge, hypothecation or assignment.
Secured
Creditor:
(2/2007)
Security
Interest:
(2/2007)
Security
agreement:
(2/2007)
"Approved
uer":
(47/2008)
val-
Security agreement means the document by which security interest is
created in favour of Bank. e.g. Mortgage deed, hypothecation agreement, Equitable Mortgage documents (LEDTD), etc.,.
"Approved valuer" means a person registered as a valuer under Section
34AB of the Wealth Tax Act, 1957, and approved by the Board of Directors or Board of Trustees of the secured creditor, as the case may be;
Identification of accounts to initiate action under SARFAESI Act:
SARFAESI Act is a powerful tool in the hands of banks to recover its dues in respect of bad
loans. Before initiating action under SARFAESI Act, branches have to identify the eligible
accounts for such action. Branches to verify the following aspects to ensure that an account
is eligible to proceed under SARFAESI Act.

There should be a default in repayment of loan amount (secured debt) or any installment, then only bank can proceed under SARFAESI Act.

The account should be NPA, then only bank can proceed under SARFAESI Act.

If no security interest is created in favour of the Bank, then Bank cannot proceed under
SARFAESI Act.

Before initiating action under SARFAESI Act, it should be ensured that the security
agreements are in order.

The person executed security interest may be either borrower himself or the guarantor or
the coobligant.

As bank has to proceed against such persons, branches to verify and trace whereabouts of borrowers/guarantors and their present address for communication.
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Exemptions from proceeding under SARFAESI Act (Sec 31)

a lien on any goods, money or security given by or under the Indian Contract Act,
1872 (9of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other law for the time
being in force;

a pledge of movables within the meaning of section 172 of Indian Contract, 1872 (9of
1872)

creation of any security in any aircraft as defined in clause (1) of section 2 of the Aircraft Act, 1934 (24 of 1934);

creation of security interest in any vessel as defined in clause (55) of section 3 of the
Merchant Shipping Act, 1958 (44 of 1958);

any conditional sale, hire-purchase or lease or any other contract in which no security
interest has been created;

any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930 (3 of 1930)
any properties not liable to attachment (excluding the properties specifically charged
with the debt recoverable under this Act) or sale under the first proviso to sub-section (1)
of section 60 of the Code of Civil Procedure, 1908 (5 of 1908);
any security interest for securing repayment of any financial asset not exceeding one
lakh rupees;
any security interest created in agricultural land;
any case in which the amount due is less than twenty percent of the principal
amount and interest thereon.




Action under SARFAESI Act against Agricultural Lands(Cir 28/2009):
The Hon'ble High Court of Andhra Pradesh in the matter of Gajula Exim (P) Ltd., Vs Authorised Officer, Andhra Bank reported in AIR 2008 AP 184 has held that,

If a land is ordinarily used for the purposes of agriculture, it would be agricultural land
and if it is not so used, it would not be agricultural land for the purpose of taking action under
SARFAESI Act.

So even if the land taken as security is classified as an agricultural land in revenue
records, but not actually used for agricultural purpose, the same will not be exempted from
the purview of SARFAESI Act.

Wherever the securities are said to be agricultural properties, the municipal records
of the property may be verified and an official may be deputed for physical verification of the
property to ascertain whether the said property is being used for agricultural purpose or not.

If the property is not used for agricultural purpose, action under SARFAESI Act may
be initiated / continued.
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Limitation [Sec. 36]

A secured creditor cannot proceed with taking possession or disposal of secured assets
until the demand notice has been issued within the period of limitation prescribed under
the Limitation Act, 1963.

Further, initiating action under SARFAESI Act, by itself will not be enough to save limitation.

Hence, before initiating action under SARFAESI Act, it should be ensured that sufficient
time is available i.e., at least nine months before initiating action under SARFAESI
Act.
Marketability/Disposability of Secured Assets.

If the borrower fails to clear the liability despite a demand notice as per SARFAESI Act,
the Bank may have to take possession of secured assets and dispose of the same to realize its dues.

Hence, the marketability/ disposability of the secured assets is very important. Therefore,
branches have to keep this aspect in mind before opting to proceed under SARFAESI
Act.
Suit filed accounts.

The Bank has issued guidelines permitting the Circles/Branches in taking action under
SARFAESI Act in suit filed accounts.

Action under SARFAESI Act can be initiated in a suit filed account also and no prior
permission from DRT is required for taking such action.

Hence, there is no bar in taking action simultaneously both under SARFAESI Act and
RDBF Act.
Decreed accounts.

Where decree/RC has been obtained from civil court/DRT and secured assets are
available, Bank can also proceed under SARFAESI Act, provided other eligibility criteria are satisfied.

However, it is not advisable to initiate action under SARFAESI Act, since the
debt is already adjudicated and the Recovery Officer of DRT has better powers to
realize the dues from the assets of the borrower.296/2007

On review of the Decreed/RC issued accounts, it is observed that EPs/RCs are
pending for execution for long in many accounts for various reasons like Judicial Officer/Recovery Officer not being posted, frivolous petitions being filed by the Judgement Debtor/third parties, death of the Borrower, etc. 296/2007

Also, in some of the Decreed/ RC issued accounts, out of practical experience it is
now felt that enforcement of security interest under SARFAESI Act will be easier/advantageous than execution of EP/RC through Courts/Tribunals. 296/2007
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Permission from appropriate authority.
 Before initiating action under SARFAESI Act, Branches have to submit necessary
proposal as per the format which is used for getting permission to transfer the account to
LPD and filing suits.
 In addition to this, Branches have to inform the following details to the Appropriate
Authority to accord permission.
1)
2)
3)
4)
5)
6)
7)
8)
9)
Details of the borrowers/ guarantors/mortgagors including their complete postal
address;
Details of the Security, including schedule of property (name of the owner, sy.no.,
extent, location, boundaries, description, etc.,)
Copy of Title Deed/Mortgage Documents/ Hypothecation Agreement, etc.,
Copy of last recall notice.
Liability, including unapplied interest as on date.
Details of marketability/enforceability of secured assets.
Present position of Secured Assets and whether the same are in the possession
of borrower or any third parties including tenants.
Such other details which are relevant for taking possession and disposal of Secured Assets.
Date of limitation and date of last AOD/AOS.
Appropriate Authority has to take into account of all legal and practical aspects in
proceeding under SARFAESI Act, before according permission in this regard.
MANDATORY NOTICE [SECTION 13(2)].
1. Once permission from Appropriate Authority is obtained, the Authorised Officer
(Scale IV and above) of the Bank can initiate action under SARFAESI Act on behalf
of the bank.
2. While initiating action under SARFAESI Act against the borrower a notice in writing
(demand notice) to discharge in full his liabilities within sixty days from the date of
notice to be issued under Sec.13(2) by secured creditor or Authorised officer, endorsing copies to guarantor/co-obligant/third party mortgagor. (Refer Cir
2/2007Annexure –2)
3. While proceeding against the secured assets given as security by the guarantor or
third party mortgagor/hypothecator (i.e. any person other than the borrower), a demand notice to be issued as per Cir 2/2007Annexure- 3 endorsing copies to borrower/ guarantor/third party as the case may be.
4. In respect of claim amount of less than Rs.50 Lacs, the Authorised Officer/ Secured Creditor can issue the demand notice after ensuring the facts and figures at
his end.
5. However, where claim amount exceeds Rs.50 Lacs, the notice should be issued
after getting the same vetted by a Panel Advocate.
6. Branches to note that demand notice under SARFAESI Act shall not be issued
through Panel Advocate.
7. A demand notice under SARFAESI Act shall give details of the amount payable by
the borrower and the secured assets intended to be enforced by the secured creditor
in the event of non-payment of secured debts by the borrower.
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8. A demand notice can be served by delivering or transmitting at the place where
the borrower or his agent, empowered to accept the notice or documents on behalf
the borrower, actually resides or carries on business or personally work.
9. It can also be delivered by any one of the following modes, viz.
(a) by registered post with acknowledgement due addressed to the borrower or his duly
authorized agent, or
(b) by speed post, or
(c) by courier, or
(d) by fax message or
(e) electronic mail service.
In respect of fax or e-mail confirmatory copy shall be sent by registered post.
If the borrower avoids demand notice or demand notice could not be served by any of
the modes mentioned above, the service of notice shall be effected by
(a) affixing a copy of the demand notice on the outer door or some other conspicuous
part of the house or building in which the borrower resides or carries on business and
also
(b) by publishing the contents of the demand notice in two leading newspapers, one in
vernacular language, having sufficient circulation in the locality.
In respect of Consortium Accounts or joint financing of financial asset/s by more
than one banks/financial institutions, consent is to be obtained from those secured
creditors representing not less than 60% in value of the amount outstanding as on a
record date for proceeding under SARFAESI Act.
In cases where our Bank is the leader of consortium, a letter should be addressed
to other members of consortium as per Cir 2/2007-Annexure- 4.
In cases where our Bank is not a leader, a letter should be addressed to leader as
per Cir 2/2007-Annexure- 5. Such action to be initiated, after obtaining permission
from the Appropriate Authority.
a) In cases wherein the security is shared (other than consortium accounts), Annexure 4 & 5 of Cir 2/2007 may be suitably modified in consultation with R & L
Section of the respective Circle Offices/Regional Offices.
b) Where the Borrower is the body corporate, the demand notice shall be served
on the registered office or any of the branches of such body corporate in the
same manner a specified above.
c) Where there is more than one borrower or guarantor, notices mentioned herein above shall be served on each of them.
OBJECTIONS TO DEMAND NOTICE [SECTION 13 (3A)]
1.
Borrower /guarantor/mortgagor can make representation or raise objection to
the Bank against the demand notice issued under Sec 13 (2) of SARFAESI Act.
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2.
On receipt of such representation/objection, the secured creditor (Bank) has to scrutinize the same and if the objection or representation is not acceptable or tenable, the Authorised Officer has to communicate the reasons for not accepting the same to the borrower/guarantor/mortgagor within fifteen days. [Sec 13 (3A)]
3.
The reasons communicated to the borrower for not accepting his objection or representation against the demand notice shall not give a cause of action to the borrower to file
an application before DRT against the Bank proceeding under SARFAESI Act.
If the borrower fails to discharge his liability in full within 60 days from the date of (receipt of) demand notice, the Bank can take one or more of the following recourses to recover its secured debts.
4.
The Bank shall not proceed against the borrower/guarantor/mortgagor, without giving reply, to the representation or objection raised by them.
RECOURSES AVAILABLE TO THE SECURED CREDITOR [SECTION 13(4)]

take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing secured asset;

take over the management of the business of the borrower including the right to
transfer by way of lease, assignment or sale for realizing the secured asset;

Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as
security for the debt;

Provided further that where the management of whole of the business or part of
the business is severable, the secured creditor shall take over the management of
such business of the borrower, which is relatable to the security or the debt;

appoint any person (hereafter referred to as the manager), to manage the secured
assets the possession of which has been taken over by the secured creditor;
 require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due
to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay
the secured debt.
TAKING POSSESSION OF MOVABLE PROPERTY [SECTION 13(4) OF SARFAESI ACT
R/W RULE 4 OF SARFAESI RULES].
1.
If the borrower has not cleared his dues even after completion of sixty days from the
date of (service of) demand notice issued under Section 13 (2) of SARFAESI Act, the Authorised Officer has to initiate steps for taking possession of secured assets.
2.
Before proceeding with taking possession of secured assets, the Authorised Officer
has to analyze the practical aspects in respect of taking possession and disposal of the
same such as safe keeping of the property, marketability of the property, nature of the
property, etc.
3.
If the movable secured assets are in the possession of borrower, the Authorised
Officer has to take the possession of such properties in the presence of two witnesses,
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after preparation of a panchnama as per Cir 2/2007Annexure- 6 and get it signed by the
witnesses.
4.
After taking possession, the Authorised Officer has to prepare an inventory as per
Cir 2/2007Annexure- 7 and to deliver a copy of the same to the borrower or his agent/
representative.
5.
If the Borrower or his authorised representative refuses to receive the same, then the
said inventory list (Cir 2/2007-Annexure 7) shall be sent by anyone of the modes as mentioned above.
6.
After taking actual possession, the Authorised Officer has to keep the property in his
custody or any other person authorized by him and to take as much care as that a man of
ordinary prudence will take care of his own property.
7.
If the property is subject to speedy or natural decay, or the expenses of keeping such property in custody are likely to exceed its value, the Authorised Officer may
sell such properties at once.
8.
After taking actual possession, the Authorised Officer has to take steps for the
preservation and protection of property and take insurance, if required till its disposal.
9.
In case, the secured asset is a debt not secured by negotiable instruments the Authorised Officer shall obtain possession or recover the debt by service of notice prohibiting
the borrower from recovering the debt or any interest thereon and the debtor from making
payment thereof and directing the debtor to make such payment to the Authorised Officer.
10.
In case, the secured asset is a share in a body corporate the Authorised Officer
shall obtain possession or recover the debt by service of notice directing the borrower to
transfer the same to the secured creditor and also the body corporate from not transferring such shares in favour of any person other than the secured creditor.
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11.
Format of notice is provided in Cir 2/2007-Annexure- 8 . A copy of the notice so sent
may be endorsed to the concerned body corporate‘s Registrar to the issue or share transfer
agents, if any.In case, the secured asset is any other movable property not in the possession of the borrower except the property deposited in or in the custody of any court or
any like authority, the Authorised Officer shall obtain possession or recover the debt by service of notice calling upon the borrowers and the person in possession to hand over the
same to the Authorised Officer. Format of notice is provided in Cir 2/2007 -Annexure – 9.
In case such movable secured assets are in the possession of third parties, the Authorised
Officer shall take custody of such assets in the same manner as stated above in Para 6.3 to
6.7. In case of movable secured assets other than those covered above, the Authorised Officer has to take possession of the same by taking
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SALE OF MOVABLE PROPERTY [SECTION 13(4) OF SARFAESI ACT R/W RULE 6 OF
SARFAESI ACT].
A. After taking possession of a movable secured asset and in any case before sale, the Authorised Officer shall obtain the estimated value of such assets.
B. The Authorised Officer, after obtaining estimated value as above, if considered necessary, fix in consultation with the Appropriate Authority (Secured Creditor), the reserve
price of the assets to be sold.
C. The Authorised Officer may sell the movable secured assets taken into possession, in
one or more lots by adopting any of the following methods to secure maximum sale price for
the assets.
o By obtaining quotations from persons dealing with such property or interested
in buying such assets;
o By inviting tenders from the public;
o By holding public auction; or
o By private treaty.
D.
Authorised Officer has to serve a thirty days notice (sale notice) as per Annexure
12 and 13 of Cir 2/2007 with necessary modification along with the covering letter to the borrower (Cir 2/2007-Annexure 14).
E.
If the Authorised Officer decides to conduct the sale by inviting tenders from the
public or by holding public auction, the secured creditor shall cause a public notice (notice of sale) in two leading newspapers, one in vernacular language, having sufficient circulation in the locality.
F.
The notice of sale to be published in the newspapers has to mention the terms of the
sale, which shall include the following:

Details about the borrower and the secured creditor;

Description of movable secured assets to be sold with identification
marks or numbers, if any on them;

Reserve price, if any and the time and manner of payment;

Time and place of public auction or the last date, time and place
where tenders are to be submitted;

Depositing of earnest money stipulated;

Time and terms of payment of purchase price to be remitted;

Any other material thing, which affects the nature and value of the
property.
G.
If the sale is by any mode other than public tender or public auction, the Authorised Officer has to discuss with the borrower and the secured creditor and make the
terms and conditions of disposal of secured assets into writing and obtain the signature of
all parties. Thereafter, the Authorised Officer can proceed with sale of secured assets as per
such written terms and conditions. Branches/AOs shall note to publish the sale notice on
Canara Bank website and on the Government website (i.e. tenders.gov.in).
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E-AUCTION under SARFAESI ACT:
(Ref: Ltr RW/LEGAL/91/2013/MSR dated 01.08.2013 of Legal Sec of RW,HO)
 Under the instructions of Dept.of Financial Services, GOI, it is advised to all Circles/branches /Authorised officers(AOs) to conduct all auctions under SARFAESI Act
electronically(E-auctions).
 Bank has empanelled Service Provider(SP) M/S E-Procurement Technologies Pvt
Ltd(abc procure) so as to use their platform for conducting E-auctions under SARFAESI
Act.
WORK FLOW:
1.After taking permission from the competent authority, Branches/AOs will finalise the eauction notice;
2.Since the service provider has to give user ID and password to the bidders, while preparing the sale notice, it should be ensured there should be gap of 3 days from the date of
submission of the bid and the date of auction;
3.AO has to send the duly filled e-auction notice along with the covering letter to the borrower, mortgagor and copies of the same should be marked to guarantors also, giving clear 30
days time as per the Security Interest (Enforcement) Rules,2002.
4.The said e-auction notice should also be published in two leading newspapers,out of which
one should be in vernacular language. The said e-auction notice shall also be affixed on a
conspicuous part of the property.
5. Branch to provide copies of e-auction notices & paper publication to SP on e-mail
(E.g. vishal.t@abcprocure.com)
6. Branch shall inform the name, official address and telephone number of the concerned
AO to the SP
7. Once auction notice is published on the portal of the SP (https//canarabank.abc procure.com), they shall inform the same to the concerned official of the Bank through email/telephone.
(Branches/AOs shall note to publish the sale notice on Canara Bank website and on the
Government website (i.e. tenders.gov.in).
8. E-auction notices published on the website of the SP can be accessed by general public
as well as the bidders. However, Login ID and password will be allocated by the SP after
finalization of the list of bidders by the AOs.
9. The bidder shall deposit the required documents, EMD and bid before the AO(mentioned
in the e-auction notice) on or before the due date and time. The bidder can also pay EMD
amount through NEFT/RTGS/Fund transfer/demand draft and can receive confirmation of
payments made,if required from the Bank(for depositing the amount through
NEFT/RTGS/Fund transfer, the concerned branch has to open a current (dummy)a/c in the
name of the said branch.
10. On receipt of the EMD, the concerned branch shall check the credentials of the bidders,
e.g. Pan Number,Address proof,etc., and submit the final list of bidders to the SP atleast 2
days before the date of auction with the following information:
 Name and address of the bidders
 E-mail addresses of the bidders (to which the confedential information related to login
passwords, dummy excercise, etc may be sent by the SP)
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 Contact numbers of the bidders
11. SP shall register the bidders on the portal, create login ID and password and register
their digital signature will be provided to the concerned AO also. The said digital signature is
valid for one year.
12. Facilitation centres may be set up in bank‘s branches conducting the e-auctions or at
branches near to the place where property is located.
13. The tender will be opened on the due date and time. It cannot be opended earlier since it
is system generated.
14. The bidders need to log in to the website ―https//canarabank.abcprocure.com‖, few
minutes/set time before the auction start time.
15. A ―Bid‖ button will be available on start of the auction proceedings;
16. Once the bidder clicks the ―Bid‖ button, a page will open showingo
Auction start time;
o
Auction close time;
o
Opening bid/current highest bid amount;
o
Minimum bid increment;
o
A bid tab fill in his/her own bid amount
17. Bidder can enter his/her bid amount and wait for response on his/her bid
18. If the bid becomes highest bid, then she/he will be shown as ―Rank-1‖
19. This ―Rank-1‖ icon will disappear, if any new improved bid is submitted by any other bidder
20. The bidder can submit his new improved bid
21. This process will continue for the entire auction period
22. Auction will close as per the closing time mentioned in the e-auction notice. In case, if
any bidder will increase the bid amount within five minutes of closing time, the bid time will
be extended by another 5 minutes and will continue till the final highest(successful bidder) is
arrived at.
23. The successful bidder gets an e-mail confirmation indicating his highest bid and declaring him as the successful bidder by the AO.
24. The successful bidder can now make the required percentage of payment (25% of the
bid amount inclusive of the EMD amount) online to the Current a/c number(dummy a/c)
mentioned in the e-auction notice or manually at the respective branch and get a receipt of
payment;
25. SP submits auction report to the AO;
26. Along with the auction report, the AO has to take-up with the Bank(secured creditor) for
confirmation of sale. After confirmation of sale in favour of the successful bidder, the balalnce payment of sale consideration should be made by the successful bidder in terms of eauction notice. Issuance of sale certificate, etc., should be made as per the terms and conditions of the sale notice as per Security Interest (Enforcement) Rules.
The branch may contact Circle office for state wise list of concerned person- for Canarabank
e-auction.
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H.
Once movable secured assets are sold, the successful purchaser has to remit the
purchase price as per the terms published in the notice of sale or as per the terms agreed
among all the parties (Rule 7(1) of SARFAESI Rules).
I.
In the event of default of the purchaser in remitting the purchase price, the secured assets can be sold again [Rule 7(1) of SARFAESI Rules].
J.
On payment of full sale price, the Authorised Officer has to issue a Certificate of
Sale as per Annexure- 15 of Cir 2/2007, specifying the movable secured assets sold, price
paid and the name of the purchaser.
K.
The Certificate of Sale issued by the Authorised Officer shall be prima facie evidence
of the title of the purchaser.
L.
The above rules in respect of the sale of the movable secured assets shall mutatis
mutandis apply to cases where the movable secured asset is:
o
a mortgage, charge, hypothecation or pledge of movable property; or
o
any right or interest in the security, whether full or part underlying such debt or receivables; or
o
any beneficial interest in the property, whether movable or immovable, or in such debt,
receivables, whether such interest is existing, future, accruing, conditional or contingent
Section13(5A) is newly inserted(Cir 55/2013):Where the sale of an immovable property for
which a reserve price has been specified, has been postponed for want of a bid of an
amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorized by the secured creditor in this behalf, to bid for the immovable property
on behalf of the secured creditor at any subsequent sale.(Detail guidelines are being issued).
Section 13(5B) is newly inserted(Cir 55/2013):Where the secured creditor, referred to in subsection (5A), is declared to be the purchaser of the immovable property at any subsequent
sale, the amount of the purchase price shall be adjusted towards the amount of the claim of
the secured creditor for which the auction of enforcement of security interest is taken by the
secured creditor, under sub-section (4) of section 13.
SEIZURE AGENTS
1. The services of seizure agents in HO Panel can be utilized for taking actual possession of secured assets, in case where the same is felt necessary.
2. Permission from the Circle Office/Regional Office is to be obtained before availing the service of seizure agents.
3. Where Constructive/symbolic possession of the secured assets is proposed to
be taken, there is no need for availing the service of seizure agents.
4. The Authorised Officers can take the possession of secured assets with the assistance of seizure agents. The seized assets can be handed over to seizure agents for
safe keeping.
5. Branches/Offices are to obtain a copy of the agreement executed by the Seizure
Agents from the concerned Circle, before entrusting the seizure works to such
Agents to ensure compliance of the terms and conditions in this regard.
6. The branches have to ensure that the fee payable to the Seizure Agents is negotiated well in advance and fee is fixed taking into account the complexities involved in
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each case and within the limit of maximum fee payable. The endeavour of branches
shall be to bring the fee payable to the barest minimum.
7. The fee shall be payable to the seizure agents proportionately as and when the
work is completed and after obtaining permission from the Circle Office/Regional Office.
8. Whenever any work entrusted to the seizure agents is discontinued by the bank, due
to various reasons including OTS, then such matters are to be notified to the seizure
agents without delay.
9. In such cases fee payable to the seizure agents shall be determined based on the
actual work done by such agents.
10. Excess amount, if any already paid to the Seizure Agents to be recovered.
Appointment of Manager [Section 13 (4) (C) Of SARFAESI Act [read with Rule 10 of
SARFAESI Rules]
1. In cases where the Circle desires to appoint any person (hereinafter referred to as
the manager) to manage the secured assets, the possession of which is taken over by
the Bank, then in consultation with the Borrower, the Circle may refer the matter to Recovery Section, Recovery Wing, HO to get permission from the Board of Directors of the
Bank for appointment of such person as Manager.
2. The manager appointed by the Board of Directors of the Bank, shall be deemed to
be an agent of the borrower and the borrower shall be solely responsible for the commission or omission of acts of the manager unless such commission or omission are
due to improper intervention of the secured creditor ( the Bank) or the Authorized Officer.
3. The Manager shall have power by notice in writing to recover any money from any
person who has acquired any of the secured assets from the borrower, which is due or
may become due to the borrower.
4. The Manager shall give such person who has made payment ( as mentioned above )
a valid discharge as if he has made payment to the borrower.
5. The Manager shall apply all the monies received by him firstly, in payment of costs,
charges and expenses and secondly, in discharge of dues of the Bank and the residual
money so received shall be paid to the person entitled in accordance with his rights and
interests.
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PROCEDURE FOR RECOVERY OF SHORTFALL IN SECURED DEBT [SECTION 13 (10)
OF SARFAESI ACT R/W RULE 11 OF SARFAESI RULES].
1. If the entire liability of the Bank is not cleared after effecting the above measures, the,
Bank is entitled to file a suit or application before the court or DRT as the case may be,
for the recovery of the balance amount.
2. It may be noted that mere initiation of proceedings under the provisions of the subject Act will not save the limitation.
3. Hence, wherever required Branches should ensure that AOD/AOS is/ are obtained
and/or legal action before the appropriate forum is initiated after obtaining prior
permission from the appropriate authority viz., the authority who has been empowered to
permit the transfer of account to LPD and filing suits within the limitation period.
4. Branches to ensure that limitation is available against the borrower/guarantor/third
party mortgagor even if proceedings are initiated under this Act.
5. As far as guarantor is concerned, limitation begins from the date of invocation of
guarantee by the Bank and/or revocation of guarantee by the guarantor.
6. It should be ensured before filing suit that the personal guarantees are invoked by issuing notice to the guarantors.
7. If any decision is taken by the Appropriate Authority to recover the balance amount, then
an application for recovery of balance amount shall be presented to the Debts Recovery
Tribunal / Court in the form annexed as Annexure – 17 of Cir 2/2007, within whose jurisdiction the case falls.
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RIGHT TO APPEAL [SECTION 17]
 As per Sec.17[1] of the SARFAESI Act, 2002, Borrower can prefer appeal before
Debts Recovery Tribunal [DRT] against the action taken by the Bank in terms of Sec.
13[4] of the SARFAESI Act.
 Similarly, aggrieved person viz., Borrower / Bank can prefer appeal before the Debts
Recovery Appellate Tribunal [DRAT], against the orders of DRT as per Sec. 18[1] of the
SARFAESI Act.
 Any person (including borrower) aggrieved by any of the measures such as taking
possession, sale, appointment of manager, etc., taken by the Bank or the Authorised Officer under Section 13 (4) of the SARFAESI Act, can file an application along with prescribed fee to the Debt Recovery Tribunal (DRT) having jurisdiction in the matter.
 Such an application is to be filed within 45 days from the date on which Bank has
taken measures under Section 13 (4) of the SARFAESI Act [Sec 17(1)] of SARFAESI
Act.
 Mere issuance of a demand notice under Section 13 (2) of the SARFAESI Act, or
any reply given by the secured creditor against the objections/ representations of the
borrower shall not give a cause of action to the borrower to file an application to the DRT
as stated above [Proviso to Section 13 (3A) of SARFAESI Act].
 In case notice is received from the DRT in respect of any such application, the
branches shall immediately take up with follow up authority for entrusting the matter to
Panel Advocate and defending the matter to protect the interest of the Bank.
 DRT has to dispose all such applications as expeditiously as possible and dispose the same within sixty days from the date of such application.
 DRT can extend the said period of sixty days for the reasons to be recorded in
writing upto a maximum period of four months.
 If the application is not disposed within four months by the DRT as stated above, the
bank or the borrower can file an application before the Debt Recovery Appellate Tribunal (DRAT) for directing the DRT for expeditious disposal of the application pending before DRT.
 In the case of a borrower residing in Jammu and Kashmir he can file an application to the Court of District Judge, instead of DRT.
 Civil courts are not having jurisdiction to entertain any application or suit
against the proceedings taken by Bank under SARFAESI Act.
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 Now, Ministry of Finance, Department of Economic Affairs, Banking Division, New
Delhi, vide their Notification bearing No.S.O.466[E] dt.6/4/2004 has prescribed the court
fee for filing appeal by the aggrieved person under SARFAESI Act before DRT and
DRAT. Cir: 135/2004 The fee payable for filing an appeal before DRT against the action
taken by the Bank in terms of Sec.13[4] of the SARFAESI Act is as under: Cir: 135/2004

