Page 45 - Banking Finance AUGUST 2015
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4 Losses from selling of NPAs can be spread over two banking sector. This system is known as Mixed Role System
years. Therapy. Mixed Role System Therapy is a combination of
various parameters of business regulatory system which can
4 Buying and selling of NPAs between asset recast firms. be helpful in the managing of NPAs. The Mixed Role System
Therapy covers the following aspects -
(e) Purchase/Sale of Non-Performing Financial CoG (x1) = Cooperation of Guarantor
Assets to Other Banks
CI (x2) = Credit Insurance
D As per RBI circular DBOD.No.BP.BC.16/21.04.048/2005-
06 dated July 13, 2005 on 'Guidelines on Sale/Purchase CS (x3) = Cibil Score
of Non-Performing Financial Assets' as consolidated and
updated in our Master Circular 'Prudential Norms on SNpa (x4) = Selling of NPAs
Income Recognition, Asset Classification and
Provisioning pertaining to Advances', inter-alia, PR (x5) = Participation in Revenue
prescribes the following:
DWD (x6) = Declare Willful Defaulter
D A non-performing asset in the books of a bank shall be
eligible for sale to other banks only if it has remained a GRC (x7) = Good Relationship with Customer
non-performing asset for at least two years in the books
of the selling bank. ACL (x8) = Appraisal of Credit Load
D A non-performing financial asset should be held by the ACPA (x9) = Audit of Customer Paying Ability
purchasing bank in its books at least for a period of 15
months before it is sold to other banks. LRRC (x10) = Loan Recovery Responsible Centre
D In partial modification to the above, it is advised that Formula :- NPAs
banks will be permitted to sell their NPAs to other MRST
banks/FIs/NBFCs (excluding SCs/RCs) without any initial
holding period. However, the non-performing financial OR
asset should be held by the purchasing bank in its books NPAs
at least for a period of 12 months before it is sold to
other banks/financial institutions/NBFCs (excluding SCs/ (x1 + x2 + x3 + x4 + x5 + x6 + x7 +x8 + x9 + x10)
RCs). The extant prudential norms on asset
classification of such assets in the books of purchasing In Mixed Role System Therapy each and every parameter
banks/FIs/NBFCs will remain unchanged. will play a significant role in the managing of NPAs by
contributing strategic inputs as follows
Management by MRS Therapy- 4 Cooperation of Guarantor: After identifying the NPAs,
The sectoral distribution showed a growing proportion of a concern bank can take cooperation of the guarantor
priority sector NPAs between 2009-10 to 2012-13. Among or surety of the borrowers for the recovery of the
the various channels of recovery available to banks for whole or partial amount of the loans and advances.
dealing with non-performing loans, the Securitization And
Reconstruction of Financial Assets and Enforcement of 4 Credit Insurance: Before giving the loan to the
Security Interest (SARFAESI) Act has been by far the most borrower a concern bank can get an insurance policy
important channel. However, in 2012-13, there was a from the certified insurance companies against the
decline in the amount of NPAs recovered under the advance, and the amount of premium can be added in
SARFAESI Act as a parent of total amount of NPAs involved the EMI of the loan.
under this channel.
4 CIBIL Score: Credit Information Bureau (India) Limited
In Indian banking system various rules and regulations are is India's first Credit Information Company (CIC)
available for the managing NPAs. But apart of them they founded in August 2000. CIBIL collects and maintains
have developed a system for the managing of NPAs of the records of an individual's payments pertaining to loans
and credit cards. These records are submitted to CIBIL
by member banks and credit institutions, on a monthly
basis. This information is then used to create Credit
Information Reports (CIR) and credit scores which are
provided to credit institutions in order to help evaluate
and approve loan applications. CIBIL was created to
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