Page 30 - Banking Finance August 2020

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be ensured. For instance, the branch manager should strictly to legal measures in terms of quick recovery and cost of
implement the terms and conditions of loan sanction and recovery. Stern action is needed in respect of willful
disbursement schedule without any deviation. If defaulters. For effective loan recovery, it calls for
disbursements are in stages, at each stage of disbursement, professional, collective and timely action and maximum use
it should be ensured that the earlier amount disbursed is fully of technology.
utilized. Frequent visits are to be made by the branch
manager to verify the status of the primary securities. If any Conclusion:
deviations are noticed, further disbursement should be The aftermath of PMC Bank fraud, a need is felt to strengthen
stopped and the controlling office should be informed suitably.
the supervisory function of the RBI for urban cooperative
banks. In this respect, one of the effective supervisory tools is
The branch manager should also verify the documents such SAF whose guidelines have been revised from time to time.
as bills/ invoices submitted by the borrower after the
In terms of revised guidelines of January 2020, the RBI
purchase of assets with bank finance. Rates, quantity and
monitors the financial health of UCBs through three important
type of product need to be verified from the independent
triggers namely, CRAR, Net NPA ratio and Profitability ratio.
source and it should be matched with the project report
From the study of financial performance of SUCBs, it observed
submitted by the borrower.
that their CRAR is above 9 per cent at present. But, CRAR is
needs to be raised in view of the growing credit risk. Further,
During the post disbursement of loan, the branch manager SUCBs have reported losses during 2020.
should ensure the end use of funds, regular submission of
the stock statements by the borrower and subsequent stock To make them profitable. it calls for aggressive marketing
verification at the site, actual business performance vis-a vis of bank products, cutting down cost of operation by
projected business performance, regular payment of loan depending on technology at the optimum level, professional
installments/ deposits in cash credit account and arresting approach in decision making and ensuring transparency at
the slippage in asset quality by undertaking preventive all levels. Similarly, efforts SUCBs need to be strengthened
action timely. In terms of RBI guidelines, monitoring of to take loan recovery on a war footing. Thus, if the existing
Special Mention Accounts (SMAs) is a must to prevent trends in financial health of SUCBs continue, more lenders
standard accounts becoming NPAs. Prevention is better than are expected to come under the SAF.
cure for which accounts need to be closely followed up.
Hence, it is necessary to monitor their performance with
After obtaining any warning signal of loan default or sickness, the help of SAF more closely which is an effective tool in the
preventive action is needed. The most crucial task is to step hands of RBI. But, what is important for weak SUCBs is to
up recovery from NPA borrowers. There are two types of respond to the framework positively and undertake loan
recovery measures namely, non- legal and legal. Legal recovery from hard core NPA borrowers more aggressively,
measures need to be initiated after undertaking all non legal besides improve operational efficiency. Towards this end
measures which include sending a reminder, paying visits to they have a long way to go.
the borrower's residence/ business premise, debt
restructuring, loan compromise, recalling of advances and References:
write off. Legal recovery measures are initiated when 1. Prompt Correction Action and Performance of Banks,
securities are available and the borrower is non-cooperative. The Indian banker, Indian Banks Association, June 2018.
2. Supervisory Action Framework for Primary Urban
These recovery measures include: initiating action under Cooperative Banks, RBI Circular- January, 06, 2020
section 101 of State Cooperative Societies Act; loan recovery
3. Supervisory Action Framework for Primary Urban
through Lokadalats, Civil Courts and Debt Recovery Cooperative Banks, RBI Circular, March 01, 2012.
Tribunals; recovery under SARFAESI Act and Insolvency
4. Report on Trend and Progress of Banking in India,
Bankruptcy Law. Though it is observed that NPAs are part
of loan portfolio of every bank, it should be attempted to Reserve bank of India, 2011-12 to 2018-19.
keep the level of NPAs low. Non-Legal measures are preferred 5. Financial Express, November 17, 2019. T

30 | 2020 | AUGUST | BANKING FINANCE