(i) Where amount of debt due is : Rs. 12000/- Rs. 10.00 Lac or less

(ii) Where the amount of debt due is : Rs. 12000/- above Rs. 10.00 Lacs plus Rs.
1000/- for every one Lac rupees of debt due or part thereof in excess of Rs. 10.00 Lacs,
subject to a maximum of Rs. 150000/
APPEAL AGAINST THE ORDER OF DRT [SECTION 18]
 Any person aggrieved by an order of DRT in an application filed by the borrower under SARFAESI Act, can prefer an appeal along with prescribed fee to the DRAT within
30 days from the date of receipt of order of DRT.
 No such appeal by a borrower shall be entertained by the DRAT, unless the borrower has deposited fifty percent of his dues with the DRAT.
 However, DRAT can reduce such amount to not less than twenty five percent of the
dues.
 In the case of a borrower residing in Jammu and Kashmir he can file an appeal
to the Jammu and Kashmir High Court, instead of DRAT.
 Fee for filing an appeal before DRAT against the orders of DRT by any aggrieved
Borrower/Bank is as under: Cir: 135/2004
SL.
NO.
AMOUNT OF DEBT DUE
AMOUNT OF FEES PAYABLE
1.
Less than Rupees 10 lakh
Rupees 12,000/-
2.
Rupees 10 lakh or more but less Rupees 20,000/than Rupees 30 lakh.
3.
Rupees 30 lakh or more
Rupees 30,000/-.
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GENERAL GUIDELINES-SARFAESI
1. Wherever required, if the seized securities are vehicles, tractors, rigs etc., due intimation of seizure is to be given to concerned RTO by Registered post with
acknowledgement due (RPAD ) for claiming exemption from Road Tax, etc.
2. Copy of RC/Tax Card available with the branch should also be sent to the RTO and
they should be informed of the address of the premises where the vehicle is kept.
3. Wherever securities seized are covered by insurance, the fact of seizure and present location etc., are to be informed to the concerned Insurance Company immediately.
4. If the borrower has cleared the dues of the Bank together with all costs, charges
and expenses incurred at any time before the date fixed for sale or transfer, the asset
seized or possession taken over should not be sold in the auction.
5. Where the borrower have alienated/assigned the property charged/mortgaged
(in favour of the Bank) to third parties, the Bank is entitled to demand from such third
parties to pay the amount (which is due or may become due at a later date to the borrower) to the Bank directly and give necessary certificate thereof.
6. All the moneys recovered shall be :
First applied in payments of costs, charges and expenses incurred in connection with
the proceedings initiated under the SARFAESI Act and
Secondly, in discharge of the dues of the Bank, and residue of the money so received
shall be paid to the person entitled (borrower).
7. As per the amended provisions of The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), in respect of accounts pending before BIFR, if the secured
creditors representing not less than three fourth in value of the amount outstanding
have taken measures for taking possession, sale, etc., under SARFAESI Act (i.e. any
action under Section 13 (4) of the SARFAESI Act) to recover their dues then the proceeding before the BIFR shall abate.
8. Hence, branches may take necessary steps in co-ordination with other secured
creditors to come out of the purview of BIFR proceeding through their concerned followup authority and the Liaison Officer attached to BIFR/AAIFR. As the time spent before
BIFR/ AAIFR alone is excluded, left over limitation period is to be kept in mind.
9. Where a Company is in liquidation, the amount realized from the sale of secured
assets shall be distributed in accordance with the provisions of section 529A of the
Companies Act.
10. As per section 529A of Companies Act, dues of workmen and dues of the secured
creditors have pari-passu charge over the secured assets.
11. As per the provisions of SARFAESI Act the Bank after realizing the security, should
deposit the share of the workmen dues with the Official Liquidator (OL) /the Company
Court as the case may be, and appropriate the balance amount to the loan account.
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12. It may be noted that Branches are entitled to initiate any one or all of the actions
mentioned under the SARFAESI Act against the guarantor (Provided he created any security interest over his property) and/ or third party mortgagor/s/hypothecator/s, without
first initiating any of the measures against the Borrower.
13. In accounts where Compromise/OTS is/are permitted and if the borrower fails to
honour his commitment under the compromise/OTS, and proceedings under the
SARFAESI Act are sought to be initiated, then the Compromise/OTS permitted should
be withdrawn before initiating action under the SARFAESI Act.
14. If the Civil Courts are proceeding with the sale of assets on the basis of execution
petition filed by Bank, branches shall not simultaneously proceed under SARFAESI Act,
against such assets.
15. Wherever Recovery Certificates are obtained from DRTs, Branches are advised not
to initiate proceedings under the SARFAESI Act simultaneously as the debt is already
adjudicated and proceeding under SARFAESI Act at this stage may give scope for fresh
litigation.
16. Circles shall submit monthly report and progress report (ABC Statement) as per the
Annexure- 18 & 1 respectively of Cir 2/2007, on or before 5th of succeeding month to
NPA Cell, HO.
17. The said report shall be submitted separately for accounts having liability of less than
Rs.10 Lacs, accounts having liability of Rs.10 Lacs & above but less than Rs.1 Cr. and
accounts having liability Rs.1 Crore & above
18. The above guidelines are only indicative. Hence in cases where branches need clarification/guidelines in respect of legal aspects, they are advised to take up with their R&L
Sections.
19. That Approved Valuer for valuation of secured assets is registered as a valuer under
Section 34AB of the Wealth- tax Act.
20. That possession notice is published within 7 days from the date of taking possession.
21. That the surplus amount remaining after meeting the cost of removing encumbrances
and contingencies out of the money deposited by the purchaser is reimbursed to the
purchaser within 15 days from the finalization of sale.
22. That the authorised officer has issued or caused the purchaser to issue notices to
the persons interested in or entitled to the money deposited with him and steps are taken
to make the payment accordingly.
23. That the manager to be appointed under Rule 10 (1) shall not be a person who is, or
has been adjudicated insolvent, or has suspended payment or has compounded with his
creditors, or who is, or has been, convicted by a criminal court of an offence involving
moral turpitude.
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SECURITY INTEREST (ENFORCEMENT) (AMENDMENT) RULES
Cir:47/2008
The Security Interest (Enforcement) Rules, 2002 has been amended vide 'the Security
Interest (Enforcement) (Amendment) Rules, 2007' with effect from 26.10.2007 making
the following amendments (mentioned in bold letters) to the Rules, 2002:
Cir: 47/2008
 "the possession notice as referred to in sub rule (1) shall also be published, as soon
as possible but in any case not later than seven days from the date of taking possession,
in two leading newspapers, one in vernacular language having sufficient circulation in
that locality, by the authorised officer." 47/2008
 where the immovable property sold is subject to any encumbrances, the authorised
officer may, if he thinks fit, allow the purchaser to deposit with him the money required to
discharge the encumbrances and any interest due thereon together with such additional
amount that may be sufficient to meet the contingencies or further cost, expenses and interest, as may be determined by him. 47/2008
 Provided that if after meeting the cost of removing encumbrances and contingencies
there is any surplus available out of the money deposited by the purchaser such surplus
shall be paid to the purchaser within fifteen days from date of finalisation of sale ."
47/2008
 On such deposit of money for discharge of the encumbrances, the authorised officer
shall issue or cause the purchaser to issue notice to the persons interested in or entitled
to the money deposited with him and take steps to make the payment accordingly."
47/2008
 "The Board of Directors or Board of Trustees, as the case may be, may appoint in
consultation with the borrower any person (hereinafter referred to as the Manager) to
manage secured assets the possession of which has been taken over by the secured
creditor. 47/2008
 Provided that the manager so appointed shall not be a person who is, or has been,
adjudicated insolvent, or has suspended payment or has compounded with his creditors,
or who is, or has been, convicted by a criminal court of an offence involving moral turpitude ." 47/2008
.
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Central registry under provisions of SARFAESI ACT for mandatory registration of
equitable mortgage transactions. (126/2011 )
 Section 20, Chapter IV of the SARFAESI Act 2002 provides for setting up a Central
Registry by the Central Government for registration of (a) Securitization, (b) Asset Reconstruction (c) Security Interest, including mortgage, hypothecation, charge etc, created
in favour of Banks and Financial Institutions.
 Section 25 of Companies Act known as Central Registry of Securitisation Asset
Reconstruction and Security Interest of India (CERSAI) with 51% paid up capital to
be held by Central Government and the remaining 49% of the paid up capital to be
shared amongst the top 10 PSBs and National Housing Bank for the purpose of
operationalising the registration system by the Company.

Central Registry has come into effect from 31st March 2011.
 The objective of the Registration System is to compile data relating to secured transactions which can be searched by any person on payment of fee prescribed.
SALIENT FEATURES OF THE SCHEME :
1. Equitable mortgages involving non-agricultural properties created on or after
31/03/2011 are to be mandatorily registered with CERSAI and delay beyond 30 days will
attract penalty.
2. Excludes agricultural property within the purview of SARFAESI Act.
3. Registration, which was initially, limited to equitable mortgages created on or after
31.03.2011 and Equitable Mortgages created before 31.03.2011 also to be registered.
OPERATIONAL GUIDELINES:
a) Particulars of every transaction relating to security interest by way of equitable mortgage
by deposit of title deeds, shall be filed with the Central Registry online within 30 days from
the date of such transaction, in the prescribed format along with fee (Rs.500/- for loan
above Rs.5.00 lacs and Rs.250/- for loan up to Rs.5.00 lacs.)
b) As regards registration of transactions other than equitable mortgage, Central Govt. will
issue notification in due course, which will be communicated to the branches/offices accordingly. The Central Govt. will also specify Forms for filing charge relating to security interest,
other than mortgage by deposit of title deeds, by amendment to these Rules from time to
time.
c) The Central Registrar may condone delay not exceeding 30 days and allow filing of particulars of transaction on payment of additional fee as may be prescribed (Not exceeding
Rs.2500/- for loan up to Rs.5.00 lacs and not exceeding Rs.5000/- in all other cases).
d) If any security interest is being created in favour of two or more lenders, the details as to
inter se priority amongst them and whether they hold it on a Pari passu or subordinate basis,
shall be required to be specified; Provided that if ranking of security is not available, Central
Govt. may allow such time not exceeding 60 days, for the same to be specified.
e)Search report to be mandatorily obtained in respect of loan a/cs including retail loans(Cir
342/13)
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SARFAESI ACT : FREQUENTLY ASKED QUESTIONS
EDUCATIVE SERIES : No. 1/2010, 2/2010
1) What are the precautions to be taken at the time of issuing demand notice?

Account should have been classified as NPA and recalled.

The security sought to be enforced should be hypothecated /mortgaged to the bank.

The security interest/ rights created should not be pledge of movables or agricultural
land or the total amount due should not be less than 20% of the principle amount and
interest there on.

The total liability in the account should be above Rs 1 Lac.

Demand notice should be issued within the limitation period. ie, account is not time
barred.

Correct address of the borrower/mortgagor is to be ascertained and demand notice
should be issued in the correct address of the owner of the secured assets.(Draft notice to the borrower where he is the owner as per Annexure -2 of H.O Circular2/2007
and draft notice to the guarantor /third party where he is the owner as per Annexure3 of H.O Circular 2/2007).When the demand notice is served on the guarantor, being
the owner of the secured asset, copy of the notice to be served on the borrower and
vice versa.

Security is to be inspected by branch official to ensure that property details stated in
the loan documents tally with physical verification of the security, like, boundaries,
extant etc.

Correctness of liability shown in the demand notice to be ensured. In case of suit filed
accounts, liability shown should be in conformity with plaint/DRT application.

Acknowledgement to the demand notice should be kept safely, as the bank has to
prove issuance of notice to borrower/mortgagor in case of dispute.
2) If the borrower/mortgagor/guarantor is a company under the control of OL in winding up proceedings, what are the procedures to be complied with during the course of
the SARFAESI proceedings?
 In case of borrower/guarantor/mortgagor is a company under liquidation, demand notice to be served on the Official Liquidator.

Since OL was the custodian of all the assets of the company, Authorised Officer has
to take possession u/s 13(4) by giving possession notice to OL and sale notice is to
be served on OL prior to 30 days of sale.

After realising the sale proceeds the same shall be distributed in accordance with
Section 529A of Companies Act.
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
Workman dues (adjudicated by OL/Labour Court) shall have paripassu charge with
that of secured creditor. All other procedures applicable for taking possession, sale,
sale confirmation etc are to be complied with.
3) What are the steps to be taken by the bank to proceed further under SAERFAESI
Act if borrower avoids notice or if the demand notice could not be served by the
modes available?
b
If borrower avoids notice or where demand notice could not be served by the modes
available, a copy of the demand notice may be affixed on the outer door or some other
conspicuous part of the house or building where the borrower / owner resides or carries
on business and also by publishing the contents of the demand notice in two leading
newspapers, out of which one in vernacular language, in vernacular newspaper having
sufficient circulation in the locality.
c
If borrower fails to pay the amount demanded by the bank with in 60 days from the date
of publication of the notice, the bank can proceed to take possession of the property.
4) What are the consequences for not replying the representation given by the borrower/guarantor/mortgagor against the notice issued u/s 13(2) of SARFAESI Act?

In case the borrower/guarantor/mortgagor against whom notice is issued, raises objection in his reply, bank has to consider the objections on merit and send the reply
within 15 (Fifteen) days from the date of receipt of the objections. Without sending a
reply, if bank takes possession/any action under 13(4), such possession/action is not
valid in the eye of law.[Sec 13(3A)-clarification as per Cir 55/2013]
5) Whether public notice on taking possession is mandatory?

Yes. As per Rule 8 of the Security Interest (Enforcement) Rules 2002, the possession notice of immovable secured assets shall also be published as soon as possible
but in any case not later than 7 days from the date of possession (symbolic/actual) in
2 leading newspapers, one in vernacular language in vernacular newspaper having
sufficient circulation in that locality.

Non compliance of the same by the Authorised Officer will render further action of the
bank as illegal.
6) Whether DRT can proceed with the case where reference is pending before BIFR,
after taking possession by the bank under SARFAESI Act?

As per the amendment made to section 15 of SICA, 1985,if the secured creditors,
representing not less than 3/4th in value of amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any
measures to recover their secured debt under sub sec. (4) of sec. 13 of the Act, the
reference pending before BIFR shall abate.
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
Hence once bank takes possession under 13(4),the reference shall stands abated
and DRT can proceed with the case as if there is no reference pending before BIFR.
7) If the movable property is perishable in nature and it will not stand more than 10-15
days, whether it is mandatory to give 30 days sale notice to the borrower/mortgagor?
 No. As per the proviso to Rule4(3) of the Security Interest (Enforcement) Rules
2002,if the property taken possession by the Authorised Officer is subject to speedy
or natural decay, or the expense of keeping such property is likely to exceed its value, the Authorised Officer may sell it at once.
8) Whether Authorised Officer can delegate his power given under SARFAESI Act to
his subordinate or seizure agents?

No. As per the SARFAESI Act, Authorised Officer is required to take possession of
the property and he cannot delegate the power given under the statute to third person. If Authorised Officer is not present at the time of taking possession of the property, such a possession cannot be treated as possession taken under SARFAESI Act
and branch will not be in order in proceeding further in such matter. The assistance
of Seizure Agents can however be availed by the Authorised Officer in deserving
cases with approval of competent authority.
9) Whether DM/CMM need to give a notice to the borrower/mortgagor in the application filed under section 14 of the SARFAESI Act before passing the order?
 No. Hon'ble High Court of Bombay in the matter of Puran Maharashtra Automobiles
& another V Sub-Divisional Magistrate, Aurangabad & Others [IV-(2009) BC
713(DB)], held that nature of power exercised by CMM/DM under Section 14 of
SARFAESI Act are purely executory in nature and particularly no element of quasi
judicial functions or application of mind is required while exercising such powers. In
the said judgment, Hon'ble High Court also observed that CMM/DM acting under
Section 14 of SARFAESI Act is not required to give notice either to the borrower or to
the third party.
10) What are the procedures required to be complied with for conducting the sale by
private treaty?

As per Rule 8(8) of the Security Interest (Enforcement) Rules 2002, Sale by private
treaty shall be on such terms as may be settled between the parties in writing. Hence
the terms of sale by private treaty shall be in writing signed by the bank, mortgagor/borrower. Sale should be strictly as per agreed terms.
11) If any error or mistake is found to have crept in the demand notice issued what is
the further course of action?

If any error or mistake is found to have occured in the notice issued, the same can be
rectified through corrigendum to the notice issued or issue fresh notice withdrawing
earlier notice. Such corrigendum/fresh notice should also be duly served to the respective parties.
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12) Who should be the "valuer" for the purpose of taking valuation report under
SARFAESI Act?

The Valuer means a valuer registered under u/s 34 AB of the Wealth Tax Act and
approved by the Board of Directors of the bank.
13) What are the precautions to be taken at the time of taking actual possession of the
movable assets?
 Before proceeding with taking possession of the secured movable assets, the Authorised Officer has to analyse the practical aspects in respect of taking possession
and disposal of the same, such as, safekeeping of the assets, marketability, nature
of the assets etc.

The Authorised Officer has to be personally present.

If the assets are in the possession of the borrower/ mortgagor the Authorised officer
has to take possession of such assets in presence of 2 witnesses, after preparation
of panchanama and get it signed by the said witnesses.

After taking possession, the Authorised Officer has to prepare an inventory and deliver a copy of the same to the borrower/ mortgagor/ their agent against proper
acknowledgement.

If the borrower/mortgagor/their agent refuses to receive the copy of the inventory the
same should be sent by registered post with acknowledgement due with a covering
letter stating that since the borrower/mortgagor/ their agent refuses to accept the
same bank is sending the copy of the inventory.

After taking actual possession, the Authorised Officer has to take steps for preservation and protection of the assets. Insurance, if required should be taken till its disposal.
14) What are the precautions to be taken at the time of taking actual possession of the
immovable assets?
1.
Delivery of the possession notice to the owner of the property.
2.
The authorised Officer has to be personally present.
3.
Affixing the possession notice on the outer door or such conspicuous place of
the property.
4.
Publication of possession notice in 2 leading newspapers of which one should
be in vernacular language in vernacular newspaper within 7 days of taking possession.
5.
After taking actual possession, the Authorised Officer has to keep the property in his custody or any other person authorised by him.
15) How to take possession of the property if the secured assets are occupied by tenants?

If the secured assets are occupied by the tenants, symbolic/constructive possession
can be taken and be sold on ―as is where is condition‖.
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
In case where tenancy was created before mortgage, as the tenants are protected
under the State tenancy laws, they cannot be evicted otherwise than by adopting
procedure envisaged under the tenancy laws.
 Wherever tenancy was created after mortgage, the authorised officer can evict them,
if needed take assistance of CMM/DM by filing application u/s 14 of SARFAESI Act
2002.
16) If the mortgaged immovable assets are in locked condition, how to take physical
possession?
 If the premises are found locked, the Authorised Officer may advise the owner of the
asset to open the same.
 If they co-operate, the Authorised Officer can take possession after complying with all
formalities of "taking possession". If the owner of the asset is not co-operating the
Authorised Officer shall take the assistance of CMM/DM for break open the lock.
 After breaking open the same as per the orders of CMM/DM, inventory of movable
articles, if any, kept in the building has to be prepared, take photographs/video.
 After complying with all other formalities of "taking possession", the bank may put its
own lock thereon & seal it. Photograph of the place with the bank‘s lock may also be
taken.
 Then the possession notice has to be published in 2 leading newspapers of which
one should be in vernacular language in vernacular newspaper with in 7 days of taking possession.
17) Can the action of CMM/DM be challenged?
 No.
 As per Section 14(3), no act of CMM/DM done in pursuance of section 14 shall be
called in question in any court or before any authority.
 While considering petition u/s 14, CMM/DM is not carrying out a judicial or quasi judicial function under the law. He is merely doing an executive function only.
18) How to appropriate the sale proceeds?
 All expenses in enforcing the secured assets are to be first appropriated from the
sale proceeds and the balance shall be appropriated towards recovery of the amount
due (secured debt) from the borrower.

If balance is still available, the same shall be refunded to the owner of the secured
assets sold, after ensuring that the property sold was exclusively charged to our bank
and owner does not have any direct/indirect liability to us.

In case claim of any statutory authorities or any other persons lodged with the
branch, permission of the Circle should be sought before refunding the amount.
19) After appropriating the entire sale proceeds if any amount is still outstanding in
the account how to recover the said amount?
 In terms of Section 13(10) of SARFAESI Act 2002, the secured creditor may file an
application before the DRT/competent Court, as the case may be, for recovery of the
balance amount from the borrower within the limitation period.
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
Note: Bank can proceed against the borrower for recovery of the dues either by filing
suit or initiate action under SARFAESI Act or both. By initiating action under
SARFAESI Act, limitation for filing suit will not be suspended. Hence, limitation aspect should be looked in to and suit to be filed before expiry of limitation, wherever
required.
20) Whether the Authorised officer can confirm sale without the consent of the Secured Creditor?
 No.

As per Rule 9(2) of the Security Interest Enforcement Rules 2002, the sale shall be
confirmed in favour of the purchaser who has offered the highest sale price to the Authorised Officer and shall be subject to confirmation by the secured creditor/s. Hence
the Authorised Officer needs to take confirmation/consent of the appropriate authority.
21) In case of consortium advances, whether the consent of other secured creditors is
required for issuing demand notice u/s 13(2) of SARFAESI Act 2002?
 No.

For issuance of notice under Section 13(2) of SARFAESI Act consent of other secured creditors is not required.

Only where bank desires to take possession u/s 13(4), consent of secured creditors
representing not less than sixty percent in value of the amount outstanding* as on
the agreed date, should be taken. Sec 13(9)as per Cir 55/2013.
(*Amount outstanding shall include principal, interest and any other dues payable by
the borrower to the secured creditor in respect of the secured asset as per the books
of account of the secured creditor)
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COMPROMISE AND RECOVERY MANAGEMENT
COMPROMISE POLICY GUIDELINES
Compromise Settlement is one of the most important strategies adopted by the Bank for recovery of impaired assets (NPAs). It is cost effective, time saving and result oriented. envisages maximum recovery with minimum sacrifice. It also saves valuable manpower, good
money that would be spent towards recovery through legal process which is cumbersome,
expensive and time consuming.
In this regard, Compromise Policy formulated setting out guidelines which were approved by
the Board of Directors way back in1993, has been modified from time to time. We furnish
below updated comprehensive guidelines of Bank‘s Compromise Policy (Vide Cir 254/2103).
A. ACCOUNTS ELIGIBLE FOR COMPROMISE SETTLEMENT:
NPA accounts normally marked for recovery.
B. CUT OFF DATE:
Cut-off date is the date on which the account was classified as NPA. However, in exceptional cases, the date of sickness or date of closure of unit or first date of incurring cash loss can
be taken as cut-off date giving justifiable reasons..
C. SETTLEMENT FORMULA FOR COMPROMISE:
(This has to be read along with point "L – Important General Guidelines")
In respect of eligible accounts to arrive at compromise amount, the minimum rate of interest
to be charged from the cut off date depends on whether the borrowers are wilful defaulters
or non-willful defaulters, the realizable value of securities, net worth of the parties etc. as
given under:
1. NON-WILLFUL DEFAULTERS:
a. Where the realisable value of security is sufficient to cover the contractual/ decretal dues,
bank should attempt to recover the full amount. However, where the parties are paying less
than the contractual/ decretal dues under OTS, Bank‘s endeavour should be to recover not
less than the book liability as on the cut-off date along with simple interest @ Base Rate plus
1% as on the date of proposal. Such proposals should be permitted by the next higher authority. However, this stipulation of placing before next higher authority is not applicable in
respect of proposals falling under the powers of GM-CO CAC/DGM CO CAC(DGM headed
Circles) and above authorities. In exceptional cases, where parties are paying less than the
amount due to the Bank arrived at as above, despite availability of sufficient security to cover
the Bank‘s dues, such proposals falling below the powers of GM-CO-CAC/DGM-COCAC
(DGM headed Circles) should be permitted by GM-CO-CAC/ DGM- COCAC (DGM headed
Circles). In all such cases, proposals falling under the powers of GM-CO- CAC/ DGM- COCAC (DGM headed Circles) are to be referred to GMHO-CAC .However in respect of proposals falling under the powers of H.O authorities normal delegated powers apply.
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Note: In respect of HO monitored accounts, where adequate securities are available to cover the contractual / decretal dues, any OTS proposal though falling within the delegated
powers of Circle Executives, shall be placed before GM-HO-CAC for sanction.
b. Where the realisable value of securities + networth (put together) of the borrowers/ guarantor/s/ co-obligant/s is sufficient to cover the Bank‘s dues, Bank‘s endeavour should be to
recover not less than the book liability as on the cut off date along with simple interest at not
less than 1% below the Base Rate as on the date of proposal. Such proposals should be
permitted by the next higher authority. However, this stipulation of placing before next higher
authority is not applicable in respect of proposals falling under the powers GM-CO CAC/
DGM-CO-CAC (DGM headed circles) and above authorities.
In exceptional cases, where parties are paying less than the amount due to the Bank arrived
at as above, despite availability of sufficient security+networth (put together) to cover the
Bank‘s dues, such proposals falling below the powers of GM-CO-CAC/DGM- CO-CAC
(DGM headed Circles) should be permitted by GM CO-CAC/ DGM-CO CAC (DGM headed
Circles). In all such cases, proposals falling under the powers of GM-CO CAC/ DGM-COCAC (DGM headed Circles) are to be referred to GM-HOCAC. However in respect of proposals falling under the powers of H.O authorities normal delegated powers apply.
c. Where the securities and/or networth of the borrowers/ guarantor/s/ co-obligant/s is not
sufficient or negligible to cover the Bank's dues, it should be our endeavour to recover the
maximum amount possible, keeping in view the realisable value of securities/assets of borrower/s / guarantor/s /co-obligant/s and the time taken for realisation of the same.
2. WILFUL DEFAULTERS:
As per RBI guidelines, stringent measures are required to be initiated against the Wilful Defaulters like legal / criminal proceedings, debarring the entrepreneurs / promoters from institutional finance from Banks / FIs, etc. for floating new ventures for a period of 5 years from
the date the names of wilful defaulters are disseminated in the list of wilful defaulters, etc.
Hence, Wilful Defaulters, in general, shall be excluded from the purview of compromise policy guidelines for the purpose of negotiated settlement.
However, where recovery expediency calls for settlement of dues of Wilful Defaulters, proposals in respect of such accounts shall be entertained and decided by Management Committee of the Board irrespective of amount of default as per the following parameters:
a. Where the realisable value of security is sufficient to cover the contractual dues,
Branch/CO should attempt to recover the full amount. However, where the parties are paying
less than the realisable value of securities under OTS, Branch/CO should endeavour to recover not less than the book liability as on cut-off date along with simple interest at Base
Rate plus 2 % as on the date of proposal;
b. Where the realisable value of securities + networth (put together) of borrower/s/guarantor/s/co-obligant/s is sufficient to cover the Bank‘s dues, Bank‘s endeavour
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should be to recover not less than book liability as on the cut off date along with simple interest at Base Rate plus 1 % as on the date of proposal;
c. Where the securities and/or networth of the borrower/s/guarantor/s/coobligant/s is not sufficient to cover the Bank‘s dues or negligible, Bank‘s endeavour should be to recover the
maximum possible, keeping in view the realisable value of securities/assets of borrower/s/guarantor/s/co-obligant/s and the time taken for realisation of the same.
D. GUIDELINES ON SETTLEMENT OF DRAWEE‟S DUES:
In respect of offer for One Time Settlement by Drawee /s of Bills, the same can be considered on case-to-case basis. Every endeavour should be made to recover maximum amount
as per compromise policy guidelines. For the above purpose, the sanctioning authority shall
be determined on the basis of sacrifice in respect of the Bills Liability alone of specific drawee treating the same as independent proposal/sanction. Such proposals, should however,
be permitted only by the respective authorities upto their normal delegated power.
E. GUIDELINES ON RELEASE OF GUARANTOR/S/ CO-OBLIGANT/S WITH OR WITHOUT RELEASE OF SECURITY CREATED BY HIM / THEM:
The offer by Guarantor/s/ Co-obligant/s to release him/ them from personal guarantee with
or without release of security created by him / them, is to be treated as One Time Settlement
(OTS) even though remedy against principal debtor / other guarantor/s / other securities is
continued.
The delegated powers for transfer of account to LPD/filing suit is applicable for release of
guarantor/co-obligant with or without release of security/ies in the respective account. However no powers are vested with authority below GMCO-CAC/DGM-CO-CAC (DGM headed
Circles).
While negotiating settlement for release of guarantor/Co-obligant with or without release of
security/ ies, the following needs to be considered:
a. Where the realisable value of security in the name of the said guarantor/Co-obligant either
in individual/joint names is sufficient to cover the contractual/ decretal dues, bank should attempt to recover the full amount. However, where the guarantor/Co-obligant is paying less
than the contractual/ decretal dues , Bank‘s endeavour should be to recover not less than
the book liability as on the cut-off date along with simple interest @ Base Rate plus 1% as
on the date of proposal.
b. Where the realisable value of securities + networth (put together) of the said guarantor/Co-obligant is sufficient to cover the Bank‘s dues, Bank‘s endeavour should be to recover
not less than the book liability as on the cut- off date along with simple interest at not less
than 1% below the Base Rate as on the date of proposal.
c. Where the securities and/or networth of the guarantor/co-obligant is not sufficient or negligible to cover the Bank‘s dues, it should be our endeavour to recover the maximum amount
possible, keeping in view the realisable value of securities/assets of the said guarantor//coobligant and the time taken for realisation of the same.
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Any deviation to (a), (b) or (c) above, the proposal shall be placed before the next higher authority. In respect of HO monitored accounts for release of guarantor/co-obligant with or
without release of security/ies the same shall be referred to GM-HO-CAC.
Guidelines for release of security alone without the release of personal liability:
Wherever release of security alone is sought, the amount offered should not be less than the
realisable value of security as per the valuation report which is not more than one year old
as on the date of proposal or the total dues in the account whichever is lower;
The delegated powers for transfer of account to LPD/filing suit are applicable for release of
security in the respective account. However authorities below GMCO-CAC / DGM- CO-CAC
(DGM headed Circle) has no powers to release the securities.
However, the authorities permitting release of securities as above should take an overall
view about the valuation of the properties to be released and those properties which will remain with the Bank, the marketability of the remaining properties etc.
Any deviation to the above shall be placed before the next higher authority. However, in respect of HO monitored accounts for release of security alone without release of personal liability the same shall be referred to GM-HO-CAC.
F. SETTLEMENT OF DUES / INDIRECT DUES OF EX-EMPLOYEES:
The compromise policy guidelines, as applicable to Customers for settlement of dues, shall
be applied for settlement of the dues of ex-employees provided such loans / credit facilities
were granted to them after they cease to be in the services of the Bank (on account of superannuation, voluntary / compulsory retirement / SVRS / discharge, dismissal) on the terms
and conditions as applicable to general customers. These guidelines are applicable even
where their co-obligation / personal guarantee were obtained after their cessation from the
services of the Bank. However, in respect of loan sanctioned to/availed by and / or guarantee / co-obligation furnished by the employee during his/her service in the Bank, the sanctioning authority shall be the CAC of the Board.
G. SETTLEMENT FORMULA FOR COMPROMISE IN RESPECT OF AGRICULTURAL
LOANS WITH LIABILITY BELOW Rs.10 LACS CLASSIFIED AS DOUBTFUL OR LOSS
ASSETS.
In respect of Agricultural Loans with book liability of below Rs.10.00 lacs and classified as
doubtful or loss assets, the following settlement policy is adopted:
(a) Where the realizable value of security is sufficient to cover the contractual / decreetal
dues, Bank's endeavour should be to recover the book liability as on the cut off date + simple interest at 5% (on reducing balance).
(b) Where the realizable value of securities + net worth (put together) of the borrowers/guarantor/s/ co-obligant/s is sufficient to cover the Bank's dues, Bank's endeavour
should be to recover the book liability as on the cut off date + simple interest at 4 % (on reducing balance).
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(c) Where the realizable value of securities and/or networth of the borrowers/ guarantor/s/
coobligant/s is not sufficient or negligible to cover the Bank's dues, endeavour should be to
recover the maximum amount possible, taking into consideration the realisable value of securities /assets of borrower/s / guarantor/s /co-obligant/s and the time taken for realisation of
the same.
(d) In respect of farmers whose accounts have earlier been rescheduled/converted on account of natural calamities as per RBI guidelines, the cut-off date can also be reckoned from
the date of re-scheduling wherever applicable.
In the above cases, the proposals may be dealt with as per the normal delegated powers
and Bank may at its discretion permit time upto 6 months from the date of communicating
orders, without charging interest on OTS amount.
Such accounts where fraud is established involving borrowers and criminal complaints filed
shall be excluded for settlement as above. If the farmer is innocent and not a party to fraudulent acts, such accounts may be covered under the above mentioned settlement formula.
H. CALCULATION OF UNAPPLIED INTEREST FOR INTERNAL PURPOSE:
While considering compromise proposals for settlement, the unapplied interest is to be calculated / arrived at as follows for exercising the powers delegated to various authorities for
write off / waiver of interest.
i. In respect of all NPA accounts except decreed accounts, the amount of unapplied interest
is calculated at Base Rate plus 2 % or contractual rate including penal rate (whichever is
lower) on simple basis from the date of stoppage of interest or cessation of interest on the
account becoming NPA, till the end of the quarter immediately prior to the date of submission of the proposal.
ii. In respect of decreed accounts, the rate as above applied upto the date of filing of suit and
at the rates awarded by the Court from the date of suit or Base Rate plus 2 % simple whichever is less.
iii. Sacrifice under the Policy Guidelines is defined as under:
The difference between the dues calculated as defined under (i) or (ii) above (including book
liability) and the OTS amount offered constitutes sacrifice for the purpose of settlement.
I. TIME LIMIT FOR PAYMENT OF COMPROMISE AMOUNT:
i. Endeavour should be made to collect the OTS amount within the shortest possible period.
ii. The payment period may not ordinarily exceed a period of 12 to 18 months from the date
of conveying the sanction.
iii. However, in exceptional cases a longer repayment period may be considered by the
sanctioning authorities on merits.
iv. In all cases, collecting maximum amount as down payment may be explored.
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J. CHARGING OF INTEREST ON COMPROMISE AMOUNT :
i. The compromise amount shall carry interest at Base Rate plus 2% (S) from the date of
communicating the orders of acceptance to the party till the date of payment. Base Rate
shall be at the rate ruling as on the date of communicating the orders.
ii. Wherever parties seek time for payment of compromise amount for genuine reasons, then
at the time of sanction, Bank may at its discretion permit time upto 3 months from the date of
communicating the orders, without charging interest on the OTS amount.
iii. However, in exceptional cases GM-CO-CAC / DGM CO CAC (DGM headed Circle) may
permit proposals seeking time upto six months without charging interest on the OTS amount
based on merits of the case.
iv. Further, in exceptional case, the appropriate authority permitting the proposal at HO shall
have the powers to waive interest on compromise amount depending on merits of the case.
K. GROUP APPROACH:
The following guidelines are to be adopted in respect of group accounts, while considering
compromise proposals.
i. In respect of proprietorship concerns, if a person is a sole proprietor of one or more concerns, then all the concerns should be treated as one entity for exercising powers delegated
under write off/waiver of unapplied interest etc. (since powers to be exercised are on the basis of aggregate amount of sacrifice to be extended to the said group of accounts).
ii. Similarly, in respect of partnership firms, where all the partners are same in one or more
firms, all the firms are to be treated as one entity for the purpose of exercising delegation of
powers for write off/waiver etc., (since powers to be exercised are on the basis of aggregate
amount of sacrifice to be extended to the said group of accounts).
iii. In respect of Co-operative Society the powers delegated are to be decided on the total
liability / overdues of the Society as a whole and not based on the liability of the individual
borrowers as in the case of direct Agricultural Finance.
iv.In the case of joint Hindu family, the limits permitted to a Karta should not be clubbed with
limits permitted to him in individual capacity.
v. In all other cases, the accounts are to be treated as separate entities and powers to be
exercised as applicable to each account without having group approach, irrespective of the
proposal for write off, waiver etc.
The "commonality of management" and "effective control on the management" shall be the
basis for determining a group, as per guidelines issued by Head Office from time to time.
L. IMPORTANT GENERAL GUIDELINES:
i. Whenever OTS offer is received in writing from the borrower demanding acknowledgement
in writing for the same, branches may consider giving such acknowledgement duly mentioning the fact that there is no commitment on the part of the Bank to consider the OTS proposal and the same is subject to Bank's Policy guidelines and permission of the appropriate
authority and subject to prior concurrence of ECGC /DICGC/CGTMSE, etc., (wherever applicable). In addition to the above, in respect of suit filed cases / SARFAESI action a clause
'this is without Prejudice to our rights and contentions in the pending suit / DRT case /
SARFAESI proceedings' should also be mentioned.
ii. Wherever consensus is arrived at in the Recovery Meets for settlement of dues under
OTS, which may require the sanction of the concerned delegated authority and prior concur-
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rence of ECGC / DICGC / CGTMSE (wherever applicable), these facts should be invariably
mentioned by the branches in the letter to be addressed to the parties without fail.
iii. Compromise proposals shall be forwarded to the sanctioning authorities in the prescribed
format, in simplified format as per HO Circular No.115/2003 dated 22.05.2003 where total
sacrifice, write off amount in each account does not exceed Rs.50,000/- or in NF 724 if exceeds Rs.50,000.
iv. The value of security should be as per the valuation report given by approved valuer
should not be more than one year old as on the date of the compromise/ OTS proposal.
However, in selective cases, GM-HO-CAC and above authorities can relax this condition taking an overall view of the value of securities. If there is appreciation in value of the property,
in such cases valuation has to be done before submission of Compromise / OTS proposal.
v. In respect of loan accounts, where the value of the property (Land & Building) is Rs.10.00
crore and above, independent valuation reports from two empanelled valuers are to be obtained (Ref. Circular No.355/2012).
vi. Along with Compromise / OTS proposal, the observations / comments on the valuation
report by branch-in-charge/ Manager who visited the securities / properties and colour photographs of the securities duly signed by the panel valuer and branch-in-charge/ Manager
should also be forwarded to the sanctioning authority.
vii. While evaluating the realisable value of securities/ assets, the locational advantages/
disadvantages of properties, the status as to whether it is self occupied, tenanted, agricultural, urban, rural, condition of the securities, market potential, statutory dues like tax dues,
workers‘ dues, amount payable to statutory authorities, etc., will have to be taken into account.
viii. As per RBI guidelines, while entering into OTS, it is to be ensured that the OTS amount
is not less than the net present value (NPV) of the estimated cash flows associated with the
realisable value of the available securities net of the cost of realisation. If the payment of the
compromise amount is permitted in instalments, the NPV of the settlement amount should
be arrived and this amount should generally be not less than the NPV of the realisable value
of securities net of cost of realisation.
The Chart for calculation of NPV of securities/ NPV of the settlement amount is furnished in the booklet. The NPV value is to be arrived at Base rate.
ix. Where sufficient securities are available, efforts should be made to recover the book liability along with substantial portion of unapplied interest.
x. While recovering the dues from the borrowers, branches shall take into consideration the
legal expenses debited to General Charges also. At the time of negotiating with the borrowers for arriving at One Time Settlements, the branches should take into account the total
dues of the borrowers (calculated on contractual / decretal basis) and also total legal expenses inclusive of the amount debited to the General Charges if any. Further, the compromise proposals to be submitted by the branches to the appropriate sanctioning authority
should specifically indicate the total dues of the borrowers (calculated at contractual/decretal
basis) and about recovery of legal expenses already incurred/ to be incurred.
xi. In order to ensure that the parties would comply with the terms of compromise, branches
shall endeavour to recover at least 10 to 15% of the compromise amount upfront at the time
of entertaining the compromise proposal. Wherever the parties seek instalments for paying
the compromise amount, branches to try to get post dated cheques (PDCs) for the instalments permitted.
xii. In the case of suit filed accounts, whenever compromise proposals are submitted, the
parties should consent for a decree as prayed for, with a default clause subject to the condition that in the event of parties paying the amount as per the terms of the compromise
agreed, the decree would be deemed as satisfied. In the event of default, the decree shall
become absolute for the amount claimed in the suit with all costs and interest. Where entire
OTS amount in respect of suit / EP filed accounts is received by the Bank immediately after
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communicating the OTS, memo / application has to be filed before DRT / Court stating that
Bank has received entire amount in terms of OTS permitted by the Bank.
xiii. Bank entertains OTS / Compromise proposals in respect of accounts /borrowers where
CBI case is pending. In such cases CBI has to be informed of the settlement.
xiv. If there is any case where a person has obtained loan from the Bank by making fraudulent representation or otherwise committing any fraud, as far as possible, efforts should be
made to recover the entire amount of the loan so that he should not be allowed to benefit
from commission of such fraudulent acts.
xv. In spite of the above policy requirement, there may be cases where it is not possible to
recover the full amount and the borrower is coming forward to offer settlement. While negotiating the offer, it must be made clear that recovery of the loan taken by the borrower and the
criminal action for the fraud committed by him are two separate and distinct matters. It
should be clarified at the outset that if the settlement proposal as given by the borrower is
accepted, such settlement will relate only to the recovery proceedings and shall not in any
way affect the criminal action taken by the Bank, which shall continue.
xvi. Where consent orders are obtained from Court or DRT by recording the terms and conditions of the settlement, in such consent orders, a specific clause should be incorporated
stating that the settlement agreed between the parties shall not in any way affect or be construed as settlement of the on going criminal cases / proceedings pending in the Court
against the borrowers.
xvii. The officers / employees who are required to appear as witnesses in the criminal proceedings should be advised that although the Bank has accepted the settlement proposal
given by the borrower, there is no settlement in regard to the criminal proceedings initiated
against the borrower. Such officer or employee should be advised to make this position clear
when he is examined as a witness in the criminal proceedings.
xviii. Prior consent / approval from ECGC /DICGC /CGTMSE wherever applicable / required
shall be obtained before communicating the acceptance of OTS to the parties concerned.
xix. In respect of RC issued accounts where recovery proceedings are in progress and
chances of recovery are bright due to availability of adequate securities / substantial net
worth of the parties, it is advisable to execute the RC rather than taking steps and trying for
compromise proposal or reviving the earlier compromise proposal which is lapsed. However,
if recovery expediency calls for settlement and if the proposals are beneficial coupled with
sizable down payment, the same can be looked into on merits of each case.
xx. As per RBI guidelines, if the account has gone bad mainly because of the lapses on the
part of the staff connected with sanctioning / handling / follow up, taking action from staff angle is a must and the same has to be finalized irrespective of the proposal for write off, etc.
Further, as per RBI directive, no lenient view can be taken by the Bank in respect of grave
lapses which causes the account to go bad.
xxi. In the letter to be addressed to the parties for communicating sanction of OTS /
compromise, branches shall ensure that:
 The amount of sacrifice (i.e., write off and waiver) is not communicated /disclosed.
 There should be a specific mention to the effect that in case compromise amount is not
paid within the stipulated time, the concessions offered / OTS sanction automatically
stands withdrawn as per the terms and / or the Bank reserves the right to proceed legally
for recovery of entire dues. It should also be mentioned that time is the essence for repayment under this settlement.
 Any counter claim / claim against the Bank if any, is withdrawn.
xxii. In the case of suit filed accounts, the draft letter to be addressed to the parties is approved by the Advocate handling the suit / concerned Legal Section at Circle Office.
xxiii. In respect of suit filed cases, the terms of OTS permitted should be informed to the Advocate /DRT Liaison Officer immediately for taking suitable further steps.
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xxiv. In case any compromise proposal deviates from the conditions laid down in the policy
but otherwise falls within the broad guidelines of the compromise policy, such proposal
should be permitted by the next higher authority other than the one within whose delegated
powers the proposal otherwise falls.
xxv. The proposal falling outside the parameters of compromise policy guidelines,CAC of the
Board can permit upto their delegated powers beyond which MC of the Board can permit
such proposals.
xxvi. In case the borrower fails to remit the OTS amount as per the terms of sanction, withdraw the OTS immediately after the due date for payment.
Endeavour should be made to recover maximum amount with minimum sacrifice
through effective negotiation. The compromise policy guidelines are invariably to be
kept in strict confidence and shall not be disclosed to borrowers/outsiders under any
circumstances.
M. GUIDELINES ON DELEGATION OF POWERS:
i. The powers delegated to various authorities at HO/CO for writing off the dues, waiver of
unapplied interest, transferring the dues to LPD, filing of suit, waiver of legal action, purchase & sale of non-banking assets and delegation for condonation of delay in making payment of OTS permitted are furnished in Part II, Chapter II of the Circular (254/13).
ii. The powers delegated for write off and waiver of unapplied interest to officials at CO shall
be exercised only in case of such borrowal accounts which are normally marked for recovery
and where recovery process has been initiated and the bank is unable to recover the monies
due in the circumstances attendant to a particular case.
iii. For the purpose of delegation of powers for write off and or waiver of unapplied interest
(put together) aggregate of book liability to be written off and unapplied interest calculated at
Base Rate plus 2%(S) or contractual / decreed rate(S) whichever is lower is to be taken into
account.
iv. The powers delegated for write off etc. are also applicable to erstwhile LCB Collection
Account.
v. Regarding purchase / sale of non Banking Assets:
The powers delegated for purchase/sale of non banking assets shall be exercised only in
those cases where such assets are acquired in loan recovery proceedings and for disposal
of property so acquired.
vi. If the Decree awarded by the Courts are not as prayed for by the bank in the plaint, a decision to prefer an appeal against the decree should be taken by the respective authority
who has permitted filing of suit. In the case of Circle Head CAC power accounts, if the Decree of the Courts are not as prayed for by the bank, if accepted by the bank, shall be placed
to HO for Review.
LEGAL NOTICE:
Respective sanctioning authorities are empowered to issue legal notice. Circle Heads are
empowered to permit issuance of legal notice in respect of all sanctions (including GM-HOCAC, CGM-HO-CAC/ED-CAC/CAC of Board and the Management Committee of the Board).
Legal notice can be issued with the prior permission from appropriate authority (beyond the
delegated powers of the branches) by submitting the particulars of the account in NF 606 /
NF 607, as the case may be.
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Legal notice should not be issued as a matter of routine. Its issuance is also not necessarily
a precondition for initiation of legal steps for recovery but provide an opportunity to settle the
dues. However, legal notice carries the threat of legal action and hence found to be effective. When issued, to ensure that the intended legal notice should contain all the details of
the account and should be issued to all the connected parties, guarantors, co-obligants and
drawees/acceptors of Hundis, LRs etc.
N. GUIDELINES REGARDING CONDONATION OF DELAY IN PAYMENT OF COMPROMISE / OTS AMOUNT, LAPSED PROPOSALS:
i. Every endeavour shall be made to recover entire compromise / OTS amount within the
time permitted by the sanctioning authority.
ii. Wherever for genuine reasons, the borrower approaches the Bank for condonation of delay for payment of compromise/OTS amount, the powers for condonation of delay are furnished in the circular.
iii. For the purpose of calculation of interest, the period of delay in payment of OTS amount
shall be reckoned from the due date for payment.
iv. Wherever the proposals which have lapsed due to non-payment / part payment and or
withdrawn and a period of 12 months have elapsed from the due date, any request for revival of such proposals may be treated as fresh proposal. Such proposals may be examined /
considered afresh on merits as per policy guidelines.
O. COMMITTEES FOR CONSIDERING COMPROMISE / OTS AT HO:
1. RECOVERY COMMITTEE:
A Recovery Committee comprising of four General Managers of the Bank at HO has been
formed and is functioning with effect from 11.8.1995. All the proposals for compromise / write
off / waiver of unapplied interest falling within the powers of CGM-HO-CAC/ED-CAC/CAC of
the Board, are first placed before this Committee and thereafter placed before the respective
authorities with the recommendations of the Committee.
2. ADVISORY COMMITTEE:
An Advisory Committee is formed consisting of one Retired High Court Judge as Chairman
of the Committee and two former Bankers, who are not below the rank of ED of a Nationalised Bank or Deputy Managing Director of State Bank of India as its members. The Committee is functioning since 13.6.1997. All compromise proposals involving a total sacrifice of
Rupees one crore and above are placed before this Committee and thereafter placed before
the appropriate authorities with the recommendations of the Committee.
Their views / comments are recommendatory in nature, but not mandatory. In respect of a
proposal already recommended by Advisory Committee and permitted by the concerned
delegated authority, if proposal involving extension of time for payment of OTS amount OR
for condonation of delay in making payment of entire OTS is received, if the time sought for
payment or delay in payment of OTS amount does not exceed 12 months from the date of
original sanction, such proposal need not be placed once again before Advisory Committee
for their recommendations.
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P. MATTERS REGARDING STAFF LAPSE:
While permitting the proposals for write off/waiver of unapplied interest/compromise, the
concerned authority has to ensure the following:
i. The authority approving the proposal is not the authority who had sanctioned the loan and
that in such an event, the proposal is placed to the next higher authority. The processing
Section has to confirm in the office note that the authority approving the proposal did not
sanction the advance in question. However, CGM-HO-CAC/ED-CAC/CAC of the Board can
permit the OTS in respect of loans advances sanctioned by them since the proposals are
first routed through the Recovery Committee consisting of 4 GMs and the Advisory Committee (where sacrifice is Rs.1.00 Crore & above).
ii. The authority approving the proposal did not sanction the advance in question.
iii. The sanctioning authority in the case of advances had exercised his powers judiciously
and adhered to the guidelines issued by the Bank in the matter of grant of advances and that
normal terms and conditions were stipulated.
iv. There was no laxity in the conduct of the account and post disbursement supervision of
the advance.
v. All possible steps to recover the dues have been taken and there are no further prospects
of recovering the debt and that write off or compromise is in the larger interest of the Bank.
vi. As per the RBI guidelines, if the account has gone bad mainly because of the lapses on
the part of the staff connected with sanctioning / handling / follow-up, taking action from staff
angle is a must and the same has to be finalized irrespective of the proposal for write off,
etc. Further, as per RBI directive, no lenient view can be taken by the Bank in respect of
grave lapses which causes the account to go bad. Complete details of the action initiated
and punishment imposed if any, are to be furnished in the compromise note.
Q. SUBMISSION OF CERTIFICATE BY THE SANCTIONING AUTHORITY:
In the proposals for compromise, the concerned authority has to submit the following certificate in the office note permitting the proposal;
“ We hereby certify that the sanctioning authority has exercised his powers judiciously in permitting Compromise / One Time Settlement and the present permitted settlement is in conformity with Bank‟s Recovery policy / RBI guidelines issued from time
to time”.
R. REVIEW OF COMPROMISE / OTS PERMITTED BY VARIOUS AUTHORITIES:
All compromise proposals permitted by a delegated authority of the Bank including extension
of time for payment of OTS, condonation of delay, release of guarantor/co-obligant/release
of security are to be reported to the follow up authority/ next higher authority for the purpose
of post facto scrutiny and review as under:
Permitting Authority
Review Report to be
Periodicity
placed as under
Branch-in-charge (where powers are DM/AGM/DGM/GM
Monthly
specifically delegated in respect of (CO) Review Committee
Special Schemes)
as the case may be
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DM CAC at CO
AGM CAC at CO
DGM CAC at CO
DGM CAC (Heading Circle)
GM CAC at (CO/HO)
CGM CAC at HO
ED CAC
CAC of the Board
AGM Review Committee at CO
DGM Review Committee at CO
GM Review Committee
at CO
GM Review Committee
at HO
CGM HO Review Committee at HO
ED -Ho Review Committee
MC of the Board
MC of the Board
Monthly
Monthly
Monthly
Monthly
Monthly
Monthly
Quarterly
Quarterly
S. ASSIGNMENT UNDER OTS:
Within the delegated powers, the sanctioning authorities can accord permission for assigning the debt/ securities to ARCs/ Strategic investors, if such ARCs/ Strategic investors are
brought by one of the parties to the loan transaction. Consent of all the parties to the loan is
required and where such consent is not available, due notice to be served with reasonable
notice period.
RESTRUCTURING OF BORROWAL ACCOUNTS:.
Restructuring of Advances is a process that allows an entity facing cash flow problems and
financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue operations. This method is also one of
the measures to strengthen the financial system. To facilitate this, the Reserve Bank of India
(RBI) has issued comprehensive guidelines on restructuring of advances by banks. Taking
into account the impact of recent global developments on Indian economy, RBI has effected
a few modifications in the guidelines to facilitate restructuring of advances to different categories of borrowers.
The various guidelines governing restructuring of different types of advances have been
aligned and fresh prudential guidelines on this have been issued by the RBI. The revised
guidelines now issued harmonize the prudential norms across all categories of debt restructuring mechanisms.
The guidelines on restructuring have been framed in tune with international practices
and various suggestions received by the RBI on this aspect. Having regard to the
wider applicability and implications of the guidelines, for the benefit of the branches /
offices the revised operational guidelines to be followed are being issued. The guidelines issued by the RBI in this regard provide certain special regulatory treatment on asset
classification and income recognition. Taking into account the impact on Indian economy
due to global financial crisis certain modifications have been brought out which facilitates
bank to adopt this measure so that assets showing delinquent symptoms could be retained/restored as Performing.
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Timely detection and recognition of the need for restructuring play a very important role in
success of restructuring to derive the benefit of regulatory guidelines and one-time relaxations permitted by the regulator.
Branches / offices shall utilize the Special watch list as one of the sources for identifying the
borrowal accounts that may need to be restructured. Borrowal accounts indicating overdue
for a period of more than 30 days, and which are constantly reported in SWL category shall
be focused upon. The conduct of the account, financials of the borrower, and requests for
frequent Adhoc credit facilities may also act as a trigger. It may be noted that existence of
overdue in the accounts, losses in declared financial results, negative net worth, adverse
current ratio etc. are not a must for considering a borrowal account for restructuring. The
overall performance and the likely difficulty in meeting the maturing obligations must be the
criteria for identification of borrowers requiring measures like restructuring of advances.
Branches/Offices are advised to take note of the guidelines provided in the latest H.O. Circular 245 / 2010,81/2012. Also refer Chapter I of this Booklet.
B– LEGAL REMEDIES
I SUIT FILING:
Banks being commercial organisations have to earn profits. This is an accepted phenomenon. The efficiency of the Banks is being gauged by the level of NPA vis-à-vis level of profits.
Profit very much depends upon the quality of assets. Since NPA is the main factor for slimming down the profit of the Bank, it is essential to recover the loan in time/avoid arrears or
keep within norms to classify as standard asset. Recovery of advance will help the Bank to
roll over the amount so recovered in fresh advances/investments to earn more profit.
When all the persuasive methods fail to recover the dues and all avenues for recovery such
as lien, right of set off, enforcement of securities etc are exhausted then the option available
for recovery is through court/DRT etc. Since, filing of suit is expensive and time consuming,
every endeavour should be made to recover the dues without stepping into the court of law.
Therefore, filing of suit should be used as the last resort duly assessing chances of recovery
by legal means.
When it is decided to file suit, a reasonable opportunity should be provided to the parties
concerned by serving notice calling them to repay the debt and also indicating proposed action in the event of their default and one of the steps enumerated here below have to be followed.
The courses open to us are:
1) Filing civil suit
2) Initiating action under RR Act
3) Winding up of company
4) Referring to Lok Adalat
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5) Filing case in DRT
6) Arbitration
RECALL OF ADVANCES:
The issuance of first recall notice forms the basis for taking further steps for recovery of the
entire liability outstanding in the account, in case the borrower does not favorable respond to
the recall notice. A recall notice may be ordinary notice or legal notice. Notice demanding
entire balance outstanding is only considered as recall notice and the recall notice should
contain full particulars of default, irregularities committed by the party and the details of
amount due inclusive of up to date interest, future interest other expenses etc.
A special precaution is to be taken to see that the recall notice is given to all the connected
parties, viz., borrowers; co-obligants, guarantors etc. Documentation defects, if any should
be set right before issue of recall notice. The date of limitation against the guarantors subject
to certain exceptions, starts from the due dates stipulated in the recall notice itself, within
which, they may be called up to settle the account.
The recall notice should make reference to securities and our intention to set off, adjust, appropriate, seize & sale ,whatever the case may be, should be specifically mentioned therein.
In case of hypothecated securities, party may be called upon to hand over the possession of
the securities. Issue of recall notice is also a pre-condition to be fulfilled for preferring ECGC
claim.
LEGAL NOTICE:
Legal notice should not be issued as a matter of routine. Its issuance is also not necessarily
a precondition for initiation of legal steps for recovery but provide an opportunity to settle the
dues. However, legal notice carries the threat of legal action and hence found to be effective. When issued, to ensure that the intended legal notice should contain all the details of
the account and should be issued to all the connected parties, guarantors, co-obligants and
drawees/acceptors of Hundis, LRs etc.
Guidelines on Loan Past Due (LPD) Accounts
1. Loan Past Due (LPD) Accounts - Bank has a system of transferring the irregular
accounts or out of order advances to a separate Head of Account namely "Loan Past
Due (LPD) Account" with the main objective:- Intensifying the efforts for recovery by
close follow up of these accounts.
2. Prior permission of sanctioning authorities will have to be obtained before transferring
the accounts to LPD.
3. LPD accounts - Follow-up, Review and Monitoring(all a/cs): Circle‘s Recovery
Section.
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4. LPD accounts with liability > Rs.1.00 Crore: Head Office shall also review and
monitor. For this purpose, Circle to send half yearly review reports (HYRR) on LPD accounts with liability of Rs.1.00 Crore and above to RW: HO.
5. When once an account is ordered to be transferred to LPD by an authority, further
sanction/ revival of limits etc. can be considered only after obtaining prior clearance from
same authority.
6. The transferor section recommending transfer of accounts to LPD and files to R & L
Section / Recovery Section at CO/HO respectively should clearly indicate measures for
the future course of action for recovery where immediate attention is required like seizure/enforcement of securities, filing of suit, initiating action under RR Act, waiver of legal
action or any other appropriate steps.
7. The transferor section while conveying the orders for transferring the accounts to
LPD should also convey the orders/decision, if any, about the recovery steps.
8. To have uniformity in entrustment of high value DRT cases, 'HO Panel Advocates'
has been formed in each Circle and the same is in force since 2002 (LDGM. 5/2002).
9. In respect of accounts where the suit claim is Rs.1.00 crore and above + Falling
within the LPD transfer delegated powers of the Circle and filing DRT cases, Circles
can permit entrustment of cases to the advocates who are in the HO Panel.
10. Where permission of HO for transfer of accounts to LPD/filing DRT cases, is required
Circle shall obtain prior permission of Recovery Wing, HO for entrustment of cases to the
Advocates duly furnishing the names of 3 advocates and the number of pending cases
handled by them.
11. Staff lapses, if any to be fixed before the account is transferred to LPD.
12. However, if files need to be transferred to R & L Section / Recovery Section for initiating immediate recovery steps like filing of suit etc., pending identification of staff lapses/names of the officials, in such cases, the transferor section shall continue to follow up
such matters and finalise the same even though the file is transferred to R&L / Recovery
Section.
13. Debiting LPD account for expenses like insurance and to GC-Suit expenses:
Permission from follow up authority is required. (refer Hand Book on Recovery, Follow
up and Legal aspects of Recovery and HO Circular No. 286/2003 dated 23.12.2003).
14. The authorities empowered to permit filing of suit are also empowered to permit incurring normal suit expenses subject to the stamp duty payable as per the law in force
and the advocate's fees as per the Bar Council Schedules in respect of Court cases other than DRT cases.
15. In respect of suit filed accounts, valuation charges are to be absorbed by the
Bank.
16. DRT cases: Fees payable to advocates are as per the Bank guidelines.
17. If in any particular case the fees payable do not conform to the Bar Council Schedule
or DRT charges prescribed by the Bank, specific permission should be obtained.
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18. There is no need to seek approval from CO about the passing of Advocate Bills
upto the suit claim of Rs.5.00 lacs as per the schedule rate. Where the suit claim is
more than Rs.5.00 lacs, the bills are to be got approved from the Circle Office.
Preferring appeal or not against the decree should be taken by the respective authority who
has permitted filing of suit. In the case of Circle Head CAC power accounts, if the Decree of
the Courts are not as prayed for by the bank, if accepted by the bank, shall be placed to HO
for Review.
Modifications to NF 817
93/2010
 Simplified format for recommending transfer of account to LPD/ waiver of legal action
/ filing of suit – cut off limit increased from Rs.25000/- to Rs.2.00 lacs.
 Introduction of simplified format for seeking permission to initiate recovery steps
 Bank has modified the cut off limit of NF 817 i.e. simplified format for recommending
transfer of account to LPD/Waiver of legal action / filing of suit –increased from
Rs.25000/- to Rs.2.00 lacs.
 Bank has introduced a new simplified format for seeking permission to initiate recovery steps under SARFAESI act for accounts with liability upto Rs.2 lacs.
 Additional details included in, NF 817 are: Date of limitation, date of NPA, liability as
on the date of NPA, etc.
 Sanctioning authority may call for additional information on any of these accounts or
information in the regular format NF 606/NF607 wherever required.
 This format is not to be used where there are staff lapses. In such cases it is to be
submitted in only in NF 606/ 607 as the case may be.
 The accounts to be covered in this format should not exceed 25.
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Precautions To Be Taken While Issuing Letters/Pass Sheets To The Borrowers Whose
Accounts are Classified As NPA/LPD.
Circular No.:345/2009
a) Branches to take note of the intentions of the borrowers as to whether they are serious in
settlement of dues or trying to gain time to delay the recovery process.
b) Branches may insist for down payment at the time of entertaining OTS proposals.
c) Whenever, OTS offer is received in writing from the borrower demanding acknowledgement in writing for the same, branches may consider giving such acknowledgement duly
mentioning the fact that there is no commitment on the part of the Bank to consider the
OTS proposal and the same is subject to permission of the appropriate authority and prior concurrence of ECGC, CGTMSE, etc. (wherever applicable).
d) In addition to the above, in suit filed cases / SARFAESI action initiated accounts, a
clause ' this is without prejudice to our rights and contentions in the pending suit / DRT
case / SARFAESI proceedings' should also be mentioned.
e) Whenever, consensus is arrived at in the Recovery Meets/discussions for settlement of
dues under OTS, which may require the sanction of the concerned delegated authority
and prior concurrence of ECGC / CGTMSE, etc., (wherever applicable), no communication shall be made to the borrower/s till the decision of appropriate authority is received
by the branch.
f) In the letter to be addressed to the parties communicating sanction of OTS / compromise, branches shall ensure that:
i.
The amount of sacrifice (write off and waiver of unapplied interest) is not indicated / disclosed.
ii. The due date of payment of OTS and expiry date of permission to be clearly
mentioned.
iii. There should be a specific mention to the effect that in case compromise amount
is not paid within the stipulated time, the concession offered / OTS sanctioned
automatically stands withdrawn as per the terms and / or the Bank reserves the
right to proceed legally for recovery of entire dues.
iv. Any counter claim / claim against the Bank if any, is withdrawn.
g) If the borrowers fail to pay the OTS amount within the time stipulated, branches shall send
a registered letter under acknowledgement due, to the borrowers stating that OTS permitted
by the Bank stands withdrawn and Bank would proceed further for recovery of entire dues as
per law.
h) After communicating withdrawal of the compromise / OTS, branches shall not correspond
with the borrowers with regard to the same OTS proposal.
i) In case of suit filed accounts, letter to be addressed to the parties shall be approved by the
advocate handling the suit / concerned Legal Section at CO.
j)There may be occasions where Bank is stipulating for recovery of additional amount as
management / processing fee, over and above the OTS amount for obvious reasons. In
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such cases, it is to be ensured that such additional amount as management / processing fee
shall be recovered before OTS sanction is communicated to the borrower.
k)In the matter of compromise settlements with borrowers against whom criminal cases have
been filed for offences of cheating, forgery, etc., branches / offices to take note of the guidelines given in Circular No. 308/2009 dated 08.09.2009.
l) Even though the OTS offer received from the party is under process, it is to be ensured
that recovery proceedings shall continue.
m)In SARFAESI action initiated cases, when OTS is permitted, a clause should be added in
the sanction letter that further action under SARFAESI Act will not cease just becasuse OTS
is sanctioned.
Guidelines for issuing Pass Sheet in LPD accounts:
n)Branches are advised to avoid giving LPD pass sheets without showing the calculation of
unapplied interest at contractual rate.
o)However, if it is necessary to give the statement of account to the party, instead of giving
regular printout, a separate reconstructed statement of account, indicating the NPA/LPD liability with subsequent debits and credits including the debit of notional periodical interest as
applicable, duly signed by the branch in charge / Manager (Credit), may be given, in case of
need in due consultation with R&L Section / Recovery Section of the Circle or the Advocate,
in case of suit filed cases.
p)Wherever, it is possible to generate pass sheets including the unapplied interest (in Mirror
Account under CBS package), the same should be verified with regard to the rate of interest
and correctness of calculation and also that it is calculated from the original date of NPA
/ LPD and not from the date of migration to CBS or from the date of transfer of account to ARM Branch.
q)Branches should also note the extant guidelines, regarding applicable interest rate on LPD
accounts, which stipulates that, the ROI prevailing as on the date of transfer of account to
LPD including the penal interest, shall prevail till the settlement of account, notwithstanding
any subsequent changes in ROI.
While issuing the legal/recall notices, SARFAESI notices or while drafting the plaint in suits,
it should be ensured that, the rate of interest specified in all these cases are not at variance,
and are in tune with the guidelines on applicable interest rates.
3. FILING OF SUIT
:
(1) DISADVANTAGES OF FILING SUIT:
Filing of suit always involves huge court fees and lawyer‘s fees, full recovery of which at
times may be doubtful.
Sale through court normally turns out be distress sale on account of lack of bidders and
hence no fair return guaranteed.
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After filing the suit, borrowers/guarantors start disposing of their personal assets and hence
recovery of our dues from them is likely to prove difficult.
The realized value sometimes does not meet the expenses towards maintenance, safe
keeping of the securities and liquidators/Commissioners‘ expenses/fees.
Bank at times have to spend huge amount in calling witnesses from distant places and court
will not grant such expenses as cost.
Filing of suit is the last resort available to us for recovery. However, this should not be resorted to as a matter of routine or merely to save the loan papers getting time barred.
Before taking a decision to file suit, the prospects of recovery are to be specifically looked
into as otherwise it would unnecessarily add to the financial burden to the Bank resulting in
good money being thrown after bad money. When it is decided to file suit, permission from
appropriate authority should be obtained as per delegation of powers.
As regards, procedure for filing of suit, refer Spl. Communication 284/88. 22.9.88 of Legal
Section and checklist provided in HO Circular 127/98 which are very important and informative.
(2) SUIT AGAINST GOVERNMENT/PUBLIC SECTOR UNDERTAKING:
A suit against Government for enforcement of guarantee or any other subsisting liability cannot be filed unless proper Notice as envisaged under Sec 80 CPC is given at least 2 months
prior to the date of filing of such suit.
As regards settlement of disputes between Banks and any Government Department or public enterprises/undertaking or another public sector bank, same should be settled by resorting to arbitration and litigation be avoided. In such cases, branches have to take up the matter with the R & L Section of the Circle sufficiently early i.e. well before limitation sets in and
seek their guidance.
(3) FILING OF SUITS – Points to be noted.
The following points are to be borne in mind while filing a suit, instructing an advocate and
approving the plaint.

Loan Papers:
Check the loan papers/documents and find the same in order.

Limitation:
Ensure that the debt is not barred by law of limitation.

Notice of demand to the borrower and the guarantor:
The notice (Lawyer‘s notice or Bank‘s notice) should contain details of the amounts due, interest, securities and breaches/default committed by the party. It is advisable to issue notice
to the guarantor in two stages. Firstly, by forwarding to the guarantor a copy of the notice of
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demand addressed to the borrower and secondly, after the time specified in the notice to the
borrower is over address the final notice of demand to the guarantor.
 Instructions to Advocate:
a) Show to advocate all the original loan papers/security documents relating to the account
whether old or new, main or supplemental, cancelled or existing.
b) Show all the original books of accounts/pass sheets relating to the advance.
c) If there is equitable mortgage, explain to the advocate the method of putting through the
mortgage.
d) Show to the advocate all correspondence between the
borrower and the bank right
from the inception of the account, including notice given for enhancement in rate of interest, if any, balance confirmation obtained and demand / lawyer notice. This may
inter-alia help advocate to prove admission of liability and question of limitation.
(4) Parties to the suit:
a) One suit can be filed against the borrower, co-obligant or/and the guarantor. If for some
reason a suit is to be filed only against one of them, leave of the court is required to be
obtained under order 2 Rule of Civil Procedure Code, only after ensuring that sufficient
time before limitation is available to file a suit in case of need.
b) If there are more than one account of the same borrower; and the guarantors are common to all the accounts, one suit can be filed.
c) If there are two accounts of the same borrower but with different sets of guarantors, two
suits will have to be filed.
d) In bills purchased account, separate suits are required to be filed against separate drawees. The borrower can be made party to each such suit. It will also be in order to file a
separate suit against the borrower for recovery of the whole balance in his bill purchased
account covering all unpaid bills after obtaining leave of the court under Order 2 Rule 2
of the Civil Procedure Code. The period of limitation for a suit to recover the amount of
each bill is three years from the due date of the bill, both against the drawee and the borrower drawer.
e) If the borrower has died before filing suit, his legal heirs have to be impleaded as necessary parties to suit. If the borrower is an individual and he dies during the pendency of
the suit, his heirs will have to be brought on record (the borrower must be alive on the
date of filing suit).
f)
If one of the defendants is a minor, he can be sued through a guardian and necessary
averment in that behalf will have to be made in plaint.
g) When the borrower is a partnership firm, it is advisable that the firm and each partner is
separately shown as defendants to the suit.
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h) If the borrower is Hindu Undivided Family (HUF), the karta and all the major Coparceners may be made party/defendants.
i) If the borrower is a trust, the trust and all the trustees may be made party defendants.
J) In the title to the plaint, correct and full name, father‘s name and addresses of the
defendants are to be given.
(5) Jurisdiction:
Jurisdiction depends on various factors such as the residence of the defendant, situation of
mortgaged property, place of transaction or cause of action, etc. Normally, a suit for enforcing mortgage on immovable property can be filed only in the court within whose jurisdiction
the property is situated. The court, within whose jurisdiction a defendant resides or works for
gain, has jurisdiction to try the suit. If there are several defendants and some of them reside
outside the jurisdiction of the court, leave of the court is to be obtained to sue them.. Suit
against a company can be filed in the court within whose jurisdiction its registered office or
even a business office is situated.
(6) Body of the Plaint:
This is left to the advocate. However, while approving the draft following points must be examined.
a) Ensure all the concerned parties are joined as defendants.
b) Plaint should contain a summary of the rights conferred on the bank by each of the security documents.
c) All the facts and figures appearing in the draft plaint should be in conformity with the
Original records. Suit claim must be for total dues as on the date of filing suit which
should be inclusive of up to date unapplied interest, insurance charges, DICGC fee,
Other expenses etc. Rate of interest and future interest to be claimed correctly
on compounding basis.
d) Notices of demand, letter of admission, acknowledgement of debts, if any, must be referred to.
e) If the suit is for enforcement of the mortgage, a prayer for the sale of the property and
personal decree must be included in the plaint. When the security is by way of hypothecation, normally appointment of a receiver should be prayed for to charge of and sell the
goods or permission to enforce the securities.
f) Cost of suit is claimed
(7) Signing the Plaint:
The plaint must be signed by the official who is duly authorized under the bank‘s power of
attorney to sign pleadings and court documents.
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(8) Interim Orders:
If any interim orders like appointment of Court Receiver, Commissioner for sale of security or
ABJ or injunction are required, an application supported by affidavit be made immediately on
filing a suit and necessary steps taken pursuant to interim orders, if any passed.
(9) Service of Summons:
After the suit is filed, it must be followed up with the advocate to serve the writ of summons
on the defendants without delay. In view of the CPC amendments, summons can be served
by Regd.Post AD, courier, fax or e-mail. After service of writ of summons it must be followed
up with the advocate as to the defendants reply to the plaint and progress in court proceedings from time to time.
(10)Evidence:
The advocate must be consulted about the witnesses. If there is denials of the basic facts of
the case such as amount of loan sanctioned, execution of loan documents , it is advisable to
tender evidence of the Official who handled the transaction or has personal knowledge relating to the facts denied.
(11)Decree:
After the suit is decreed, advocate must be requested to obtain certified copy of the decree
without delay. After the certified copy of the decree is received, advocate may be furnished
with particulars of the attachable assets of the judgement debtors with instructions to initiate
execution of the decree.
(12)Presentation of plaint:
The presentation of plaint is different from admission of plaint. The CPC envisages two stages. – 1) presentation of the plaint and 2) admission of the plaint. The plaint is admitted after
it is scrutinised and defect if any removed and then only it becomes eligible for an entry and
a number in the register of suits.
4. LIMITATION AND SUIT FILING:
As per section 3 of the Limitation act, subject to provisions contained in Section 4 to 25 (inclusive) every suit instituted, appeal preferred and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence.
The Law of Limitation only bars the remedy and not the right. If it is possible to realise the
dues without going to court, there is no bar to recover even after the period of limitation.
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5. FILING OF SUIT – CERTAIN SAFEGUARDS TO PROTECT BANK‟S INTEREST:
Attachment before Judgement (ABJ) Order 38 Rules 5-12.
A plaintiff may at any stage of a suit apply for the attachment of the defendant‘s property,
before judgement is passed against him. Such an application may be made at any time after
the plaint is admitted and even before the service of summons upon the defendant. However, it is only in certain particular cases that attachment before judgement is ordered to enable
the plaintiff to realise the amount of the decree, if eventually passed, from the defendant‘s
property.
Temporary Injunction (Remedy Discretionary)
Temporary injunctions are in their very nature not permanent and are to continue only until a
specified time or until a further order of the Court. They may be granted on an interlocutory
application at any stage of a suit, even before the service of summons upon the defendant.
Appointment of interim receiver and payment of his fees and other expenses for preserving/sale of hypothecated/mortgaged assets:
When the Bank is not in a position to take the possession of the property, may be on account of its nature, size or on account of the party‘s attitude or the property being immovable, the application for appointment of interim receiver is to be made after the plaint is admitted and pending hearing of the suit, for getting possession of the hypothecated/pledged assets and mortgaged immovable properties.
Upon application made by Plaintiff/Bank, if the Court is satisfied that it is just and proper to
do so, the court may appoint Receiver to take possession or to dispose of/to manage or to
remove any person from the possession, custody of any property whether before or after a
decree.
Until the sale is made of the related assets, the Receiver‘s salary and other expenses incidental thereto are to be first borne by the plaintiff bank, and thereafter to be included in
the amount decreed by the court and recovered from sale of assets. If the amount recovered
is not enough the balance can be recovered from the borrower under his personal liability.
6. PROMPT WITHDRAWAL OF COURT DEPOSITS:
During the pendency of suit to recover a debt or damages, courts can direct the defendants
to deposit such sums as they think just and equitable. At times borrowers also prefer to deposit certain amount towards the disputed claim by the plaintiff.
As per order 24 Rule 1 of CPC, the defendant in any suit to recover a debt or damage, may
at any stage of can deposit in the court such sum of money as he considers in satisfaction of
full debt or part of the suit claim.
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The plaintiff can claim/withdraw such deposits made by the defendants by making proper
application to the courts and the amount shall be paid unless the court otherwise directs.
Branches should note that there should not be any delay in withdrawing such court deposits.
Branches may please note to have constant and timely follow up of court deposits either with
the Advocates or by personal verification of court Registers. (For further details please refer
Recovery Series 5/89 dated. 29.6.89).
7. FOLLOW UP OF SUITS:
Having filed the suits branches should continuously watch for the progress in the proceedings, by maintaining continuous contacts with the advocate.
The application filed for interim orders, like appointment of Receivers/Advocate Commissioner, disposal of movable security, attachment before judgement etc, are to be pursued
vigorously for getting early orders.
The various stages of suit proceedings like serving of summons, farming of issues, evidence, adjournments etc., are to be meticulously followed up by the branches and periodical
progress is to be reported to the follow-up authorities. In case of suit, where the liability is
huge it is advisable if any of the branch official personally attended the suit proceedings
along with the advocate. Branches can make best use of the CPC amendments as advised
by HO cir 193/2002 dated 4.9.2002 for getting the decree at the earliest.
Once the suit is decreed, branches should note down terms of the decree. If the suit is not
decreed as prayed for by the Bank or unfavourable judgements like reduction in interest
rate, suit amount etc., are given, branch should consult the advocate and seek his opinion
about preferring of appeal. The views/recommendations of the branch along with copy of
judgement and decree, the opinion of the advocate is to be submitted to the follow up authorities, seeking their direction about preferring of appeals or otherwise. (Please refer to HO
Cir. 422/85 for details).
8.SETTLEMENT/COMPROMISE OUT OF COURT:
There are occasions where borrowers approach the Bank either directly or through their advocate for settlement out of court. They may also submit compromise proposal involving extensions of certain sacrifice/concessions by the Bank.
In such case branches should obtain the complete details of the proposal from the party as
far as possible in writing and negotiate the settlement with them orally without giving any
commitments in writing.
While negotiating compromise settlement, from recovery angle, branches should always
bear in mind the interest of the Bank, value of security and chances of early enforceability
and also the aspect relating to delay involved in pursuing the matter through court.
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If the proposal is found beneficial to the Bank, they may submit their recommendations to the
appropriate authorities, by furnishing the full details of the account and also the amount of
sacrifice/concession involved if the proposal is accepted.
Time limit for settlement:
While conveying the positive decisions of the Bank as regards compromise proposal of the
party, the time limit within which parties have to abide by the compromise terms have to be
stipulated. Wherever higher authorities have not stipulated any time limit, the settlement has
to take place immediately from the date of communication of order to the party. Suitable default clause/protective clause is to be incorporated in the letter of intimation specifying lapse/
withdrawal of the concessions etc., in case the terms are not complied with within the stipulated time. If the party fails to keep up repayment schedule, party has to be informed immediately about withdrawal of the concessions and the permission has to be treated as lapsed.
Compromise settlements in Suit filed accounts:
In respect of suit filed accounts, if out of court settlement/compromise settlement is permitted
by the authorities, the advocate should be informed of the same and he should be requested
to submit suitable settlement memorandum, conveying the agreed terms before the court,
praying for consent decree/compromise decree for total suit claim with provisions for concession. Wherever compromise petitions are submitted, required protective/default clauses
are to be incorporated therein, so that, in case the parties fail to honour the commitments the
concession is withdrawn and decree becomes enforceable forthwith for total amount. (For
details of Protective clause refer Legal Series No. 3/89 or Handbook on Recovery and legal
aspects).
Wherever Bank is entitled for refund of half court fees because of compromise settlement/consent decree, same should be claimed and pursued through advocate.
After filing suit, if the defendant comes forward for immediate settlement of the entire dues,
same may be accepted and suit be withdrawn. Any refund of half court fees etc., should be
pursued in this respect also.
During pendency of the suit, if parties remit/deposit any amount with the court, steps should
be taken to realise the amount from the court and adjust the same towards their liability.
Branches should bear in mind that in respect of suit filed accounts negotiating with the parties for out of court settlement does not amount to sub-judice. But any settlement arrived at
outside the court will amount to sub-judice. Hence branches should avoid making any commitments in writing unless and until it is permitted by the appropriate authorities and okayed
from the legal angle.
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9. DECREE AND ITS EXECUTION:
Once the suit is decreed copy of the decree is to be obtained within a reasonable time. On
getting the decree following important aspects are to be verified, particularly with reference
to the relief prayed:
a) That the suit is decreed against all the defendants in the suit.
b) That the relief sought against the securities is allowed.
c) The suit amount/rate of interest and cost of the suit have been allowed as prayed.
Any defect noticed in the decree should be brought to the notice of the advocate and matter
to be pursued for rectification.
In case of mortgage suit, court will pass preliminary decree, allowing specified time limit to
the defendant to redeem the mortgage. The due date of the payment should be diarised and
if the judgement debtor fails to settle the dues as per terms or preliminary decree, then immediate steps are to be taken to file application before the court for final decree, also claiming all expenses incurred till then. It should be noted that application for final decree is to be
filed with a period of 3 years from the due date specified in the preliminary decree as otherwise the limitation will set in.
Branches before going in for execution of decree should have clear idea and information
about the mode of execution and full particulars of security/JD‘s assets to be executed as
otherwise chances of E.P. getting dismissed are there. Limitation period for executing decree is 12 years from the date of decree. However, time taken for obtaining decree copy is
excluded in calculating the limitation.
A decree may be executed when an Execution petition is made by the decree-holder, either
by the court which passed the decree or by the court to which it is sent for execution.
The Decree-holder has to make a written application seeking execution of the decree as
provided under 0.21, Rule 11, sub-rule 2 of Civil procedure Code.
The application should be signed and verified by the decree-holder or his representative and
shall contain the particulars of the decree such as date of decree, names of parties, amount
of execution and name of the person against whom execution is sought etc. In addition to
these, the application should indicate the mode in which the assistance of the court is required, i.e. whether –
a) By the delivery of any property specifically decreed.
b) By the attachment or by the attachment and sale or by the sale without attachment, of
any property.
c) By the arrest and detention in prison.
d) By the appointment of a receiver
e) Otherwise as the nature of the relief granted may require.
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When an application is for execution of decree by attaching movable properties belonging to
Judgement Debtor, the decree-holder shall annex to the application the inventory of the
property to be attached, containing reasonably accurate description of such property.
When a application is for attachment of immovable property belonging to the Joint Property
of the J.D., it shall contain ( i ) description of the property sufficient to identify the same as if
such property can be identified by boundaries of survey numbers, ( ii ) a specification of JD‘s
share of interest in such property.
The court may require the decree-holder to produce a certified extract from the Registry, if
such property is registered.
A) SALE OF PROPERTY THROUGH COURT:
If the application for execution of a decree relates to sale to property specifically decreed,
e.g., Mortgage decree, decree covering hypothecation or pledged goods, such property can
be brought to sale without any possible objection from the Judgement Debtor. If the application is for execution of money decree, then the properties that can be attached and sold are
subject to exemption as contained in Section 60 of Civil Procedure Code.
As per Section 60 of CPC the following properties belonging to JD can be attached, viz.,
lands, houses or buildings, goods, money bank notes, cheques, unrealised BEs, hundis,
PN., Government securities. Also Bonds or other securities, money debts, shares in a Corporation, whether these are held in the name of the JD or by some other person on his behalf.
However, the following properties of the JD cannot be attached or sold in execution of the
decree.
a) The necessary wearing apparel, cooking vessel, beds and bedding of the JD, his
wife and children, and such personal ornaments as in accordance with religious usage cannot be parted with by a woman.
b) Tools of artisan, where JD is an agriculturist his implements of husbandry and such
seed ,grains, necessary for his livelihood.
c) Houses or other buildings belonging to an agriculturist or a labourer or domestic
servant and occupied by him.
d) Books of accounts.
e) A mere right to sue for damages.
f) Any right of personal service.
g) Stipends, gratuities, family pension, political pensions.
h) The wages of labourers and domestic servants
i) Salary to the extent of Rs.1000/- (Rupees One thousand only) and 2/3 of the remainder. Where an attachment on salary is continued for a total period of 24
months, it be finally exempted from attachment in execution of that decree.
j) Pay and allowance of Army, Navy and Air force personnel.
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k) Compulsory deposits or other deposits where the specific Act has exempted them
from attachment, Moneys payable under policy of insurance, lessee‘s interest in a
residential building where control Act applied,. Allowance of government servants,
railway servants, servants of local authorities and subsistence allowance granted to
such servants under suspension.
l) Contingent or possible right of interest.
m) A right to future maintenance
n) Any allowance declared to be exempted
o) Where JD is person liable to pay land revenue, any movable property which is exempted from sale for recovery of, an arrears of such revenue.
If an application is received by the Court, within a period of two years from the date of
decree, the court can issue process for execution immediately if the application is otherwise in order.
If such application is made after two years from the date of decree, court shall for issue
of notice to JD calling upon him to show cause why the decree should not be executed.
After disposal of such show cause notice, process for execution may be issued.
The process has to be completed within the period stipulated in the process. The process may be for attachment in the first instance and thereafter for sale. Sometimes particularly if the property sought to be attached is specifically decreed, the process may be
for sale without attachment.
A money decree can be executed by the attachment and sale of JD‘s property or by the
detention of the JD in the civil prison. For execution by the detention in the civil prison of
JD the following conditions should be fulfilled.
a) JD is not a woman
b) Total amount of the decree is not less than Rs.2000/c) The court has to be satisfied that after filing of suit in which decree is passed, JD has
dishonestly transferred, concealed or removed any part of his property, or the JD
has, or had since the date of the decree, has the means to pay the amount of the
decree or some substantial part thereof and refuses or neglects, has refused or neglected to pay the same. In calculation of means of JD the properties exempted under Section 60 of CPC or other law or customs having the force of law be left out.
d) Judgment Creditor shall pay the subsistence allowance to the JD during the detention.
When an application for execution of decree by detention in Civil Prison is made, court shall
issue a show cause notice to the JD before any order for detention in Civil prison is made.
When a JD is arrested, he shall be informed by the court that he may apply to be declared
as an insolvent. If he expresses an intention to apply to be declared as an insolvent, the
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court may release him after taking proper security enabling him to apply for declaring as an
insolvent within one month from the date of release.
The detention and release of JD does not discharge his liability under the decree but he
cannot be rearrested under the decree in execution.
B) DISCOVERY OF ASSETS OF JD:
When a decree-holder is not in a position to ascertain the attachable assets of the JD after
reasonable enquiries, he can make an application to the court under Order 21, Rule 41 subrule 2 of CPC and upon such application court may order JD to make an affidavit stating the
particulars of the assets of the of JD. In case the JD disobeys this order, he is liable to be
detained in Civil Prison for a period not exceeding 3 months.
Further there are provisions in the IT Act under Sec. 138 (2), and W.T. Act Sec 42(b) by
which, Bank can apply to the IT/WT authorities, seeking copy of the IT/WT return filed by the
parties. For this purpose Bank has to declare and convince the authorities, that information
sought for is in public interest and it will not be utilised for any other purpose. For each years
returns, separate application in the prescribed format has to be made.
In case JD makes an affidavit stating that he has no assets, then the Judgment Creditor can
have the notice of insolvency issued through the Court to JD as provided in the Provincial/Presidential Town Insolvency Acts. If there is no favourable response from the JD to the
insolvency notice, Judgment Creditor can file an insolvency petition and have the JD declared as an insolvent.
Though a period of 12 years is available under Limitation Act for execution, it is necessary to
take steps to execute the decree immediately after the suit is decreed.
C) EXECUTION OF PARTIAL DECREE:
Plaintiff holding a preliminary/final decree and preferring to appeal against the claim disallowed is entitled to seek final decree and execute the same to the extent of decree claims.
A plaintiff who appeals against a preliminary decree for a claim disallowed in the preliminary
decree (for example plaintiff has filed an appeal against the order (for example plaintiff has
filed an appeal against the order disallowing the compounding of interest half yearly) can,
pending such appeal, seek and execute final decree so that the fruits of his partial success
could be realised. The remaining claim, which is under appeal, is deferred for further investigation. If a plaintiff succeeds on that part of the claim in appeal, the final decree could supplement or a fresh final decree passed incorporating the additional relief's subsequently adjudicated.
Any surplus out of the sale proceeds after satisfying the final decree and or such part of the
security as may remain unsold, as the case may be, shall continue to be held as security for
a further liability that may arise by virtue of the decision appeal. In the case of surplus the
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sale price that may continue to be held as security itself shall remain in court at the direction
of court regarding investment and interest accruing thereon.
D) PURCHASE ON NON-BANKING ASSETS BY THE BANK :
Having filed and E.P. for attachment and sale of immovable properties, sometimes, branches may face difficulty in finding suitable buyers/bidders to the property. In many cases, particularly in villages, outsiders hesitate to bid the property on account of local resistance/influence, in such cases on selective basis, Bank may think of purchasing such
properties, as non-banking assets, by bidding in the auction which has to be disposed of at
the later date.
The permission from appropriate authorities should be obtained before bidding the property
by furnishing the upset price for which the Bank proposes to bid. The purchase of nonbanking assets should be resorted to mainly to create awareness in the area that the Bank
can also under circumstances where the situation so warrants or also circumstances where
non-bidding by the Bank may result in lapse of Decree/EP.
The amount of consideration for which the property purchased is to be credited to the party‘s
LPD liability by raising a BAR on Balance Sheet and Central Accounts Section, HO. The full
particulars of the assets purchased and copy of the permission obtained from the appropriate authorities should also be enclosed to the BAR.
Immediate steps are to be taken to get the sale of the property registered in favour of the
Bank and also for early disposal of the same by finding suitable buyers.
RECOVERY STEPS UNDER REVENUE RECOVERY ACT/PUBLIC MONEY (DEBTS) RECOVERY ACT:
Several States have passed the RR Acts, provisions of which help Banks to recover their
loans granted to borrowers under certain specified schemes:
Whenever such legislative provisions are available and if such course is found effective,
branches should make use of the Act, rather than resorting to legal action. The recovery
steps under RR Act are economical and if pursued properly results in effective recovery.
However, in some states stamp duty as applicable to regular suit is payable. In such circumstances, it may not be beneficial to the Bank from cost point of view.
For accounting and reporting purposes, the accounts where Revenue Recovery Actions are
initiated, are to be categorised under suit filed accounts.
Wherever, provisions of RR Acts are found ineffective, branches may have to take a decision for filing suit, depending upon the prospects of recovery. In many states it is seen that
the provisions of RR Act do not extend limitation of loan documents. Hence, in such cases, if
revenue recovery action is found ineffective, branches have to take a decision, either to file a
suit or waive legal action after obtaining the permission from the appropriate authorities.
Waiver of legal action arises mainly on account of parties‘ non-cooperative attitude and refusal to execute the AODs once the recovery steps under RR Act is initiated.
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Since the provision of the RR Act varies from state to state, the branches may seek further
guidance from their respective Circles.
COMPANY UNDER WINDING-UP:
Another important aspect of enforcement of security arises when the borrower is a company
incorporated under Companies Act and is ordered to be liquidated. Normally, Bank as a secured creditor stands outside the winding up proceedings and relies on its securities and
proceeds to realise the dues. Thus, the securities available with Bank can be disposed of
without the intervention of the court, like pledged goods etc., the bank can proceed to do so
without requiring any leave of the winding-up court.
When the securities cannot be sold without the intervention of the court like mortgaged
properties/fixed assets, the Bank can file a suit against the company after taking leave of the
winding-up court (Section 446 of Companies Act), except cases before DRT.
Leave of court is required even to continue the already filed suits in case the winding up proceedings against the company is initiated subsequently, except cases before DRT.
Before proceeding for seeking winding up of the company or filing the suit, it is better to seek
the panel advocate‘s opinion about various legal aspects involved and pros and cons of
such course of action. Permission from the appropriate authority should also be obtained
before initiating any of the above steps. If resorting to winding up is preferred, a 21 days notice to the company as per Sec. 434 of Company‗s Act is to be given. Later, petition to be
filed before the company court seeking winding of the company. In respect of Sick Industrial
Companies, provisions of Sec. 20 of Sick Industrial Companies (Spl. Provisions) Act, 1985
provides for winding up the company by the High Court on the recommendations of the
Board for Industrial and Financial Reconstruction (BIFR).
a) Suit & Winding up- Advantages/disadvantages:
Once it is decided to take steps for recovery of dues, Bank has to decide whether it should
file a suit for recovery or whether approach the company court for winding up of the company. Courts generally order winding up of the company only when it is satisfied that the petitioner‘s dues cannot be met by the assets of the company. It is very essential to note that
winding up cannot be resorted to as a substitute to suit. To preserve the right of recourse
against the Directors/Guarantors, filing of suit is inevitable if they do not execute AOD before
limitation.
If the bank is a secured creditor and securities are sufficient to cover the liabilities, it is better
to file suit against the Company.
If the bank is a secured creditor but the securities are negligible compared to the liability, it is
better to move for winding up of the Company. This will not only save huge court fees but
also avoid the additional burden of executing the decree obtained. However, it is to be noted
that, as per recent decisions of some High Courts, if the debt is barred by limitation during
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the pendency of the winding up, the amount cannot be recovered, unless a suit is filed prior
to the date of limitation. As such, winding up can be resorted to only if there is sufficient time
available before limitation.
b) Course open to Bank as a Secured Creditor in the event of Winding up:
Sell the property and prove in winding up for the balance (in this connection, it may be noted
that sale of movable assets charged to the Bank can be done outside the court, but for sale
of immovable properties, we have to file a suit and obtain a decree).
To surrender the security to the liquidator and prove for the whole of its debt as an unsecured creditor, in which case, we may lose the priority of settlement.
To estimate the value of security and prove for the balance of the debt after deducting the
estimated value, before the liquidator.
To rely on security and not to prove in the winding up (in case the bank fails to recover the
entire amount by sale of securities, we may have to forgo the differential amount).
c) Fraudulent Preference:
When obtaining further security from a Company which is under nursing/revival, care should
be taken to preserve evidence of the fact that the additional security has been given by the
Company on account of demand of the Bank (e.g., threat of legal action, cancellation of limits, etc). Otherwise, some other creditors, who have moved the court for winding up (within
one year of such transaction), may allege fraudulent preference by the Company making the
security obtained by the Bank invalid. Wherever possible, the Company should be allowed to
carry on its business for at least one year thereafter to safeguard bank‘s interest in this direction.
AWARDING OF INTEREST OF COURT (SECTION 34 OF CPC):
In case of money suits (other than mortgage suits) once the matter comes before court, what
interest should be awarded from the date of the institution of the suit till repayment is left to
the discretion of the court under Section 34 of CPC. There are two periods between the date
of institution of the suit and date of payment.
a) Period from the date of institution of the suit to date of decree (Pendente lite) and
b) From date of decree to date of repayment.
In regard to period (a) court may award interest at such rate as the court deems reasonable.
As regards period (b) court may award further interest at such rate not exceeding 6% p.a. as
the court deems reasonable, provided where the liability had arisen out of an agricultural
loan transaction. But in case of a commercial transaction, the rate of such further interest
may exceed 6% p.a. but shall not exceed the contractual rate of interest or where there is no
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contractual rate, the rate at which moneys are lent by nationalised banks in relation to commercial transactions.
Interest in Respect of Mortgage suits (Order 34 Rule 11)
In respect of mortgage suits, order 34 Rule 11 of CPC, provides that the rate of interest is
the contract rate up to the date fixed for payment in the preliminary decree and thereafter at
such rate as the court deems reasonable.
Section 21-A of B.R. Act:
Provisions of Section 21A of Banking Regulation Act provides that courts cannot re-open the
past transaction regarding rate of interest charged till the date of filing suit for recovery.
However, the above Section does not control the rate of interest awardable subsequent to
the date of institution of the suit, under Section 34 of CPC.
Instalment Facility in Decree:
There may be instances where courts tend to award instalment facilities to the Borrower
while passing decree without the consent of the plaintiff creditor. If the time/instalment
specified is reasonable, say within 6 months, there may not be any cause for concern. If the
installment facility awarded by the court to the JDs is found unreasonable, then steps are to
be initiated to prefer appeal by taking permission from appropriate authority.
However, in this regard it may be noted that courts have got discretion to award reasonable
time/instalment facility to the JDs only in respect of money suits, and not in respect of mortgage suits (AIR 1948 PATNA 18 (25) DB).
SUMMARY SUITS:
Filing of summary suits, under provisions of Order 37 of CPC for recovery of certain types of
debts are found more advantageous to the Bank as it results in getting an early decree. Following classes of suits can be brought under the provisions of summary suits, as per Order
37 of CPC.
a) Suit upon bills of exchange, hundis and promissory notes.
b) Suit in which plaintiff seeks only to recover a debt or liquidated demand in money payable by the defendant with or without interest arising.
1. On a written contract or
2. On an enactment, where the sums sought to be recovered is a fixed sum of money
or in the nature of a debt other than a penalty or
3. On a guarantee where the claim against the principal is in respect of a debt or
demand only.
Summary Suit Proceedings:
In a summary suit when the summons is served, within ten days from the date of receipt of
the summons the defendant will have to enter appearance in person or by a pleader. If such
appearance is caused then plaintiff will have to take out a summons for judgement. Thereafter, within 10 days from the date of service of summons for judgement, the defendant may
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seek leave to defend the suit by filing an affidavit or otherwise disclosing such facts as may
be deemed sufficient to entitle him to defend.
Upon hearing the parties on summons for judgement, if the court is satisfied that there are
triable issues, the defendant may be permitted to defend the suit unconditionally. The court
may permit the defendant to defend the suit on condition like deposit of part of the suit claim
or giving security etc. If the court finds absolutely there are no triable issues, a decree in favour of the plaintiff may be passed.
Branches may consult their advocates and in whichever case and in whichever court, the
suit can be filed under summary suit provisions, they may resort to the same. In view of the
advantages of getting early decree or at least it will enable to get an order for deposit of the
part of the suit claim.
Jurisdiction for filing Summary Suits:
A summary suit in respect of above classes of suits can be filed in the High courts, the Civil
Courts and Courts of Small Causes, and any other courts as may be specified by the High
Court by notification in the Official Gazette.
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DEBT RECOVERY TRIBUNALS
The need to expedite recovery process of debts due to Banks and Financial Institution was
felt during early 1980. The Committee headed by Mr. Tiwari, in its report submitted during
1981, recommended for establishment of Special Tribunals to decide the cases of Banks
and FIs. During 1991 the Committee headed by Mr. M. Narasimham, while suggesting reforms in financial systems, reiterated the recommendation of Tiwari Committee for establishing special tribunals to expedite recovery process in respect of debts due to banks and FIs.
―The Recovery of debts due to Banks and Financial Institution Act 1993‖ was passed by the
parliament which came into effect from 24.6.1993 and provisions are amended by an Act of
March 2001.
HIGHLIGHTS OF THE ACT
1.
2.
3.
4.
5.
6.
The Act for expeditious recovery of debts due to Banks and FIs.
It is envisaged to make endeavour for disposal of cases within 6 months.
The Act does not apply to State level Financial Institutions.
The Act does not repeal any existing Law.
The Act provides for establishment of DRT and DRAT (Appellate Tribunal).
First appeal of the orders passed by DRT will be before DRAT and appeal of the orders
passed by DRAT will be before HC.
7. Cases can be filed only by Banks and Financial Institutions.
8. Cases involving dues of Rs. 10.00 lacs and above only will be decided by DRT at present and entertain petitions of defendants for cross claims/set off
9. At least 75% of the debt due as determined by the DRT has to be deposited with DRAT
by the defendant while making an appeal.
10. All cases pending before any court with suit claim of Rs. 10.00 lacs and above shall
stand transferred to DRT on or from the appointed date of the Tribunal.
11. The act has overriding effect.
12. The Act applies to whole of India except J & K State.
13. DRT can pass orders for ABJ, Arrest of JD & commit to civil prison, appoint Receiver
/ commissioner, compelling JD to disclose asset on affidavit etc.
14. DRT can decide on sale & distribution of assets of company indepedantly.
15 .DRT can execute decree of civil court by issuing RC (for more than Rs 10.00 lacs)
As per the Act:
a) Debt means: any liability (inclusive of interest) which is claimed as due from any person,
by a Bank , an FI or a consortium of banks or FIs during the course of any business activity undertaken by the Bank or FI or consortium Banks/FIs under any Law for the time
being in force, in cash or otherwise, whether secured or unsecured or assigned or
whether payable under a decree or order of any civil court or any arbitration award or
otherwise or under mortgage and subsisting on and legally recoverable on the date of
application .
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b) Bank means:
1) a Banking Company
2) a corresponding new Bank
3) State Bank of India
4) a Subsidiary Bank
5) an RRB
c) Financial Institution: means public financial institution within the meaning of section 4A of
Companies Act 1956 or such other institution notified by the Central Government in official gazette.
PROCEDURE OF TRIBUNALS:
Where a bank or a financial institution has to recover any debt from any person, it may make
an application to the Tribunal within the local limits of whose jurisdiction.
(i)
a) the defendant or each of the defendants where there are more than one at
the time of making application actually and voluntarily resides or carries on business or personally works for gains or
b) any of the defendants, where there are more than one at the time of making
the application, actually and voluntarily resides, or carries on business or personally works for gains or
c) the cause of action wholly or in part arises.
(ii)
(iii)
On receipt of the application, the Tribunal shall issue summons requiring the defendant to show cause within thirty days of the service
The Tribunal may, after giving the applicant and defendant an opportunity of being heard, pass such orders on the application as it thinks fit to meet the ends of
justice.
Where a defendant makes an admission of full or part of the amount of debt due
to a Bank/FI, the Tribunal shall order such defendant to pay the amount to the
extent of the admission to the applicant within a period of one month from the
date of order, failing which, an RC will be issued for such admitted amount.
(iv)
The Tribunal shall send a copy of every order passed by it to the applicant and
the defendant. The Presiding Officer shall issue a certificate under his signature
on the basis of the order of the Tribunal to the Recovery Officer for recovery of
the amount of debt specified in the certificate.
(v)
The application made to the Tribunal shall be dealt with as expeditiously as possible and endeavours shall be made by it to dispose of the application finally
within six months from the date of receipt of the application.
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APPEAL:
(i)
(ii)
(iii)
Any person aggrieved by an order made or deemed to have been made by a Tribunal under the Act, may prefer an appeal with to the Appellate Tribunal.
No appeal shall lie to the Appellate Tribunal from an order made by a Tribunal
with the consent of the parties.
Every appeal shall be filed within a period of forty five days from the date on
which a copy of the order made or deemed to have been made by the Tribunal is
received by him and it shall be in such form and be accompanied by such fee as
may be prescribed. Defendants have to deposit at least 75% of the debt due as
determined by the DRT or such sum as ordered by DRT while filing appeal.
PROCEDURES AT DRAT:
(i)
(ii)
(iii)
The appellate Tribunal may, after giving the parties to the appeal an opportunity
of being heard, pass such orders thereon as it thinks fit, confirming, modifying or
setting aside the order appealed against.
Appellate Tribunal shall send a copy of every order made by it to the parties to
the appeal and to the concerned Tribunal.
The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose off the appeal
finally within six months from the date of receipt of the appeal.
PROCEDURE TO BE FOLLOWED BY THE BANK FOR FILING AN APPLICATION BEFORE DRT & RELATED MATTERS:
1. PROCEDURE FOR FILING AN APPLICATION
Application to be filed in the prescribed from by the bank in person or by his agent or by
duly authorised legal practitioner to the Registrar of the bench in whose jurisdiction the case
falls or shall be sent by Regd. Post addressed to the Registrar.
The application shall be presented in two sets in a paper book along with empty file size envelope bearing full address of the defendant
along with applicable fee, documents or
evidences relied upon by the bank and pass sheet of accounts duly certified; Vakalatnama
(Sufficient number of copies of paper book along with file size envelopes to be provided if
defendants are more than one)
2. PRESENTATION AND SCRUTINY OF APPLICATION.
The registrar:
i)
ii)
iii)
Shall endorse every application with date on which it is presented.
Shall register the application if found in order and give a serial number.
Shall allow time to the applicant to rectify the defects noticed if any.
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iv)
v)
Decline to register the application in case defects are not rectified within the permitted time.
Appeal against the order of Registrar shall be made within 15 days of making such
order to the concerned presiding officer (PO) which shall be final. In case the applicant (Bank) is aggrieved by such order of PO, bank may file a Review petition
before the PO, before expiry of 60 days from the date of the order.
3. PLACE OF FILING APPLICATION:
Application shall be filed by the applicant with the registrar within whose jurisdiction the applicant is functioning as a Bank, for the time being.
COST MEMO CERTIFICATE:
Immediately after the disposal of the case of DRT the Circle/branches should ensure that the
Advocate conducting the case has filed Memo, so that costs as allowed by the Tribunal are
shown in the Recovery Certificate.
CONVERSION OF DECREE INTO RECOVERY CERTIFICATE – Steps to be taken. (Cir.
244/2001 dated 7-12-2001)
In view of the Amendment to RDB Act (Section 31A), making it necessary to file application
under Section 19 of the RDB Act to convert the decree into certificate, such application will
have to be filed within the period of limitation as provided under Section 137 of the Limitation
Act i.e. from the date when the right to apply accrues. Therefore, the following steps to be
taken:
A. Once a decree is passed by the Civil Court and where the amount outstanding in terms
of Civil Court Decree is Rs.10 lacs or more an application for conversion of decree to
Recovery Certificate, has to be filed before the Tribunal within a period of 3 years from
the date of decree.
B. In cases, where Civil Court has granted a decree and the decretal amount accrues to
Rs.10.00 Lakhs on a particular date, then branches have to file an application before the
concerned DRT for conversion of decree to Recovery Certificate within a period of 3
years from the date of such accrual to Rs.10.00 Lakhs.
4. EXECUTION OF RECOVERY CERTIFICATE:
Enforcement of Recovery Certificate is a continuation of DRT proceedings. Once the Recovery Certificate is issued by the presiding officer of DRT, Recovery Officer takes further steps
in enforcing the same directly through the applicant branches. Since the execution of Recovery Certificate does not involve any major legal issues, instead of engaging an advocate,
the Liaison Officer/Manager should represent the Bank before the Recovery Officer.
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5. DRT CASES – RECOVERY OF ADVANCES AND ENFORCEMENT OF SECURITY
(EXECUTION)
The provisions of 2nd and 3rd Schedules of the Income Tax Act, 1961 and the Income Tax
(Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible,
as in force from time to time, apply to the recovery proceedings under the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993. The Presiding Officer of the DRT,
after passing an order, forward/send a copy of the order to the applicant bank and the defendants, free of cost. A certificate of recovery on basis of the order referred herein will be
prepared by the Presiding Officer and will be sent to the Debts Recovery Officer (DRO) for
recovery of the debt specified in that certificate. The procedure followed by the D.R.O. to recover the debts due to the Bank is detailed herein below.
6 . DEMAND NOTICE
1) The D.R.O. on receipt of the certificate, will issue a demand notice to all the defendants requesting them to pay the amount under the certificate within 15 days from the
date of service of notice and in default, necessary steps for recovery of the amount
would be taken.
2) Where a demand notice is served on a defendant, the defendant or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal
with the property belonging to him or her except with the permission of D.R.O. nor
shall be, a Civil Court issue any process against such properties in execution of a
decree of a Civil Court.
3) If the defendants are likely to conceal, remove or dispose of the movable properties,
the D.R.O. can issue attachment order at once along with the demand notice.
4) In case, the defendants furnish security to the satisfaction of the D.R.O. such attachment shall be cancelled by him.
5) The D.R.O. may grant further time to the defendants for repayment of the amount
due under the demand notice (beyond the notice period by 15 days).
6) If the amount due in the demand notice is not paid even after lapse of notice period
or such extended notice period, the D.R.O. may proceed to recover the amount due,
as follows:
a) By attachment and sale of movable properties
b) By attachment and sale of immovable properties
c) By arrest of defendants and detention in prison
d) By appointing a receiver for management of the movable and immovable
properties of the defendants.
7. MOVABLE PROPERTIES
Attachment:
I.
The D.R.O. shall cause a copy of the warrant of attachment to be served on the
defedant.
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II.
If the amount due is not paid even after the service of the copy of the attachment
warrant, the D.R.O. shall proceed to attach the movable property of the defendant
(s).
III.
IV.
Attachment of movable properties is by (i) seizure, (ii) safe custody.
If movable properties is of the nature of speedy and natural decay or the expenses
involved for safe keeping of such properties exceeds its value, the D.R.O. can sell it
at once.
Inventory:
I.
The D.R.O. shall, after attachment of the property, prepare an inventory of all the
property attached specifying in it the space where it is lodged or kept and deliver a
copy of the inventory to the borrower.
II.
Attachment by seizure shall be made after sunrise and before sunset and not otherwise.
III.
The DRO may break open any inner or outer door or window of any building and enter in the building in order to seize any movable property liable for seizure under the
warrant.
IV.
The D.R.O. or any authorised officer on his behalf may apply to the officer in charge
of the nearest police station for such assistance as may be necessary in the discharge of his duties and the police authorities to whom such application is made shall
depute sufficient number of police officers for furnishing such assistance.
Sale:
i.
The D.R.O. may pass order for sale of the movable property already attached. When
such order for sale of movable property is issued by the R.O., he shall also issue a
proclamation in the language of the district of the intended sale specifying the time
and the place of the sale and whether the sale is subject to confirmation or not. Such
proclamation shall be made by beat of drum or other customary mode.
ii. The movable property proclaimed shall be sold by public action. On payment of the purchase money, the D.R.O. holding the sale, shall grant a certificate specifying the property purchased, the price paid and name of the purchaser, thereby the sale shall become
absolute.
8. IMMOVABLE PROPERTIES
Attachment:
I.
The D.R.O. shall pass an order prohibiting the defendants from transferring or charging the immovable property in any way and also prohibiting all persons from taking
any benefit under such transfer or charge.
II.
A copy of the order of attachment shall be served on the defaulter.
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III.
Where any immovable property is attached as said above, the attachment shall relate back to and take effect from the date on which the demand notice was served upon the defaulter.
IV.
Notice for settling sale proclamation: The D.R.O. shall draw a notice
for settling sale proclamation stating to bring to his notice any encumbrances, charges or liabilities attaching to the said properties or any portion thereof.
V.
Proclamation of sale: The D.R.O. shall draw a proclamation of the intended sale.
Such sale proclamation of immovable property shall be made by beat of drum or other customary mode and a copy of the proclamation shall be affixed on a conspicuous
part of the property and also upon a conspicuous part of the office of the D.R.O. The
D.R.O. may also direct such proclamation to be published in the official gazette or in
local newspaper or in both.
1) The sale shall be by public auction to the highest bidder and shall be subjected to
confirmation by the D.R.O. The D.R.O. can fix reserve price for the purpose of public auction.
2)
No sale of immovable property by public auction shall be made within 30 days from
the date on which the sale proclamation was made without the consent in writing of
the defendants.
3) The person declared to be the purchaser in the public auction shall deposit with the
D.R.O., 25% of the purchase money immediately.
4) The full amount of the purchase money shall have to be paid by the purchaser on or
before 15 days from the date of sale of the property.
5)
In default of payment of purchase money within 15 days, the D.R.O. may order for
forfeiture of the deposit to the Government and the property shall be resold.
Confirmation of Sale:
The D.R.O. shall make an order confirming the sale, provided there is no application for setting aside the sale. Consequent on confirmation of sale, the sale shall become absolute.
Where sale of immovable property has become absolute, the D.R.O. shall grant a certificate
specifying the property sold and the name of the person who at the time of sale is declared
to be the purchaser. The certificate of sale granted does not require mandatory registration
under Section 17 of the Indian Registration Act, 1908. However, the D.R.O. is duty bound to
send a copy of Certificate of Sale to the registering officer within the limits of whose jurisdiction the whole or any part of the immovable property is situated.
THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS
(AMENDMENT) ACT , 2000
The highlights of the subject ordinance are:
1. The Presiding Officer of the Appellate Tribunal will now be known as ‗The Chairperson‖.
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2. The definition of ―debt‖ under the Act has been expanded as-―Debt means any liability
(inclusive of interest) which is claimed as due from any person by a Bank or a Financial
Institution or by a consortium of Banks or Financial Institutions during the course of any
business activity undertaken by the Bank or the financial institutions or the consortium
under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any Civil Court or any
arbitration award or otherwise or under mortgage and subsisting on, and legally recoverable on the date of application.
3. Section 7 of the Act has been amended to facilitate for posting of more than one Recovery Officer in a Tribunal
4. In Section 8 of the principal Act, after sub-section (2) the following sub-section has been
inserted, namely ―(3) Notwithstanding anything contained in Sub-section(1) and (2), the
Central Government may authorise the Chairperson of an Appellate Tribunal to discharge also the functions of the Chairperson of other Tribunal.‖
5. The scope of Section 19 of the earlier Act has been greatly widened by substituting it
with new Section19. Some of the important features of the Section are as under:
Jurisdiction:
I.
Application can now be made by a Bank/FI to a Tribunal within the local limits of
whose jurisdiction:
II.
The defendant(s) actually and voluntarily resides or carries on business or personally
works for gain
III.
The cause of action, wholly or in part, arises.
Joining of other Banks/FIs
In case, where an application has already been filed by a Bank or FI to recover its
debt from any person, another Bank or FI having claim to recover its debt from the
same person may join at any stage of proceedings before the final order is passed.
Time for showing cause:
On receipt of application, the Tribunal shall issue summons requiring the defendant
to show cause within 30 days of service of summons as to why relief prayed for
should not be granted. The defendant shall present a written statement of his
defence at or before the first hearing or within the time permitted by the Tribunal.
Claims for set-off by defendant:
At the first hearing of the application, the defendant should present in the written
statement particulars regarding the debt sought to be set-off. The written statement
shall have the same effect as a plaint in a cross suit so as to enable the Tribunal to
pass final order in respect of both the original claim and the claim for set-off. In addition to the right of pleading for counter claim, the defendant may set up any right or
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claim in respect of a cause of action accruing to him against the applicant either before or after filing of the application but before the defendant has delivered his
defence or before the time limit for delivering his defence has expired, whether such
counter claim is in the nature of a claim for damages or not. The counter claim shall
have the effect of a cross suit. The Tribunal may exclude such counter claim on examining the contention of the applicant if found fit.
Powers of Tribunal to make interim order:
 The Tribunal is now expressly empowered to issue interim order(by way of injunction, stay or attachment) against the defendant to debar him from transferring, alienating or otherwise dealing with, or disposing of any property or
assets belonging to him without the prior permission of the Tribunal.
 At any stage of the proceeding on being satisfied(by presentation of affidavit
or otherwise) that in order to obstruct, delay or frustrate the execution of any
order of recovery that may be passed against the defendant, the latter is
about to dispose of or remove the whole or any part of his property from the
local limits of the jurisdiction of the Tribunal or is likely to cause damage or
mischief to the property or to affect its value by mischief or creating third party interest, the Tribunal may direct the defendant to furnish security or such
sum which may be sufficient to satisfy the certificate for recovery of debt. In
the event of defendant‘s failure to show cause or furnishing security within
the specified time the Tribunal may attach whole of his property or a suitable
portion of the same.
Powers of Tribunal for appointing receiver:
 The Tribunal may appoint a receiver of any property, whether before or after
grant of RC, remove a person from possession or custody of property and
commit the same to possession or custody of the receiver. Further, the Tribunal may confer upon the receiver all powers, such as bringing and defending suits in the Courts, defending applications before the Tribunal and for realisation, management, protection, preservation and improvement of the
property, collection of rents and profits thereof and execution of documents
as the owner himself.
Powers of Tribunal for appointing commissioner:
 The Tribunal as per Section 19(18-E) can appoint a commissioner for preparation of inventory of the properties of the defendant or for the sale.
Power of the Tribunal for ordering distribution of sale proceeds:

In case a certificate of recovery of debt is issued against a company, the Tribunal is now empowered to distribute the sale proceeds among the secured
creditors on the basis of seniority inter-se and in accordance with the provisions of the Section 529 A and other provisions of the Companies Act 1956.
Surplus if any has to be paid to the company.
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Other provisions under substituted section 19 of the Act:
 The Presiding Officer shall issue a certificate under his signature on the basis
of the order of the Tribunal to the Recovery officer for recovery of the amount
of debt specified in the certificate
 If the Tribunal is satisfied that the property is situated within the local limits of
the jurisdiction of two or more Tribunals, it may send the copies of the RC for
execution to such other Tribunals.
 The time limit for disposal of application as far as possible should be 180 days
from the date of receipt of application.
 To prevent abuse of process of law or to meet the ends of justice, the Tribunal
is empowered to make such orders as it finds fit.
 Powers of the Tribunal for ordering arrest and imprisonment
 In case of disobedience of an order made by the Tribunal under Section
19(12), (13) and (18) or breach of any terms on which the order was made, the
Tribunal may attach the properties of the guilty and may also order such person to be detained in the civil prison for a term not exceeding 3 months.
 In Section 28, sub section(4) has been inserted to empower the Recovery Officer to make, at any stage of the execution of the RC, an order directing any
person, and in case of a company, any of its officers, against whom or which
RC is issued to declare on affidavit the particulars of his or its assets
Appeal against the order of Recovery Officer:
By virtue of substitution of section 30, now any person aggrieved by an order of the Recovery Officer may prefer an appeal within thirty days of receipt of the copy of the order. The
Tribunal will then deal with the same and make an appropriate order.
In Section 31 of the principal act, in sub-section (2) in clause (b), the words
―or de novo‖ has been deleted.

Another important amendment in the Principal Act is the insertion of subsection 31 A. As per the same, where a decree or order has been passed by any
court before commencement of the Recovery of Debts due to Banks and Financial
Institutions (Amendment) Ordinance 2000 and has not been executed, then, the
decree holder may apply to the Tribunal to pass an order for recovery of the
amount. The tribunal will then issue a recovery certificate to a Recovery Officer,
who on receipt of the same shall proceed to recover the amount as if it was a certificate in respect of a debt recoverable under this Act.

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LOK ADALAT
Considering the large number of suits pending, the Ministry of Finance, Government of India
has advised the Banks to have more and more cases settled through Lok Adalats/Lok
Nyayalayas. Legal Section, H O has vide its LDGMs 60/91 dated 10.10.1991 and 35/92 dated 17/11.1992 issued guidelines regarding the same. At present, Government of India has
advised that cases involving an amount of up to Rs. 20 lakhs per case may be referred to
Lok Adalats.
This note deals with the statutory provisions by which the Lok Adalats are constituted and
the procedure followed thereat.
BACKGROUND:
Lok Adalat means „court of the people‟. They were being constituted at various places in
the country for disposing cases expeditiously and with lesser costs. This was done in a
summary way and through the process of arbitration and settlement between the parties. If
was originally a voluntary and conciliatory agency without any statutory backing for its decisions. However owing to its popularity in providing for a speedier system of administration of
justice, the Central Government provided for organisation of Lok Adalats vide the Legal Service Authorities Act, 1987.
OBJECTS OF THE LEGAL SERVICES AUTHORITIES ACT, 1987:
The object of the said Act is to constitute Legal Services Authorities to provide free and
competent legal services to the weaker sections of the society to ensure that opportunities
for securing justice are not denied to any citizen by reason of economic or other disabilities,
and to organise Lok Adalats to secure that the operation of the legal system promotes justice on a basis of equal opportunity.
AUTHORITIES UNDER THE ACT:
The Act contemplates constitution of a Central Authority, a State Authority and a District Authority, to exercise the powers and perform the functions conferred on them by the Act. The
Central Authority is the National Legal Services Authority constituted under section 3 of the
Act. State Authorities are the respective State Legal Service Authorities constituted under
section 6 of the Act and District Authorities are the respective District Legal Services Authorities constituted under section 9 of the Act.
CONSTITUTION OF LOK ADALATS:
Section 19 of the said Act empowers the State or District Authorities to organise Lok Adalats
constituted by judicial officers or other members possessing qualification and experience as
prescribed by the State Government.
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JURISDICTION:
The Lok Adalat has jurisdiction to determine and arrive at a compromise or settlement between the parties to a dispute in respect of any matter falling within the jurisdiction of any
civil, criminal or revenue court or any tribunal constituted under any law in the area for which
the Lok Adalat is organised.
COGNIZANCE OF CASES BY LOK ADALATS:
1. The parties to any suit or other proceeding which is capable of being taken cognizance
of by a Lok Adalat under the provisions of the Act, which is pending before a court or tribunal, should make a joint application to the court or tribunal indicating their intention to
compromise the matter or to arrive at a settlement. The presiding Officer of the court or
Tribunal will then pass an order that the suit or proceeding shall stand transferred to the
Lok Adalat for arriving at a compromise or settlement.
2. If any person applies to the District Authority stating that any dispute or matter pending
for a compromise or settlement needs to be determined by a Lok Adalat, such authority
may notwithstanding anything contained in any other law for the time being in force, refer
such matter for determination.
PROCEDURE BEFORE THE LOK ADALAT:
Every Lok Adalat shall, while determining any proceeding before it act with utmost expedition
to arrive at a compromise or settlement between the parties and shall be guided by legal
principles of justice, equity and fair play.
Where no award is made by the Lok Adalat on the ground that no compromise or settlement
could be arrived at between the parties, it shall be open to the parties to a suit or proceeding
transferred from a court or tribunal to continue such suit or proceeding before such court or
tribunal, or it is a dispute or matter referred to a Lok Adalat, any of the persons may institute
a proceeding in an appropriate court.
Whenever a pending proceeding is transferred back to a court or tribunal, such court or tribunal shall proceed to deal with such suit or proceeding from the stage at which it was before the suit or proceeding was transferred to the Lok Adalat.
AWARD, APPEAL AND REFUND OF COURT FEE:
The award passed by the Lok Adalat is deemed to be a decree of a civil court or order of a
tribunal. Every award made by a Lok Adalat will be final and binding on the parties to the
dispute, and there is no provision for filing any appeal. Wherever an award is passed by the
Lok Adalat, one half of the court fee paid in the proceeding will be refunded.
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POWERS OF LOK ADALATS:
The Lok Adalats has the same powers of a civil court under the Code of Civil Procedure,
1908, while trying a suit in respect of the following matters –
a) The summoning and enforcing the attendance of any witness and examining him on
oath.
b) the discovery and production of any document
c) the reception of evidence on affidavits
d) the requisition of any public record or document or copy of such record or document from
any court or office.
e) Further every Lok Adalat had been empowered to specify its own procedure for the determination of any dispute coming before it.
DEEMED STATUS OF CIVIL COURT
All proceedings before a Lok Adalat shall be deemed to be judicial proceedings within the
meaning of sections 193, 219 and 228 of the Indian Penal Code and every Lok Adalat shall
be deemed to be civil court for the purpose of section 195 and Chapter XXVI of the Code of
Criminal Procedure, 1973.
PROCEDURES TO BE FOLLOWED AT BRANCHES & ADMINISTRATIVE UNITS (Cir.
267/2001 dated 29-12-2001) FOR REFERRING DISPUTES TO LOK ADALATH
1) All recovery cases, wherein the Borrower has expressed his consent for reference of
the same to Lok Adalat, should be referred to Lok Adalats by the Branches in consultation with their follow-up authorities.
2) All NPA accounts, both suit filed and non-suit filed, which have been classified as
―Doubtful‖ and ―Loss‖, should be referred to Lok Adalats in the respective forms annexed to this Circular. As Lok Adalat is an ongoing process, there is no cut off date
for such reference.
3) Branch Managers shall prepare a list of all the eligible accounts well in advance, including suit filed / non-suit filed accounts which can be referred to the Lok Adalat for
settlement and submit the same to the concerned follow-up authority. Such list shall
contain all the relevant details viz., the liability, security particulars, limitation period,
whether suit filed/non-suit filed. The follow-up Authority shall review the accounts
and indicate the minimum compromise amount which can be accepted by the
branch, with respect to each account and accordingly give the necessary mandate to
the branch to enable them to negotiate before the Lok Adalat and arrive at a settlement, keeping in mind, the instructions of the concerned follow-up authority.
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4) The format for sending notice to the borrower/s may be obtained from the said Legal
Services Authority and same may be served wherever possible through nearest
Court processors or by deputing the Official of the Bank to avoid delay in serving the
summons.
5) Lok Adalats settle the cases on the spot. Hence, it should be ensured that the Lok
Adalat proceedings shall be attended by the concerned Manager / Executive who
has the power to arrive at a settlement with respect to the amount of the case in dispute or the permission from competent authority on case to case basis should be obtained well in advance.
6) Whenever an LPD / NPA account is referred to Lok Adalat, apart from the outstanding balance, all expenses like legal charges, security charges, premium on insurance
etc. debited to the A/C after transfer to LPD, should also be informed to the Lok Adalat and added to the outstanding amount being claimed.
7) The person who has sanctioned the loan should not attend the Lok Adalat for the
purpose of arriving at a settlement. Such cases should be attended to by an official
other than the sanctioning Authority.
8) Cases where suits have not been filed shall be referred to Lok Adalats, atleast 6
months prior to the expiry of the limitation period. If even after 3 months of such reference, no progress has been made by the Lok Adalat or the party is not coming forward for the settlement, then decision to seek legal remedy through courts or otherwise, should be taken in consultation with the follow up authority.
9) The award of the Lok Adalat is deemed to be a decree of a Civil Court. It should be
noted that no appeal can be preferred against the award. If there is default in complying with the orders of the Lok Adalat, then the same can be executed through a
Civil Court or DRT as the case may be.
10) The award passed by the Lok Adalat on negotiation shall also contain a default
clause to the effect that if the borrower fails to remit any instalment as agreed, then
the decree shall crystallize automatically for the entire suit claim with interest as per
contractual rate.
If a compromise is arrived at before the Lok Adalat, Branches should take the assistance of
panel advocates in preparing the compromise proposal / memo to be filed before the Lok
Adalat for passing the Award.
The Award of the Lok Adalat should also contain clauses for the following causes:
a. In case of default in paying the compromise amount or complying with the terms of the
Award, the bank shall reserve its right to charge or claim interest at the contractual rate
in case of commercial transactions or otherwise, at an agreed rate, till the Award is fully
satisfied.
b. Assets secured to the Bank by way of hypothecation / mortgage / charge etc, shall continue to be charged to the Bank till the Award of the Lok Adalat is fully complied with.
c. The Borrower shall not alienate the movable / immovable properties charged to the
Bank, until the Award is fully complied with.
d. Wherever immovable properties have been taken as mortgage, the Award should state
that the same should be treated as final decree for proceeding against the mortgaged
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property. The details of the mortgaged property should be clearly stated in the Award
and the sale of the same upon default by the Borrower should also be stipulated in the
Award.
e. If any case has been filed against the Bank by the party, then the Award should also
specifically state that the same shall be withdrawn by the party without any conditions.
f.
Wherever suit filed accounts have been referred to the Lok Adalat, refund of court fees
should also be covered in the Award. It should also be clarified therein that the same
should not be treated as part of the compromise amount.
The necessary certificate / order of the Lok Adalat with respect to the same should be
obtained by the concerned branches and produced before the Court for refund of the
court fees.
g. Where any repayment period is agreed upon with the borrower before the Lok Adalat, it
should be ensured that this period is restricted to maximum two years, in order to make
an immediate impact on reduction of NPAs.
Branches should also ensure that in case of default in payment of the compromise
amount as per the Award of the Lok Adalat, Execution Petition is filed before the concerned Civil Court for recovering the entire dues of the Bank along with interest, as per
the default clause in the Award.
h. The limitation period available under the Limitation Act for seeking legal remedy through
courts does not cease to run merely because the matter has been referred to the Lok
Adalat. Hence, Branches should ensure that the party‘s liability is kept alive by obtaining
AODs on time. If the party is not co-operative, or the account is otherwise in danger of
getting time barred, Branches should immediately initiate legal steps for recovery in con
sultation with the follow up authority.
Nevertheless, after initiation of such legal steps, the Branches need not withdraw the
case filed before the Lok Adalat, because even after filing suit, the matter can be pursued before the Lok Adalat.
i.
The concession to be offered to the Borrower must have approval of the authority empo
wered to allow such concession as per delegation of powers mentioned in H.O.Cir. No.
175/2001 dated 11.9.2001 or any Circular to be issued from time to time in this regard.
j.
R & L Sections of Circle offices should send a report on recoveries made through the
forum of Lok Adalat on quarterly basis to the Recovery Section, Recovery Wing, HO, as
per the format given in Annexure-C. This information should be submitted as on 31st of
March, 30th of June, 30th of September and 31st of December every year.
BENEFITS FROM LOK ADALATS:
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1.
2.
3.
4.
Ensures speedy disposal of cases
Provides cheaper remedy
Prevents wastage of time and energy
Offers solutions acceptable to both parties thereby avoiding further round of litigation like
appeals etc.
5. Cases could be conducted by the litigants themselves.
CONCLUSION:
Though it must be admitted that awards passed by the Lok Adalats depend on compromise
between the parties, in bank cases where the chances of dispute on factual aspects are
less, and the bank is open for a compromise settlement, the chances of borrowers agreeing
for an award are high. Hence Banks must take advantage of this low cost and time saving
machinery to get speedy awards. As the awards are passed as a result of the agreement
between parties, chances of fast recovery are also higher.
ARBITRATION
What is Arbitration?
Arbitration is the reference of disputes or differences between not less than 2 parties to a
third party, other than a court, for determination. Such reference is made with the consent of
all the parties to the disputes. It is an alternative to litigation through courts.
How did the Arbitration and Conciliation Act of 1996 evolve?
With the increase in Foreign Trade, the United Nations came to the view that a Uniform Law
should be adopted by all countries to resolve disputes through a system of International,
Commercial Arbitration. Hence the UNCITRAL Model Law on International Commercial Arbitration was evolved. The UN General Assembly in 1985 recommended that this law should
be followed by all countries.
The Geneva Convention and New York Convention also passed laws with respect to foreign
Arbitration and Conciliation.
This formed the basis of the New Act.
What are the Highlights of the Arbitration and Reconciliation Act 1996?
The award of the Arbitrator could be enforced as a decree of the court. Appeal against this
award could be filed only in District/High Court under certain definite grounds like the Arbitrator has acted beyond his jurisdiction, he is biased, a point of law is involved which cannot be
decided by Arbitration, the appointment of the Arbitrator was questionable, the Arbitration
was opposed to public policy or in the opinion of the Appellate Court, the issues involved
could not have been decided at all in the Arbitration. Therefore, appeal in a routine way cannot be encouraged by the courts. This is an added advantage.
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There are provisions for enforcement of Foreign Awards in India and provisions for enforcement of awards passed in India in other countries.
Role of Arbitration in Banks:
The Supreme Court in ONGC Vs. Collector of Central Excise has directed that the
Government should encourage Arbitration in the event of disputes between Public
Sector Banks and institutions and Government Departments. This will speed up the
process of justice.
Even the Bureau of Public Enterprises has recently advised all banks and Public Sector undertaking to seek Arbitration as far as possible in their disputes, where both the parties come
under the Public Sector.
In respect of fraud matters etc, when there is a dispute between two Public Sector Banks,
the disputes are being referred to Arbitration only.
At present, in our bank some matters pertaining to the premises section and leasing division
have already been referred to Arbitration.
Taking into account the above and the advantages of Arbitration, the IBA has recommended
that as far as possible, Banks should strive to resolve disputes with the borrowers through
Arbitration.
Advantages of Arbitration
1) Considerable Time is saved in litigation.
2) Parties to the dispute can choose their own Arbitrators.
3) Apart from time saving, as no court fee or the infrastructure of a court is involved, this
leads to reduction in expenses also. Moreover it is not necessary that the matter
should be presented only through an advocate. Any senior official of the bank can be
appointed as Arbitrator or Presiding Officer to present the case of the Bank. This
again leads to considerable reduction in expenditure.
4) The arbitrator is not strictly bound to follow court procedures. However, for upholding
the principles of natural justice, he can follow the provisions of CPC and the Evidence Act to the extent necessary. There is also a time limit fixed for the Arbitrator to
pass the award. Therefore the dispute can be resolved in a shorter period, say, in a
period of six months.
5) Unless an important question of Law is involved, or under any of the qualifying
grounds as stated above, appeal is generally not entertained by courts against
the award of the Arbitrator.
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6) The venue and time of arbitration can be fixed as per the parties‘ requirements.
7)
As all the parties consent to refer the dispute to arbitration, the award will be binding
on all the parties
8) The award passed by the Arbitrator can be enforced as a court decree. The same
can also be filed in DRTs for Recovery Certificate, wherever the amt. involved is
Rs.10lacs or more.
What is the procedure for referring the matter to Arbitration?

The loan documents should contain a clause to the effect that disputes shall be referred to Arbitration. This clause should also contain the modalities of referring the
disputes, appointment of Arbitrator, place of arbitration etc. In the alternative, a separate Arbitration Agreement can be entered into with the borrowers.

When a point of dispute arises, the aggrieved party can send a notice to the other
party requesting for initiation of Arbitration. This notice should contain all details of
the point of dispute, a reference to the Arbitration clause/Arbitration Agreement and
the relief sought. The proceedings shall be deemed to have commenced from the
date when this notice is received by the other party.

Thereafter Arbitrator will be appointed and once he is appointed, he shall issue a notice to the claimant and the respondent containing all details. Thereafter the claimant
shall submit a claim petition containing all details of the disputes, relief sought etc.
Copies of documents/statements being relied on should also be enclosed to this
claim petition.

The respondent shall file the reply version to the same. If the parties are not able to
come to a consensus regarding issues involved, they can ask the Arbitrator to frame
the issues for reference.

Before recording of evidence, both the parties can mark the documents which they
are going to rely upon to support their case.

After hearing the case, recording of evidence and arguments if any, the Arbitrator will
pass an award.
Powers of Arbitrator?

The Arbitrator can call for any documents which he feels is essential to be examined,
for arriving at his award. He can also call for any information that he requires. To this
extent, the provisions of CPC are applicable.

The Arbitrator also has the power to pass exparte and interim awards
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Who can be appointed as Arbitrator?
The parties to the dispute can appoint the Arbitrator. The essential requirement is that all
the parties concerned should consent for the appointment. In the event of two Arbitrators
being appointed, they can appoint a third Arbitrator as umpire.
As far as Banks are concerned, their own senior officers can be appointed. Provision for this
can be made in the Arbitration clause/Agreement itself.
In the Madhya Pradesh Electricity Board case, the Supreme Court has held that appointment of officials of the undertakings as Arbitrators cannot be questioned on the ground of
bias, unless there are extraneous circumstances.
Role of our Bank:
We have taken the initiative and formulated a scheme for reference of disputes to arbitration
as far as Banks are concerned. At present this scheme is with the IBA for consideration.
In the Common Hypothecation Agreement evolved in 1998, Arbitration Clause has been incorporated. The idea of incorporating this clause in the other loan documents is also under
progress.
In the scheme formulated by us, all the procedural aspects enumerated above have been
given in detail. There is also provision for appointment of Arbitrator by the C&MD of our
Bank and the powers of Arbitrator include passing of ex-parte and interim awards. More importantly, a time frame of 6 months has been fixed for settlement of the dispute.
DISADVANTAGES OF ARBITRATION:
1) As per the Arbitration and Reconciliation Act 1996, there are very limited grounds for
filing appeal against the Award of the Arbitrator. These grounds have already been
mentioned above. Apart from the same, an appeal against the Award cannot be filed
on any other ground.
2) Hence in recovery cases, if Bank opts for Arbitration, then the Bank may have no
choice, but to accept the amount awarded by the Arbitrator.
3) Section 34 of CPC deals with interest in a decree for repayment of money. It states
that in such a decree the court may order interest as it deems reasonable to be paid
on the principal sum from the date of suit to the date of decree in addition to any interest on such principal sum for any period prior to the institution of the suit with further interest at such rates not exceeding 6 % per annum as the Court may deem
reasonable, from the date of decree to the date of payment.
4) This section further states that in case of commercial transactions the rate of such
further interest can exceed 6 % but should not exceed the contractual rate or in the
absence of contractual rate, the rate as applicable to commercial transactions of
Nationalised Banks. This is applicable for any commercial activity / trade / business
of the party incurring the liability.
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Order 34 read with rule 11 of CPC deals with rate of interest as applicable to mortgage suits.
Wherein the section provides that future interest from the date of suit/decree till realisation
shall be in accordance with such rate as the court deems reasonable.
IN view of the provisions whenever the courts or DRT as the case may be award lesser rate
of interest, the question arises for the bank to decide whether it should prefer any appeal
against the judgment or the order of the court or DRT. This is in view of the fact that as per
the provisions of Sec 21 A of Banking Regulation Act, Banks are entitled to claim interest as per the loan documents. In this connection Hon‘ble Supreme Court has decided
that in Y V Rao Vs State Bank of India (1999(1) Supreme 196), that as per the provisions of
Section 21A, the banks are entitled to claim contractual rate of interest whenever the same
is agreed to be paid by the borrower.
In the case of arbitration if the rate of interest is reduced for any reason, whether it is possible for the bank, as an aggrieved party to prefer appeal against the award of the Arbitrator is
debatable.
As per the provisions of the RDB Act, 1993, Bank can approach the Debt Recovery Tribunal
for recovery of its dues where the amount exceeds Rs.10,00,000/- (Rs. Ten lakhs only).
When the Bank agrees with the borrower to refer disputes to Arbitration, and where an arbitration clause has been entered into in the loan documents or a separate arbitration agreement has been entered into with the borrower, the question may arise whether the Bank is
entitled to approach the Debt Recovery Tribunal for recovering its loans. In case the Bank
files the suit against the borrower before the DRT, then the borrower may contend that recourse should be sought only through Arbitration as agreed upon. In such an event, the DRT
may not view the case of the Bank favourably.
The Arbitrator is empowered to pass interim orders like appointment of Receivers, attachment before Judgment etc. However, for enforcement of these interim orders, the civil courts
have to be approached.
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CIBIL - Drawing of Credit Information Reports (CIRs)
83/2010
 During January 2001 Credit Information Bureau Ltd (CIBIL) has been set up to cater
to the information needs of the financial sector and thereby to serve as an effective
mechanism for exchange of information between Banks and Financial Institutions for improvement of quality credit and to arrest growth of NPA.
 As per Circular 83/2010 dated 05.03.2010 drawing Credit Information Report (CIR)
has been made compulsory for non-priority other borrowal accounts of Rs.1 lakh and
above.
 In terms of Circular 271/2009 dated 11.08.2009 a Canara Bank CIBIL package has
been developed with the assistance of DIT Wing, HO which provide the credit data, if
any, on borrowers among our own branches.

Drawing of CIRs from CIBIL website is mandatory.

If CIR is not drawn at the time of sanction and so recorded in the credit proposal, it
will be construed a staff lapse. DRAWING CREDIT INFORMATION REPORTS
(CIRs) FROM CIBIL-DELEGATION OF POWERS – MODIFICATIONS(Cir 2/2013)
 In case CIR is not available, the processing section/branch may proceed with the appraisal process duly mentioning the non availability of CIR details of the proposed borrower.
 The credit investigation in terms of extant guidelines shall continue to play an important role in verification of bonafides/ Credit worthiness of the borrower/ applicant.
 If the name/s of any proprietor, director/s, partner/s etc., of an applicant appears in
the CIR, then the branch/ sanctioning authority, inter alia, shall examine the aspects affecting the credit quality, before processing and appraising the proposals.

CIBIL has accepted Commercial as well as Consumer data of our Bank.
 Our Bank is enabled to access the website of CIBIL and draw CIRs in respect of individuals and non-individuals.
 CIBIL has categorized the credit information under two groups: (a) Consumer Accounts-Borrowal accounts in the name of Individuals (b) Commercial Accounts- Borrowal
accounts of other than Individual.
 The data on suit filed accounts in respect willful defaulters of Rs.25 lakh and above
and other borrowal accounts of Rs.1 Crore and above, are available in the CIBIL website
which can be accessed freely.
 Obtention of CIR shall be a pre-sanction / pre approval exercise and is not a substitute for verifying default borrowal data under RBI defaulters' list/ willful defaulters' list/
list of undesirable parties at branches or Specific Approval (SAL) of ECGC etc.
 In case of Commercial accounts, obtention of CIR shall be mandatory. CIR shall be
obtained in consortium accounts where we are the leaders.
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 The CIR shall be obtained at the time of processing credit proposals from existing
clients of the Bank as well as credit proposals received from applicants who are new to
our Bank. The CIRs in case of existing accounts shall be obtained at the time of processing renewal / enhancement of proposals.
 In case of Consumer accounts, obtention of CIR shall be mandatory as under: (A)
Priority Sector: All borrowal accounts with credit limits of Rs.2 lacs and above (B) Other
borrowal Account (Non-priority): Rs.1 lac and above.
 If the threshold limits as mentioned above is crossed on account of credit proposal on
hand, the CIR shall be obtained as per guidelines.

Following accounts are exempted from drawing CIR:
o
All Individual accounts of below Rs.1 lakh under Non Priority Advances
o
All Individual accounts of below Rs. 2 lakh under Priority Sector
es.
o
All Borrowal accounts where in salary of the borrower is credited to the account with lending branch.
o
Canara pension
o
Loans against our Own Deposits/ approved securities
o
Gold Loans
o
Staff Loans
Advanc-
 The charges payable to CIBIL for drawing Credit Information Report (CIR) are as under: Commercial Segment : Rs. 500/- per report + Service Tax wef 1.7.2010 (Box item
53/2010)
 In case of Commercial Accounts (Non individual Accounts), the fees shall be recovered from the respective applicants for credit facility at the time of processing the proposal and the amount credited to General Charges-Misc account.

The charges payable Consumer Segment:
CIR Pricing without Score //
Standard price per report
Amount (Rs.)
 33.00
 Upto 2500
 29.70
 Upto 5000
 26.40
 Upto 10000
 23.10
 Upto 30000
 19.80
 Upto 50000
 16.50
 Upto 75000
 13.20
 Upto 100000
 11.00
 More than 100000
 The above rates are changed w.e.f 1.7.2010
The fee once paid by the loan seeker is not refundable.
If number of CIRs accessed per month is

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133
 In case of any rejection of the loan proposal after drawing the CIR, the fees shall be
absorbed by the Bank.
 In case of Consumer Accounts consisting of individual borrowers, the Bill for payment
of fees to CIBIL is made by Recovery Wing, HO.
 As at the end of every month, a statement of accounts for which CIR was drawn shall
be submitted directly to NPA Management Section, Recovery Wing, HO

Four Step Procedures for Drawing CIR:
1. User shall login to CIBIL website http://www.cibil.com
2. On opening the site, a window will appear for selecting the Segment – Consumer /
Commercial
3. Select the segment and punch the details as under:
Consumer:
Enquiry Amount (here enter loan amount)
Any of the following:
Select purpose from the drop down list
PAN Number/Voter Identity Card
Member Reference (not a mandatory field) Number/
but CR Number or anyreference number can Passport Details/Telephone Number /
be given
Mobile
Name
Gender
Date of Birth
Address
State / UT
Pin Code
Commercial
Product – Select Commercial CIR from drop Enter Borrower Name
down list
City / State
Select Address Search
4. If information displayed is as per requirement, request can be made for generating report. To avoid duplication, the report generated as per the request may be saved in hard
disk before taking print.
Credit Information Report from CIBIL for Credit Cards
136/2011
Applicability:
a) For individuals CIR shall be drawn for applications where the card limits applied for is
Rs.1 lakh and above.
b) In case of non-individuals like, partnership firms, companies, corporates etc. CIR
shall be drawn irrespective of the Card limit applied for.
c) In case of enhancement of card limit, where the revised limit sought is more than
Rs.1 lakhs, in case of individuals, the CIR shall be drawn.
d) In case of non individuals, CIR shall be drawn at the time of enhancing of limit, irrespective of the revised card limit.
Procedure of accessing CIR from CIBIL:
At the time of fresh issue of Credit Card:
1.
Where the branches are required to draw CIR for their Borrower customers
(Commercial and Consumer Segments) in terms of Circular 83/2010 dated 05.03.2010, it
is suffice, if the branches certify about the satisfactory CIR while forwarding the application.
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134
2.
In all other cases, the Card Division (Issue Section) shall draw CIR from CIBIL
before permitting issue of Credit Cards.
At the time of enhancement:
the Card Division (Issue Section) shall draw CIR from CIBIL for all applicants before
permitting any enhancement in credit card limit.
Exemptions: Cards issued to our Bank Staff are exempted from drawing CIR from CIBIL.
How to deal with the instances where CIR is not satisfactory:
3.
If the name/s of any individual, proprietor, director/s, partner/s etc., of an applicant appears in the CIR, the credit card application shall be returned to the recommending/forwarding branch duly mentioning the reason of CIR being negative.
4.
If the Recommending/Forwarding branch recommends for consideration of issue of Card despite CIR being negative duly assigning reasons acceptable to the sanctioning authority despite CIR being negative, the application shall be placed to the General Manager, Transaction Banking Wing, for his consideration and disposal.
5.
In case CIR is not available, the concerned section may proceed with the appraisal process duly mentioning the non availability of CIR details.
6.
As at the end of every month, Card Division (Issue Section) shall prepare a
statement of accounts for which CIR was drawn at Card Division (Issue Section) shall be
submitted directly to NPA Management Section, Recovery Wing, HO. Respective sections shall maintain proper record of the CIRs drawn Card Number-wise.
Procedure for Drawing Credit Information Report.
7.
Branches may be guided by Circular 83/2010 dated 05.03.2010 – Annexure II
in the matter.
8.
The above guidelines will come into effect from 01.06.2011.
9.
Need based Credit facilties can be considered by the respective sanctioning authority wherever Credit card overdues are below Rs.25,000/- and beyond that, subject to
pre-clearance by the next higher authority (Cir 2/2013).
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135
TRANSFER OF NPA ACCOUNTS AT CARD DIVISION TO RESPECTIVE RECOMMENDING BRANCHES
Cir:15/2010
To have better monitoring & follow up of NPA under card portfolio, the competent authority has permitted transfer of the following NPA accounts at Card Division, RB&S
Wing, HO to the recommending branches:
 Non LPD NPA accounts and LPD (Non suit filed accounts) where limitation is
more than six months,
 Suit filed Decreed accounts where EP is not filed at Card Division
 Suit filed and decreed accounts where EP has not been filed
 Where the balance in the operative account is insufficient to debit the card
dues, TOD is allowed mandatory.

The branches are advised to inform the Card Division to block operation
in such of those card accounts where they feel that permitting further
transaction in such card accounts will only increase their outstanding.

The branches that have recommended the cards to the cardholders are in
close proximity with the Cardholders. So they can effectively follow up with
the cardholders for recovery of card dues.

In view of the above and to have better monitoring & follow up of NPA under
card portfolio, the competent authority has permitted transfer of the following
NPA accounts at Card Division, RB&S Wing, HO to the recommending
branches:

However, the following accounts continue to be followed up at the Card Division in close co-ordination with the branches.
-
‗Suit filed but not decreed' till obtention of decree
-
Suit filed and EP filed by Card Division
-
Legal Action Waived
-
Non-suit filed account where limitation is less than six month.
-
NPA account where cardholder had originally opted for direct settlement (Direct
Billing)
-
NPA accounts where OTS is permitted
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136
Strategies for follow up of SWL accounts
Cir. 324 /2010
Ministry of Finance has informed that Banks have to switch over to system based identification and collation of NPAs (without any manual intervention) under CBS with effect from
March 2011. Branches to adopt a focused + continuous monitoring of SWL accounts and
follow up for recovery.
Strategies for follow up of SWL accounts:
 Data cleansing/updation be completed for all loan accounts and no account be reported
in SWL for the reasons of wrong input with regard to repayment schedule, holiday period
etc.

There should be one customer ID for a customer. If more than one customer ID is given
for a customer the same should be merged without fail.

Regular updation of DP/Value of security, submission of stock statements, etc

Renewal /extension of Working capital limits are taken up with sanctioning/competent
authorities well before expiry of the limit and details are updated in the system.

Adhoc limits permitted in the accounts are followed up for recovery within the time stipulated and details are duly updated in the system.

Extension of PC period / Bills tenure in deserving cases to be taken up with Sanctioning
Authority well within expiry of tenure and permission received to be updated in the system promptly.

Restructuring/rephasement details are properly updated in the system.

If there are loan accounts/bills portfolio/agricultural loan accounts maintained manually,
branches to take steps to shift such accounts to CBS data base immediately.

In case of Education loans, obtain and update the information regarding the date of
completion of the course, employment details and the due date for commencement of
repayments, taking into account moratorium period by feeding correct data in the system.

In the case of loans where disbursements are in stages, disbursement should be shown
as 'fresh disbursements' only and not 'other debits'. If such disbursements are shown
as 'other debits', the same will be reflected as overdues.

Repayment of interest/installments in Term Loans should be followed up and recovered
Promptly to ensure that accounts do not reflect in SWL/slip to NPA.

In case of large borrowal accounts appearing frequently in SWL list, Circles may arrange meeting of the party/ies with Circle Heads for discussion on further course of action for regularization of the accounts. Outcome of such meetings to be minutes and followed up diligently.

In case of agriculture loans the repayment should be correctly marked by taking into account whether the crop is short duration or long duration.

Annual review of KCC should be done as per guidelines.
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137

In case of agriculture loans, to be eligible for relief schemes as per guidelines, the customers are to be educated properly for availing the benefits. Restructuring of agriculture
loan accounts in case of natural calamities is to be done as per the guidelines issued by
PC Wing, Ho and/or other competent agencies like RBI, SLBC.

Delivery of notes through SHGs/Retired teachers etc. may be properly utilized.

Utilizing the services of Call Centre for reminding to delinquent borrowers.

In case of Retail/small value loan accounts, sending of notices to borrowers wherever
repayments of monthly installments are delayed.

Whenever there is change in interest rates of Housing Loans/Other personal loans,
branches should reschedule the EMI or extend the repayment period immediately. Otherwise, despite the borrower generally paying EMIs, overdues will appear in the account
on account of differential interest/penal interest.

Charges debited to loan accounts for insurance/visits etc. are to be recovered immediately.

Due to debit of charges like inspection charges/insurance premium etc. in Housing Loan
account which remain unrecovered, accounts are appearing in SWL though EMI is regularly recovered, such charges to be recovered separately by intimation to borrowers.

In cases where PDCs are permitted to be obtained, in case of dishonour of such
cheques, action to be initiated under NI Act after due notice to the borrower so as to
avoid account being shown in SWL.

Identifying accounts causing concern in Part A,B & C of SWL on regular basis and intensive follow up of the accounts for recovery/regularization to be undertaken.

Branch Heads to ensure review of system generated SWL reports promptly on monthly
basis to avoid wrong reporting of accounts in SWL statements.
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138
Policy on Engaging Recovery Agents by the Bank
CIRCULAR NO. :169/2008, 262/2010, 216/2011,273/2011,304/2013
 'Recovery Agent' means the Agent/Agencies (which term does not include Bank's
own employees) empanelled by the Head Office with the permission of C&MD of the
Bank for recovery of its dues and repossession/enforcement of securities.
 The word ‗Recovery Agent/Agent‘ in this Policy, unless excluded by or repugnant to
the context, be deemed to include agents/ employees of the concerned Recovery
Agent/Agency.
 Words of any gender are deemed to include the other gender and using the singular
or plural number also includes the plural or singular number respectively.
Policy on engaging recovery agents by the bank - HIGHLIGHTS

Reserve Bank of India has now issued guidelines

Comes into force with effect from the date on which it is adopted by the Board.

Clause II :Definition -Recovery Agent' means any Agent/Agencies (which term does
not include Bank's own employees and any agent empanelled for the purpose of assisting the authorized Officer for taking action under SARFAESI Act, 2002), empanelled for
the purpose of seizure/repossession of securities and/or recovery of bank's dues. The
word ‗Recovery Agent' in this Policy, unless excluded by or repugnant to the context, be
deemed to include agents/employees of the concerned Recovery Agent/Agency.
262/2010

Empanelment of the Recovery Agent shall be in tune with the Outsourcing Policy of the
Bank issued by our Operational Risk Management Department, Risk Management Wing,
Head Office and revised from time to time.

Pre – employment Police verification.

Re-verification of antecedents of Recovery Agents are carried out by them once in 3
(three) years.

Circle Head is delegated with the power to empanel Recovery Agents (retired employees
of Government / Public Sector Undertaking /Canara Bank and other than retired employees)
Circles desiring to empanel RA may obtain together with the Bio-Data of such Agent and
a report with regard to compliance of Out Sourcing Policy of the Bank, verification of antecedents of the employees of such RA and due.


Bank shall publish the up to date details of the Recovery Agent on the bank‟s website
immediately on his empanelment.

Bank shall instruct the Recovery Agent to ensure that there is a tape recording of the
content/text of the calls made by him to the Borrower, and vice-versa.

Bank shall ensure that Recovery Agent has undergone minimum 100 hours Training
(Certificate Course) conducted by IIBF/ their affiliated institutes or Training College of our
Bank
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
Clause IV 21(a): In addition to issuing recall notice, Bank shall also issue a notice to
the borrower/ mortgagor before taking possession of security/property giving him 15
days time to clear the dues and informing him the consequences of nonpayment
thereof.

However, such notice may be waived if the bank receives information from reliable
source that the Borrower is attempting to sell, alienate, transfer or dispose of the security/ property or the security/ property is about to be occupied by third party or under any
other circumstances in which the bank believes it appropriate to waive the notice.
262/2010
Engaging Retired Employees of Govt / PSUs – Guidelines: 262/2010, 216/2011, 273/2011

In rural and semi urban areas. Extended to Urban & Metro areas as per Cir 273/11.

For NPA accounts under doubtful, Loss and written off category with liability not exceeding Rs.10.00 lacs.
 Deputy General Manager, who is heading Circle Office, is delegated with the
power to entrust Recovery Agent NPA accounts under doubtful, loss and written
off category with book liability up to Rs. 25.00 Lacs per account.
 General Manager, who is heading Circle Office, is delegated with the power to
entrust Recovery Agent NPA accounts under doubtful, loss and written off category with book liability up to Rs. 50.00 Lacs per account.
 In case Circle desires to entrust account involving book liability of more than Rs.
25.00 Lacs or Rs. 50.00 Lacs as the case may be, Circle has to take up with
General Manager, Recovery Wing, Head Office.

Retired Canara bank employees are also eligible. 216/2011
 Obtain Bank Guarantee/ Security Deposit or EMD for Rs 50,000 is to be obtained
from RA to cover risks arising out of outsourcing arrangement. (as per our Bank‘s Outsourcing Policy) 216/2011
 Deposit of approved security may be accepted. (Assignable Life Insurance Policies,
units of UTI and other approved MFs, Government Bonds, NSC, GPN, Specified Post
Office Term Deposits, 10 year Postal Savings Certificates, IVP, Relief Bonds, KVP,
Specified flexi Bonds, Konkan Railway Corporation Bonds, Bank approved and regularly
traded shares/debentures etc.)

Interested person is to submit his application to Branch. Branch to Circle.

Antecedents + Police verifications shall be done by the Branch

Each RA shall be required to execute an Agreement.

To Avoid Accumulation of Accounts with one or two RAs, Branches shall ensure
that at no point of time, any RA is having more than 15 accounts or liability wise
more than Rs 20 Lakhs entrusted to them. However, Circle Head is delegated with
the power to entrust Recovery Agent any number of accounts clubbing accounts of
more than one branch.

List of accounts should be entrusted to RAs against acknowledgement & after prior
permission from Circle head. The Recovery Agent has to submit report every day
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evening in respect of the work done by him on that particular day and what he is pro
posing to do on the next day to the Branch concerned.

RAs shall not approach any other Borrower until the list is modified.

Branch to issue authorization letter of the Bank to RAs.

Agreement shall be in force for one year from the date of execution of this agreement unless it is terminated as specified herein. However, the bank may renew the
agreement at its sole discretion. Circle has to execute an agreement with Recovery
Agents and copy of the agreement is to be forwarded to Legal Section, Head Office.

The period of empanelment shall be for 1 year and after one year Circle head is
empowered to take decision for continuation of services of Recovery agents.
216/2011
Schedule of Fees In Case Of Recovery of Dues Up To 10 Lacs: 262/2010
a) Not Applicable to Accounts where SARFAESI Action is initiated and under progress.
b) Fee payable on Actual recovery in NPA Accounts under Doubtful Category: 3% of the
recovered amount or liability whichever is less, with maximum of Rs 25000/- per account.
c) Fee payable on actual recovery in Loss Assets / Written off Accounts - 5% of the Recovered amount or liability whichever is less, with maximum of Rs 50000/- per account.
d) In Case of Settlement / Compromise on the sole efforts of RA 50% of the amount mentioned above.
e) Circles for valid reasons, recommend for payment of higher fee for the permission of ED.
Empanelling recovery agents for seizing vehicles, tractors etc. And recovery of our
dues through persuasive method (other than seizure agents empanelled under
SARFAESI Act) Cir:430/2010
At present, our Bank is having Recovery agents under 3 categories:
Category 1): Seizure Agents under SARFAESI Act:
We have a separate panel of Seizure Agents to assist Authorized Officers for taking possession of the property under SARFAESI Act and have circulated the same for the benefit of the
branches. Seizure Agents empanelled for the purpose of SARFAESI Act cannot directly approach Borrower or directly seize the vehicles as the said power has been vested with Authorized Officers only.
Category 2): Recovery agents-PSU employees:
Engaging retired Government employees/ retired employees of Public Sector Undertakings
(except ex-employees of our Bank) as Recovery agents :
Bank has issued detailed Policy guidelines on engaging retired Government employees/ retired employees of Public Sector Undertakings (except ex-employees of our Bank) as Recovery agents in Rural and Semi Urban areas in respect of accounts with liability up to Rs 10
Lacs under doubtful and loss assets categories vide H.O, Circular No. 262/2010.
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141
The retired employees of Govt. / Public Sector Undertakings, permitted by Board of Directors, can be used only for persuasive mode of recovery and their engagement is confined to
rural and semi urban areas.
Category 3): Recovery Agents-Others:
Recovery Agent under Category – 3, can directly seize the vehicle/ tractors, etc. as per Circular No 169/2008 and Circular no 262/2010 (other than under SARFAESI Act) and approach borrower for recovery on the basis of authorization given by the bank. Such seizure
of Assets is done on the basis of power conferred in the hypothecation agreement & other
loan documents.
Guidelines for engaging Recovery Agents under category No 3
I Engaging Recovery Agents for seizing the vehicles, Tractors, etc. (Other than underSARFAESI Act)
Guidelines applicable to the Recovery Agent covered under Recovery Agent to recover our dues through persuasive method (1-5)
I. Chairman & Managing Director is vested with powers to empanel Recovery Agents
for seizure of vehicles/ tractors, etc. Hence, Branches desirous of empanelling Recovery
Agents are required to submit application of Recovery Agent to concerned Circle Offices,
who in turn, shall seek permission from C&MD by submitting an Office Note to Legal
Section, Recovery Wing, H.O.
II. Branches, before recommending for empanelment of Recovery Agent for seizing the
vehicles/ tractors, etc. have to exercise due diligence and comply with all the formalities
/requirements stated in the above said circulars.
III. If Recovery Agent proposed to be appointed by the Branch is individual, antecedents
of said Recovery Agent including Police verification shall be done by the Branch concerned. In case of firm or company, antecedents of its employees including police verification shall be done by the said Company/ Firm.
IV. Before entrusting the work to Recovery Agent, Recovery Agent has to execute an
agreement as per Schedule A at the concerned Circle Office.
V. To cover the risk in engaging Recovery Agent, Recovery Agent has to give a bank
guarantee or EMD or deposit or approved security ( Assignable L I Policies, units of UTI
and other Mutual Funds approved by the Bank, Bonds issued by the Government, National Savings Certificates, Government Promissory Notes, Specified Post Office Term
Deposits, 10 year Postal Savings Certificates, Indira Vikas Patra, Relief Bonds, Kisan Vikas Patra, Specified flexi Bonds, Bonds issued by Konkan Railway Corporation Ltd,
Bank approved and regularly traded shares/debentures etc.)
(For documentation in respect of approved securities, the existing format for availing loan
may be obtained in consultation with R & L Section, C O) for an amount equivalent to Rs
1 Lac ( either for seizing the vehicles /tractors, etc. or for assisting the Bank for recovery
under persuasive method or both).
VI. The fee prescribed in schedule B, is the maximum fee payable to Recovery Agents.
VII. Before entrusting the matter, Branch has to negotiate the fee to the bare minimum
and issue letter to Recovery Agent specifying the fee within the maximum limit and get
acknowledgement from him.
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VIII.
However, Circle Head is having discretion to permit additional expenses subject to a maximum of Rs 2000/- over and above fee schedule prescribed in schedule B
per vehicle after satisfying the genuineness of the claim.
IX. At the time of entrusting the work, branch has to issue an authorization letter to Recovery Agent as per schedule C
X. Branch has to follow all the procedures like issuance of notice to the Borrower, obtention of valuation report, sale of the property, etc. as envisaged in HO Circular
169/2008.
XI. After taking possession of the vehicles/tractors, etc. Bank has to keep the vehicles in
safe custody.
XII. Circle Head is empowered to permit such warehousing expenses up to the maximum
extent of their delegated powers as applicable to Revenue expenditure.
XIII.
If Recovery Agent is also engaged for assisting the Bank for sale of the asset
by identifying the buyer, Bank may pay Recovery Agents up to 1 % of net sale price or liability whichever is less.
XIV.
After realizing the entire dues, if there is any surplus, same is to be paid to the
Owner of the vehicles/tractors, etc. by way of crossed DD and his acknowledgement to
be obtained confirming receipt of DD as surplus after settlement after ensuring that owner is not having direct/indirect liabilities to the Bank.
II Engaging Recovery Agent to recover our dues through persuasive method
The Recovery Agent under this category i.e. Recovery Agent to recover our dues
through persuasive method, can be used for all areas including urban areas.

Fee schedule applicable to this category i.e. Recovery Agent to recover our dues
through persuasive method, shall be as per Schedule D. However, in exceptional cases
where

Circle, for valid reasons, recommend for payment of higher fee than what is prescribed in the fee schedule, permission of Chairman & Managing Director, shall be obtained on a case to case basis.

The branch / circle shall engage Recovery Agent under this category i.e. Enforcement to recover our dues through persuasive method, only for account under doubtful,
loss and written off categories. At the time of engaging Recovery Agent, branch has to
issue authorization letter in favour of Recovery Agent as mentioned in Schedule E.

In order to avoid accumulation of accounts with one or two Recovery Agents,
Branches shall ensure that at no point of time, the Recovery Agent is having more than
15 accounts or liability wise more than Rs 20 Lakhs entrusted to them. Exceptions as
per Cir 304/13.

The Branch has to communicate in writing the list of cases not exceeding 15 accounts entrusted to Recovery Agents against acknowledgement after obtaining prior
permission from Circle Head. Recovery Agents shall not approach any other Borrower
other than the account entrusted to him. Exceptions as per Cir 304/13.

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GRIEVANCE REDRESSAL-169/2008
 The Borrower may bring to the notice of the in-charge of the Branch at the first instance.
 If not redressed, he can file a complaint to the Grievance Redressal Cells at HO / CO
/ RO as the case may be within whose jurisdiction the Branch or the Office of the Bank is
located not later than thirty days from the date of cause of action.
 On receipt of the written complaint, the in-charge of the Grievance Redressal Cell/s
shall, in any case not later than 30 days from the date of receipt of the complaint, initiate appropriate steps for redressal of the complaint.
SCHEDULE OF FEES PAYABLE TO RECOVERY AGENTS - Cir 430/2010
Part A
Maximum fees payable to recovery agents in case of repossession of asset alone
The above said fee is payable only after seizing the vehicle
Part B
 Circle Head is having power to incur additional expenditure maximum up to Rs
2000/- over and above stated in Part A on case to case basis.
 Circle Head may permit warehousing charges on actual basis.
 If Recovery Agent assists the Bank in selling the vehicles and identified purchaser,
Circle Head may permit up to 1 % of sale consideration to Recovery Agent for the
assistance rendered by him.
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SCHEDULE OF FEES PAYABLE TO RECOVERY AGENTS

PART A
Maximum fees payable to recovery agents in case of recovery of dues up to
10 lacs
Fee payable to Recovery Agents
– on Actual recovery in NPA
Accounts under Doubtful
Category
3% of the recovered amount or
liability whichever is less, with
maximum of Rs 25,000/- per
account.
Fee payable to Recovery Agents
on actual recovery in Loss Assets / Written off Accounts
5% of the Recovered amount or liability
whichever is less, with maximum of
Rs 50 000 per account.
PART B
Maximum fees payable to recovery agents in case of settlement of Account by Way
of compromise
If the borrower settles the account on
the sole efforts of Recovery Agent
50% of the amount mentioned in part
A
The Fee to Recovery Agent may be paid as and when recovery is made by them
subject to the above.
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Guidelines for Empanelment of Advocates, Entrustment of Work, Review of Performance of Advocates
217/2011
 Branches have to take utmost care while recommending for empanelment of Advocates. Circles should exercise proper diligence while permitting empanelment of Advocates.
 EMPANELMENT OF ADVOCATES AND ENTRUSTMENT OF CASES:

To be eligible for empanelment, the Advocate should have minimum 5 (five) years
of actual practice in Civil / Criminal side; AND an Office at the place where empanelment is
sought.

The Circle Head is vested with the power to empanel Advocates in Bank's Panel, for
its Branches.

While recommending for empanelment of an Advocate, the Branch / R & L Section,
Circle Office should certify about the general opinion on efficiency, integrity and respectability of the Advocate, ascertained through discreet enquiries at the local area/ Bar/ Bank's valued customers, etc.

Once the Advocate is empanelled by Circle Office, the same shall be conveyed to
the Branch. Branch shall communicate to the Advocate concerned in writing
 Efficiency, competency and integrity should be the main criteria for appointment as
Bank's panel Advocate. The Advocate should be agreeable to Bank's terms and conditions regarding payment of fees, charges, submission of pleadings / petitions for approval, etc.
 Before entrustment of cases to Advocates, Branch should seek permission of concerned
follow up authority at Circle Office / Head Office. R & L Section, Circle Office / DRT Liaison Office shall ensure that cases are uniformly distributed among Panel Advocates depending on the nature of cases, complexity involved in each case, performance of Advocates, their availability, vicinity, the capacity to complete cases expeditiously, timely reporting / proper conduct of cases, etc.
 FEE SCHEDULE FOR FILING SUITS, APPLICATIONS, WRIT PETITIONS, APPEALS BEFORE COURTS, TRIBUNALS, ETC:
 R & L Section, Circle Office shall evolve a schedule of fee payable to Advocates for
filing suits before various Courts/ Tribunals, keeping in mind the fee schedule prescribed by the High Court within whose jurisdiction the Circle Office is functioning,
with the permission of Circle Head.
 The Branches / Offices have to follow the fee schedule prescribed by the Circle Office while settling the Advocate's bill.
 Wherever complicated matters are involved and the Advocates demand higher fee
over and above the prescribed fee schedule or services of a Senior Advocate is required, the professional fee is to be fixed and permission to be obtained from the following Competent Authority, through concerned section at Circle Office or Head Office, as the case may be:
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1
Competent Authority
(If fees claimed by Advocate is beyond the prescribed fees)
Circle Head
2
General Manager, Head Office
3
Executive Director
4
Chairman & Managing Director
Sl
No
Powers to permit Advocate fees
(inclusive of schedule of fees, if
any)
Up to Rs. 75,000/Beyond Rs. 75,000/- to Rs.
2,00,000/Beyond Rs. 2,00,000/- to Rs.
5,00,000/Beyond Rs. 5,00,000/- to Rs.
10,00,000/
 HEAD OFFICE PANEL OF ADVOCATES (HO PANEL) FOR HANDLING HIGH
VALUE DRT CASES:

From the feedback received from the Circle Offices, a panel of Advocates for handling High Value DRT cases is maintained at Head Office level, called as the "Head Office
panel of Advocates (HO Panel)".

The Circle Office should review the performance of HO panel Advocates annually as
on 30th September and send the review report to Legal Section, HO, in the format as per
Annexure III, so as to reach before 15th of October, every year.

All DRT cases having claim amount of Rs. 1 crore and above, should be entrusted to
an Advocate whose name is included in the HO panel of Advocates, after obtaining permission from concerned Follow up Authority.
 REVIEW OF PERFORMANCE OF PANEL ADVOCATES:
i)
The R & L Section / Legal Section, Circle Office shall review the performance of
Panel Advocates as on 31st October every year and send the review report to
Legal Section, HO, along with copy of the Office Note placed before Circle Head,
before 15th November every year.
ii)
Overseeing Executive (R & L Section) shall ensure compliance of the same.
iii)
Basing on the orders of Circle Head, list of panel Advocates should be circulated
to all Branches coming under the Circle, before 31st December every year. Copy
of the list of Panel Advocates for the Circle shall be forwarded to Legal Section,
HO, every year, for records.
iv)
Branches, while reporting performance of Panel Advocates to Circle, shall
take into consideration,
a) Details of cases;
b) Number of hearings;
c) Number of adjournments sought by such Advocate;
d) Decision of the case;
e) Judgment appealed against Bank, etc
to facilitate Circles to review performance of each Advocate.
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 ADVOCATES MEET:
 R & L Section, Circle Office, in participation with the DRT Liaison Officer and
the ARM Branch-in –Charge (wherever functioning) shall organize Advocates
meet, by 30th November every year.
 R & L Section, Circle Office shall forward the suggestions emanated during the
Advocates meet, along with views of the Circle, to Legal Section HO, before 15th
December every year. Overseeing Executive (R & L Section) shall ensure compliance of the same.
 ENGAGEMENT OF RETAINERS BY CIRCLE OFFICES:

Request for appointment of Retainers / renewal of Retainership shall be taken up
with Legal Section, HO, so as to place the matter before the Executive Director for permission / approval.

The Circle Office should maintain a register /record of works entrusted to Retainers
and about the services availed by them.

The Retainers shall be engaged for a term of one year and may be renewed from
year to year, in case of need.

While recommending for appointment of Retainers, the availability of Law Managers /
Law Officers in the Circle, volume of legal work involved, etc. should be taken into consideration.
PROCEDURE FOR EMPANELMENT OF FORMER EMPOLYEES.
a. The power to empanel former employees of the Bank in the panel of Advocates shall vest
with the General Manager, Recovery Wing, H.O.
b. Qualifications and Experience
i. The Advocates (former employees) for being included in the panel should have put in at
least five years of active practice at the Bar (including practice experience prior to joining
Bank) in the Civil side and they should be Advocates of undoubted legal acumen and unblemished integrity. OR
.ii. The Advocates (former employees) should have put in at least twenty years of service in
the Bank (out of which minimum five years as Officer employee) and one year of active
practice on the Civil side (including practice experience prior to joining Bank)and they should
be Advocates of undoubted legal acumen and unblemished integrity.
While empanelling former employees, Circle shall consider the "fitness" (age factor) of the
Advocate as one of the criteria for empanelment. The Advocates (former employees) for being considered for empanelment should not have completed 66 years of age.
c. Disqualification
If the former employee who has sought permission for empanelment had been punished
with any of the major penalties, like, compulsory retirement, discharge, removal from service, dismissal or termination from service, as per Service Rules applicable to them while
they were in service, he/ she shall not be eligible for empanelment.
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d. Procedure For Empanelment
i. Application for empanelment shall be submitted by the former employee/ Advocate to R &
L Section of concerned Circle Office, within whose jurisdiction he /she is practicing.
ii. When an application from a former employee is received for empanelment, R & L Section,
Circle Office shall get a clearance certificate of the former employee, regarding service record as stated below:
a. With respect to a former employee, who has retired as an Executive, the Circle
has to get a clearance certificate from the Personnel Wing, H.O.
b. In all other cases, the clearance certificate shall be obtained from the concerned
HRM Section, Circle Offices (where the former employee worked last).
.iii. After obtaining the clearance certificate and ensuring that the former employee is having
required qualification, the R & L Section, Circle Office has to forward the proposal to Legal
Section, Head Office along with full details, relevant documents and specific recommendations of the Circle Head, for placing the same before the General Manager, Recovery Wing,
HO, for obtaining permission.
iv. Before submitting the recommendation, the Circle shall ensure that the former employee
is actually practicing as an Advocate and not engaged in any other employment, business or
trade.
v. The empanelment of former employees as Advocates in the Bank's panel shall be at the
sole discretion of the Bank.
REDRESSAL OF COMPLAINTS BY OR AGAINST PANEL ADVOCATES:
The guidelines contained in HO Circular No. 173/2010 dated 14-05-2010, for redressing the
complaints by or against Panel Advocates shall apply to Advocates in Bank's Panel, including former employees also.
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Important Guidelines
I. RECOVERY CONTEST 2013-14 - CASH INCENTIVE TO TOP PERFORMING
BRANCHES , ARM BRANCHES & CIRCLES FOR PERFORMANCE UNDER
CASH RECOVERY AND REDUCTION IN NPAs (Cir 288/2013):
SYNOPSIS
1. Cash Incentive scheme for Branches for achieving Cash Recovery Target & NPA reduction.
2. Cash Incentives to ARM Branches for recovery performance.
3. Incentives to Circles on their performance under NPA management and Recovery.
4. Branches are grouped under 4 categories on the basis of NPA level as on March 2013.
5. ARM Branches are grouped as A & B categories.
6. Circles are grouped as A , B and C categories.
7. The contest period is for 3 months – from 1.7.2013 to 30.9.2013
The Recovery Contest is competitive in nature and only the top performers in each category
will be eligible for the incentive.
The details of the Scheme is as under :
(A) Incentives to Branches :
To provide cash incentives to Branches towards achieving Cash Recovery Target and for
containing NPA level below March 2013 level as at 30th Sept. 2013.
1.Eligibility criteria to consider for incentive :
i) Achievement of September 2013 Cash Recovery Target and
ii) Reduction in NPA level below March 2013 are the two conditions
to be fulfilled to be eligible for incentive.
a) Marks for Cash Recovery (maximum 50 marks).
i) For achieving the September 2013, Cash Recovery Target – 30 Marks
ii) At the rate of 1 Mark for every 5 % increase above the target level subject to a maximum
of 20 Marks.
b) NPA Reduction :
i) For containing NPA level below March 2013 level (15 Marks).
ii) At the rate of 1 Mark for every 5 % reduction in NPA level against March 13 level.
Amount transferred to ARM Branch during the period shall be added to the NPA figure of the
respective branches for the purpose of arriving at the closing NPA level.
2.Grouping of Branches:
For the purpose of contest, branches are grouped under 4 categories basing on their March
2013 NPA level as stated below :
GROUP
NPA level
No. of Branches* Eligible for Prize/Incentive
Group - A NPA level > Rs. 5 crore
55
Group - B NPA level > Rs. 1 crore < Rs.5 crore. 200
Group - C NPA level > Rs. 25 lacs < Rs. 100 lacs. 177
Group - D NPA level < Rs. 25 lacs
168
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Rs.50000 per Branch
Rs.45000 per Branch
Rs.35000 per Branch
Rs.30000 per Branch
150
*Top 20% performing branches in each Group are entitled for incentive amount as stated
below.
3.Sharing Pattern of Cash awards to Branches:
40%
Branch Head
Other Staff involved in cash recovery as decided by the 60%
Branch Head in consultation with CO authorities, if necessary(B) Incentive to ARM Branches:
ARM Branches are grouped as below :
Group – A
Group – B
Bangalore, Delhi, Mumbai with NPA level
of Rs. 500 crore and above as on
31.03.2013.
Other 5 ARM Branches
Eligibility :
Branches achieving minimum 60% of September 2013 Cash Recovery target are only eligible to be considered for the incentive. Subject to fulfilling the above condition, one top performing branch under cash recovery in each Group will be selected for the incentive.
Incentive amount:
Top performer under Group – A will be awarded Rs. 0.75 lac.
Top performer under Group – B will be awarded Rs. 0.60 lac.
Sharing Pattern of Cash awards by ARM Branches:
Branch Head: 50%
Other Staff involved in cash recovery & as decided by the Branch Head: 50%
(C) Incentive to Circle Offices:
Circles will be grouped as under:
Group (A)
5 Metro Circles viz., Mumbai, Delhi, Chennai, Bangalore Metro and
Hyderabad with NPA level above Rs. 1000 crore as on 31.3.2013
Group (B)
15 Circles with NPA level of Rs. 150 crore & above but less than
Rs.1000 crore as on 31.03.2013
Group (C).
14 Circles with NPA level of less than Rs.150 crore as on 31.03.2013
Eligibility Criteria :
 Achievement of September 2013 Cash Recovery Target is must to be eligible for
incentive under the Scheme
 Top position among Circles will be evaluated on certain scoring parameters related to
achieving Cash Recovery, NPA Reduction targets.
Other Remarks :
1) The period of contest is from 1.7.2013 to 30.9.2013 only.
2) The employees of the Branches / Circles in each category entitled for share in incentive
under the recovery contest should have scored a minimum of 60% of marks under EPAS /
APAS as on March 2013.
3) Circle to ensure that all incentives put together (including incentives earned through other
contests during the year) should not exceed the ceiling of 20 % of the gross salary earned
by the employee during the year 2013-14.
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4) The Cash Incentive earned by the employee is taxable as per rules and incentives shall
be reckoned for calculation of income tax payable.
5) Employee should have been confirmed in the services of the Bank & the branch/office
should have completed at least six months as at 30th Sept. 2013.
6) Employees under dismissal / compulsory retirement / on sabbatical leave are not eligible
for incentive. In case of suspension / disciplinary action pending against the employee, the
incentive amount payable to be earmarked for disbursing at a later date after the disposal of
the case.
7) An employee shall be entitled to get an incentive only in one branch/office. An employee
(other than in-charge) should have worked in that branch/office during the quarter ending
September 2013 to be eligible for the incentive.
8) Prorata cash incentive is payable in case of resignation / VRS / death /superannuation
retirement in the middle of the quarter subject to the conditionthat the employee should have
worked in the said branch/office for a minimum period of 2 months in that quarter.
9) In case of tie between two or more branches, all the branches securing similar /equal
marks will be eligible for incentive.
10) Those officiating in higher position in the same branch / Office on account of promotion
etc., would be entitled for incentive applicable to higher grade providedtheir service in the
said branch / section at higher grade is more than 1 month during the quarter.
11) In case where more than one was in charge of any Branch / Circle eligible for cash incentive, the incentive amount may be paid on prorata basis subject to he /she having worked
at least for a period of 1 month in that Branch / Circle as decided by the concerned Circle
Head.
12) Circles to ensure maximum participation of all staff members in the contest and achieve
substantial reduction of NPA accounts especially small value NPAs through cash recovery
and OTS scheme.
II. Enabling the facility to mark an existing NPA - OD/OCC/SBTOD/CATOD accounts as
LPD in CBS. Cir. No. : 5/2013 dated 05/01/2013:
Facility for modifying appropriation sequence for repayments made in
OD/OCC/SBTOD/CATOD—NPA accounts is enabled in CBS in CH021 option.
With this facility, there will be no need for the branches to transfer OD/OCC/ToD in CA/SB
accounts to separate term loans for treating them as LPD.
Existing Process
Modified Process
The account should be NPA and Recalled
The account should be NPA and
Recalled.
Suspended Interest/ Unaccounted interest to be No need to reverse the suspended
reversed using BAM 57
interest for this purpose.
To open a fresh LPD Term loan account
No need to open fresh LPD
Term loan account.
To change the appropriation sequence of the To change the appropriation secredits in the fresh account by using LNM 35 as quence of the credits using CH021 in
‗CFDPOSMGEALINTU‘
the existing account itself as
‗CSLPOI‘.
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Branch to note the details of the account in Branch to note the details of the
BA020 screens.
account to be considered as LPD in
BAM59 screen and BA020 screens.
Rate of interest details and freezing
of interest to be updated through
LNM83
The system treats the expired limits as overdrawn limits and applicable TOD interest
is charged on the outstanding amount. Hence, branches should note to maintain variance
in CHM48 option, to arrive at the applicable interest rate.
Updation of details of LPD, Suit / Decrees / LAW accounts, etc in BAM59:
Branches to update the LPD Master in BAM 59 for generating the related statements like
PRR 33 from CBS and will facilitate the centralized extraction of PRR 33 statement on LPD
and other MIS on LPD/SF accounts. It will also facilitate proper data base on Suits of Suits /
decrees and its various stages at any given time helping in better monitoring of the accounts.
III. SPECIAL SCHEME FOR ONE TIME SETTLEMENT OF DOUBTFUL & LOSS ASSETS
IN MICRO, SMALL AND MEDIUM ENTERPRISES(MSME) SECTOR. Cir. No. : 53 / 2013
Vide H.O. Circular 149/2012, a special non-discretionary, non-discriminatory scheme was
devised for One Time Settlement of Doubtful and Loss Assets in Micro, Small and Medium
Enterprises (MSME) sector, which was valid till 31st December 2012. The Board has permitted to extend the Scheme for a further period of one year till 31.12.2013.
The Scheme will cover:





Doubtful & Loss Assets in MSME sector which are outstanding as on 31.12.2012
With total dues of Rs.100.00 lacs and below as on the date of settlement.
Accounts should have been NPA for at least one year.
All other terms and conditions as per H.O. Circular No. 149/2012 will continue.
The scheme details have also been published in Bank‘s website.
IV. SPECIAL SCHEME FOR ONE TIME SETTLEMENT OF NPA ACCOUNTS Cir.
216/2013 Dated 10.05.2013:
 SMALL VALUE NPAS OF RS.10.00 LAKH AND BELOW (AS ON THE DATE OF NPA)
FOR DOUBTFUL & LOSS ASSETS
 NPAs UNDER EDUCATION LOAN WITH LIMIT UPTO RS.4.00 LAKH
 NPAs UNDER TRACTOR & OTHER FARM MECHANISATION LOANS WITH ORIGINAL LOAN AMOUNT UPTO RS.10.00 LAKH
 INCREASED DELEGATION OF POWERS TO BRANCH-IN-CHARGE FOR SETTLEMENT OF NPA ACCOUNTS.
To keep up the pace of recovery and to cover more number of accounts under the OTS
scheme, it is decided to widen the scope of the existing scheme with certain modifications
and to introduce special schemes for settlement of Education Loans with limit upto Rs. 4.00
Lakh and Tractor Loans & other Farm Mechanisation loans with original loan amount upto
Rs. 10.00 Lakh. Powers are also delegated to Branch-in-charge to settle the NPA accounts
under these Special Schemes.
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153
The details of the Schemes are furnished in the Annexures which are as under:
 Annexure I Special Scheme for Settlement of small value NPAs of Rs.10 lakh & below.
 Annexure II One Time Settlement Scheme for Educational Loans upto limit of Rs. 4.00
lacs.
 Annexure III Special One Time Settlement (OTS) Scheme for Tractor Loans & Other
Farm Mechanisation Loans (ALFM) under Agriculture –NPA
General Guidelines:
a) All eligible borrowers are to be intimated about the scheme by giving wide publicity and
invited to the negotiating table. Branch to take a letter from the eligible borrower as per Annexure- A.
b) During branch visits by the CO executives, exclusive Canadalats to be conducted at the
respective branches/cluster of branches to settle maximum number of accounts.
c) Monthly Adalats may be conducted at each branch / cluster of branches to be attended by
the executives of Cos.
d) Accounts which are beyond the purview of the above scheme are to be considered under
the normal scheme as per the Loan Recovery Policy.
e) In respect of NPA accounts involving fraud / malfeasance and / or wilful default, proposals
are to be referred to Recovery Wing, Head Office.
f) Wherever borrowers have filed cases against the Bank or made counter claim, settlement
under the Scheme shall be subject to withdrawal of case/counter claim.
g) Wherever subsidy, CGTMSE/ECGC claims etc., are available, the extent of appropriation
shall be over and above the OTS amount.
h) Acceptance of OTS shall be at the sole discretion of the appropriate authority and the
minimum amount prescribed cannot be claimed as a matter of right by the borrower.
i) Branches to submit the proposal to Circle Offices in the prescribed formats.
j) Circles / Branches to note that change in cut-off dates are not to be permitted.
k) Circles / Branches are requested to bring to the attention of all the concerned, the validity
dates under the schemes.
Review and Reporting of progress under the Schemes is as per:
Annexure – B & Annexure C – Part (i) & Annexure C, Part – (ii) of the Circular.
Annexure - I
SPECIAL SCHEME FOR SETTLEMENT OF SMALL VALUE NPAs OF Rs.10 LAKH &
BELOW:
A. ELIGIBILITY :

and Loss Assets of a borrower which are outstanding for more than 1 year as NPA having Book Liability of Rs.10 lakh & below as on the
date of NPA and Total loan/limits sanctioned is not above Rs.10 lakh(inclusive of all
limits).

uit filed accounts, decreed accounts, revenue recovery initiated accounts, accounts wherein action under SARFAESI Act is initiated, non-suit filed
accounts, LAW accounts, including CANCARD dues having Book Liability of Rs.10 lakh
& below as on the date of NPA.

ara Rent loans

erever
borrowers are found to be innocent and are not party to such fraudulent act (fraud perpetrated by dealers, middlemen, etc.) can be included under the scheme.
NPA and Recovery Management
154

ovided there is no scope / chances of recovery through salary mandate OR the borrower is
unemployed for long.

-obligation furnished
by the employee during his / her service in the Bank shall be excluded under the
Scheme.

rview of the Scheme, the
same has to be permitted by the authority as mentioned in Loan Recovery Policy of the
Bank.
B. SETTLEMENT FORMULA:
(i) DOUBTFUL ASSETS :
For accounts with Book Liability upto Rs.2.00 lacs as on the date of NPA:
 Where realizable value of security is above 150% of the Book LiabilityMinimum of 100% of the outstanding Book Liability.
 Where realizable value of security is 100% and above but less than 150% of the Book
Liability –
Minimum of 80% of the outstanding Book Liability.
 Where realizable value of security is less than 100% of the outstanding BookLiability –
Minimum of 80% of the realizable value of security or 60% of the outstanding Book Liability whichever is higher is to be recovered.
For accounts with liability above Rs.2.00 lacs and upto Rs. 5.00 lacs as on date of
NPA:
 Where realizable value of security is more than 100% of the Book Liability –
Minimum of 100% of the outstanding Book Liability.
 Where realizable value of security is less than 100% of the Book Liability –
80% of the realizable value of security or 60% of the outstanding Book liability whichever
is higher.
For accounts with Book Liability above Rs.5.00 lakh and upto Rs.10.00 lakh as on date
of NPA:
 Where realizable value of security is above 100% of the Book LiabilityOutstanding Book Liability + interest at base rate -5% simple.
 Where realizable value of security is less than 100% of the outstanding Book Liability –
Minimum of 80% of the outstanding book liability or 75% of the realizable value of security whichever higher is to be recovered
Note : Security mentioned above includes collateral / attached securities also.
(ii) LOSS ASSETS:
 For accounts with outstanding Book Liability upto Rs.25000/- as on date of NPA:
Maximum possible amount to be recovered without any stipulation for minimum amount.
 For accounts with outstanding Book Liability above Rs.25000/- & upto Rs.2.00 lacs as on
date of NPA:
Atleast 25% of the Book Liability as on the date of settlement in one lump sum to be recovered.
 For accounts with outstanding Book Liability above Rs.2.00 lacs and upto Rs.5.00 lacs
as on date of NPA:
Atleast 50 % of the Book Liability as on the date of settlement to be recovered.
 For accounts with outstanding Book Liability above Rs.5.00 lacs and upto Rs.10.00 lacs
as on date of NPA:
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155
60% of book liability. If networth is more than 200% of the book liability, minimum book
liability as on the date of settlement is to be recovered.
C. SANCTIONING AUTHORITY:
The proposal shall be permitted by the concerned authorities as per the delegated powers.
Note:
 Sacrifice means the sacrifice as defined in Loan Recovery Policy of the Bank.
 The person who has recommended/sanctioned the loan should not permit the settlement and such cases are to be referred to next higher authority.
 Proposals in respect of Canara Vehicle loans are to be permitted by the authority as
mentioned in Loan Recovery Policy of the Bank.

D. DELEGATION OF POWER TO BRANCH-IN- CHARGE IN CASE OF LOSS ASSETS:
Powers delegated to Branch-in-Charge for settlement of small value NPAs under Loss
Assets with Book Liability up to Rs.50000/- as on date of NPA with sacrifice up to
Rs.50,000/- for Small and Medium branches, up to Rs.75,000/- for Large branches and
up to Rs.1.00 lac for VLBs and ELBs subject to compliance of following:
a) The original sanctioned limit/loan amount in these accounts should not be more than
Rs.2.00 lacs.
b) Minimum of 30% of outstanding Book Liability to be recovered in one lump sum.
c) Branch-in-Charge can permit & exercise the power delegated for a maximum number of
50 eligible accounts under Loss Assets in the financial year. Circle heads are empowered to
enhance the limit of 50 accounts in case of need.
d) The person who has recommended/sanctioned the loan should not permit the settlement.
Such cases are to be referred to next higher authority.
E. TERMS OF PAYMENT:
10 to 15% of the OTS amount may be insisted at the time settlement and balance OTS
amount to be recovered within 3 months from the date of communication of settlement without interest.
F. GENERAL GUIDELINES:
a) The Scheme shall be operative till 31.01.2014.
b) Wherever borrowers have filed cases against the Bank or made counter claim, settlement
under the Scheme shall be subject to withdrawal of case/counter claim.
c) Acceptance of OTS shall be at the sole discretion of the Bank and the minimum amount
prescribed cannot be claimed as a matter of right by the borrowers.
d) The compromise proposals permitted are to be reviewed by the next higher authority as
per the Loan Recovery Policy.
e) Prior consent / approval from ECGC/DICGC/CGTMSE wherever applicable / required,
shall be obtained before communicating the acceptance of OTS to the parties concerned.
f) Wherever subsidy, ECGC/DICGC/CGMSE claims etc., are available, the extent of appropriation shall be over and above the OTS amount.
g) Accounts already closed / settled are not eligible.
G. VALUATION OF SECURITIES :
a) In case of agricultural loans, the norms for valuation of securities as applicable to the agricultural advances are to be adhered.
b) In respect of other accounts, the Branch-in-charge can decide upon the value of securities
depending upon the prevailing market value / saleability of assets, etc. In case of loans secured by immovable properties, the valuation is to be obtained as per Loan Recovery Policy.
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________________________
Annexure II
ONE TIME SETTLEMENT SCHEME FOR EDUCATIONAL LOANS UPTO LIMIT of Rs.4.00
LACS:
A. ELIGIBILITY:
1) Educational Loans (ELs) sanctioned upto a limit of Rs.4.00 lacs where security is not
available.
2) ELs which are NPA as on 31.12.2012.
3) ELs disbursed before 01.04.2006 are only eligible. However, in respect of short duration
courses (upto 2 years), EL disbursed before 01.04.2008 can be considered.
4) Cases of Fraud & Malfeasance, Wilful default are not eligible.
5) ELs on stand alone basis can be considered for settlement under the scheme irrespective
of other liabilities of the borrower/guarantor.
6) The Scheme shall not be applicable to loans granted to employees/ex-employees who
availed/extended guarantee during the tenure of employment.
7) EL-NPAs where student borrower is earning income more than Rs.25000/- per month is
not eligible for settlement under the scheme.
B. SETTEMENT FORMULA:
Conditions Compromise amount
a) Where combined networth of all parties is above Rs.25.00 lacs:
Base amount + interest @ Base Rate-1% (simple)
b) Where combined networth is above Rs.10.00 lacs upto Rs. 25.00 lacs:
Base amount + interest @ Base Rate-3% (simple)
c) Where combined networth is above Rs.5.00 lacsupto Rs.10.00 lacs:
Base amount + interest @ Base Rate-5% (simple)
d) Where combined networth is < Rs. 5.00 lacs:
Base amount.
e) Where borrower (student) is dead irrespective of combined networth:
70% of Base amount
Base Amount: Amount disbursed + Expenses incurred (including legal expenses) – Total
Recoveries excluding Interest subvention.
Interest : Interest is to be calculated on the amount disbursed from the date of first disbursement on reducing balance.
C. SANCTIONING AUTHORITY:
1) Sacrifice to be calculated as per Loan Recovery Policy and existing delegated powers are
to be exercised by various authorities irrespective of „write off‟ involved for accounts being
settled under the scheme.
2) However, Branch Head is empowered to settle the loans under the scheme involving sacrifice upto Rs. 50,000/- for Small and Medium branches, up to Rs.75,000/- for Large branches and up to Rs.2.00 lac for VLBs and ELBs.
3) The person who has recommended/sanctioned the loan should not permit the settlement
and such cases are to be referred to next higher authority.
D. TERMS OF PAYMENT :
10 to 15% of the OTS amount may be insisted at the time of settlement and balance OTS
amount to be recovered within 3 months from the date of communication of settlement without interest.
E. GENERAL GUIDELINES:
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157
1) The scheme shall be operative till 31.01.2014.
2) Wherever borrowers have filed cases against the Bank or made counter claim, settlement
under the Scheme shall be subject to withdrawal of case/counter claim.
3) Acceptance of the OTS shall be at sole discretion of the Bank and the minimum amount
prescribed cannot be claimed as a matter of right by the borrowers.
4) In cases, where the borrower has already paid the Compromise Amount, so arrived as per
―B‖ above or more, then branch has to recover maximum possible amount by negotiation
and settle the account.
5) The compromise proposals permitted are to be reviewed by the next higher authority as
per the Loan Recovery Policy.
7) Subsidy / Interest subvention etc., wherever available, to the extent of appropriation shall
be over and above the OTS amount.
8) Accounts already closed / settled are not eligible.
Annexure III
SPECIAL ONE TIME SETTLEMENT (OTS) SCHEME FOR TRACTOR LOANS & OTHER
FARM MECHANISATION LOANS (ALFM) UNDER AGRICULTURE- NPA
A. ELIGIBILITY :
a) NPAs under TRACTOR LOANS & OTHER FARM MECHANISATION LOANS(ALFM) outstanding as on 31.12.2012.
b) Loans should have been disbursed prior to 31.03.2008.
c) Land holding not to exceed 10 acres.
d) Original loan granted not to exceed Rs.10.00 lacs.
e) Loans under Tractor Loans and other Farm Mechanisation loans (ALFM) on standalone
basis can be considered for settlement under the scheme irrespective of other liabilities of
the borrower/guarantor.
f) Cases of Fraud & Malfeasance and Wilful Defaulters are not eligible. However, wherever
farmers are found to be innocent and are not party to such fraudulent act (fraud perpetrated
by dealers, middlemen, etc) can be included under the Scheme.
g) In respect of loan sanctioned to / availed by and / or guarantee / co-obligation furnished
by the employee during his / her service in the Bank shall be excluded under the Scheme.
B. Settlement formula:
In respect of Loans disbursed
Prior to 31.03.2002
From 01.04.2002 to 31.03.2004
From 01.04.2004 to 31.03.2006
From 01.04.2006 to 31.03.2008
Compromise Amount
Base Amount
Base Amount +interest @ Base Rate-6%(simple)
Base Amount +interest @ Base Rate-4%(simple)
Base Amount +interest @ Base Rate-2%(simple)
Base Amount= (Amount disbursed) + (expenses) – (recoveries made) – (amount of relief
under ADW&DR Scheme 2008).
Interest : Interest is to be calculated on the amount disbursed from the date of disbursement
on reducing balance.
C. Sanctioning Authority:
1. Sacrifice to be calculated as per Loan Recovery Policy and existing delegated powers are
to be exercised by various authorities irrespective of „write off‟ involved for accounts being
settled under the scheme.
2. However, Branch Head is empowered to settle the loans under the Scheme involving sacrifice upto Rs.1.00 Lac for Small and Medium branches, up to Rs.1.50 Lacs for Large
branches and up to Rs.2.50 Lacs for VLBs and ELBs.
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158
3. The person who has recommended/ sanctioned the loan should not permit the settlement
and such cases are to be referred to the next higher authority.
D. Terms of Payment :
10 to 15% of the OTS amount may be insisted at the time settlement and balance OTS
amount to be recovered within 3 months from the date of communication of settlement without interest.
E. General guidelines :
a. The Scheme shall be operative till 31.01.2014.
b. In cases where borrower has other liabilities, only the security created out of the bank finance in the account where settlement is being done is to be released.
c. In cases, where the borrower has already paid the Compromise Amount, so arrived as per
―B‖ above or more, then branch has to recover maximum possible amount by negotiation
and settle the account.
d. Wherever borrowers have filed cases against the Bank or made counter claim, settlement
under the Scheme shall be subject to withdrawal of case/counter claim.
e. Acceptance of OTS shall be at the sole discretion of the appropriate authority and the
minimum amount prescribed cannot be claimed as a matter of right by the borrowers.
f. The compromise proposals permitted are to be reviewed by the next higher authority as
per the Loan Recovery Policy.
g. Subsidy, DICGC claims etc., wherever available, to the extent of appropriation shall be
over and above the OTS amount.
h. Accounts already closed / settled are not eligible.
Letter to be obtained from the borrower:
ANNEXURE- A
From:
Borrower‘s Name:……………………………………………………
Address: ………………………………………………………………
………………………………………………………………………….
………………………………………………………………………….
To:
The Manager / Senior Manager / Chief Manager
Canara Bank
Branch…………………………
Dear Sir,
Sub: 1) Loan Account No.______________ dated __________ Present Liab._______
2) Loan Account No.______________dated ___________ Present Liab._______
3) Loan Account No.______________ dated ___________Present Liab._______
I have availed subject loan/s from your Bank on __________. I could not repay the loan/s in
time as agreed for the reasons :
1.
2.
3.
Now, I desire to settle the dues with the Bank and offer Rs.________________ in full and
final settlement. Hence I request you to extend some concessions to enable me to settle the
dues within ___________ days. I am also willing to abide by the terms and conditions stipulated by the Bank as regards to the settlement.
Please consider my request favourably.
Yours faithfully,
SIGNATURE
Place:
Date:
NPA and Recovery Management
159
V.
CHAPTER II of Cir 254/2013
//DELEGATION OF POWERS//
SANCTIONING POWERS FOR TRANSFER OF A/Cs TO LPD, FILING OF SUIT,
WAIVER OF LEGAL ACTION, WRITE-OFF, WAIVER OF UNAPPLIED INTEREST, ETC.
AT HEAD OFFICE:
(Rs. In lacs)
GM-HO-CAC
CGM-HOED-CAC
CAC of the
CAC
Board
1500
2500
Full
Powers
Full
Powers
1. Transfer of A/C to
LPD and filing of suit
50
75
100
200
2. Waiver of legal action
100
150
200
1000
3(a) Write Off/ Waiver of
UAI(put together)
Fraud cases:
--3(b) Write Off/waiver of -- 500
UAI (put together) for
Wilful
defaultwilful defaulters / fraud
ers-1000
cases
4.Condonation of delay Upto 3 months by Upto 3 months by Upto 6 months Upto 12 months
interest
in making payment of collecting interest collecting interest with interest @ with
@(BR+2% com- @(BR+2% com- (BR+2%
com- @(BR+2% comcompromise amount as pounded month- pounded month- pounded month- pounded monthper OTS permitted by ly) in respect of ly) in respect of ly) or with par- ly) or with parED-CAC
sanc- ED-CAC
sanc- tial/full
conces- tial/full
concesHO authorities #
tions and above.
5. Purchase/ sale of
Non- Banking asset
AT CIRCLE OFFICE:
tions and above.
200
sion in interest in
respect of CAC of
the Board & MC
sanctions.
sion in interest
respect of MC
sanctions.
500
1000
300
(Rs. in lacs)
DM-CO-CAC* AGM-CO-CAC* DGM-CO-CAC* GM-CO-CAC*
1. Transfer of A/C to
LPD and filing of suit
2. Waiver of legal action
3(a) Write Off/ Waiver of
UAI(put together)
3(b) Write Off/waiver of
UAI (put together) for
wilful defaulters / fraud
cases
4.Condonation of delay -in making payment of
compromise amount as
per OTS permitted by
HO authorities #
5. Purchase/sale of Non- -Banking asset
50
100
400
1500
10
10
20
20
30
30
50
50
No Powers
--
(Circle Head-CO-CAC) Upto 1
month by collecting interest @
BR+2% in respect of HO sanctions.
--
--
100
* excluding CACs of SME Sulabhs.
# In respect of OTS permitted by the authorities other than MC of the Board, the respective
authorities who permitted OTS may condone the delay. However, the maximum period of
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160
such delay should not exceed 12 months from the due date of payment of the entire OTS
amount. Concession in interest for delayed period may be considered on case to case basis
on merits. The powers for waiver of delayed period interest including the sacrifice permitted
earlier should however be restricted to the limit/normal powers upto which the respective authorities are permitted to waive applied/unapplied interest as per delegation of powers.
Note:
a. For the purpose of delegation of powers for transfer of account to LPD and filing of suit,
aggregate liability and unapplied interest calculated at contractual rate of interest is to be
taken into account.
b. For the purpose of delegation of powers for write-off/ waiver of UAI (put together), aggregate of book liability to be written off and unapplied interest calculated at Base Rate
+2% (S) or contractual/ decreed rate(S) whichever is lower is to be taken into account.
c. The delegated power for waiver of legal action/ write-off and waiver of unapplied interest
in respect of loan sanctioned to / availed by and / or guarantee/ co-obligation furnished
by any employee during his/ her service in the Bank is vested with CAC of the Board only.
d. Interest on delayed period is to be recovered from due date and not from date of communication of sanctions.
e. The respective sanctioning authority who has permitted OTS shall have powers to condone the delay upto a period of 12 months with interest (@ Base Rate +2 % compounded monthly) or with partial/ full concession in interest.
VI. Maintenance of customers outside the purview of Auto NPA by the branches through CIM15 option in CBS – Introduction of control at Head Office as
per Cir. 71/2013 dated 15.02.2013:



Facility for maintenance of customers manually for the purpose of Auto NPA
classification through option CIM 15 in CBS
Restricting control at Head Office by way of authorizing the records created/deleted by branches
Only teller part activity to be done by the branches and authorizing part will be
handled by concerned Wings at Head Office
NPA and Recovery Management
161
SOME RECENT CIRCULARS ON NPA AND RECOVERY ASPECTS
CIRCULAR
NO
283/2010
383/2010
DATE
DETAILS
12.8.2010
12.11.2010
NPA Classification by CBS System
Mortgage and Leased property
398/2010
30.11.2010
372/2011
19.12.2011
375/2011
355/2012
20.12.2011
15.11.2012
393/2012
18.12.2012
55/2013
254/2013
271/2013
09.02.2013
05.06.2013
14.06.2013
304/2013
27.06.2013
358/2013
29.07.2013
Prevention of frauds under Housing Loan /other EMT
cases by NPA borrowers
Restructuring of advances –review of guidelines on
restructuring in respect of small value advances
Counter verification of value of property
Valuation of Property-Land & Building: To obtain from
two valuers where value of property is Rs.10.00 crore
and above.
Doubtful assets with balance of Rs.5.00 crore and
above; stock audit to be conducted at annual intervals.
SARFAESI laws: Amendments
Loan Recovery Policy of the Bank
P& L a/c & Balance Sheet for the quarter ending
30.06.2013: Classification of advances
Empanelment of Recovery agents-Modification in the
existing guidelines/Annexure gives complete details
Observing 1st Aug to 31st Aug 2013 as Educational
Loan recovery campaign month: Need for improved
recovery performance under Education loans
NPA and Recovery Management
162
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@
feedback2stc@canarabank.com
Staff Training College
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Bengaluru 560 004
(FOR INTERNAL CIRCULATION ONLY)