Page 46 - Banking Finance AUGUST 2015

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play a critical role in India's financial system, helping notice reminder to the defaulter, and in the third stage,

loan providers manage their business and helping to declare the name of willful defaulter.

consumers secure credit quicker and on better terms. 4 Good Relationship with Customer: It is necessary for

4 Selling of NPAs: If a concern bank fails to recover the all the banks that they should maintain a proper

NPAs, it can sell to the recovery agency or assets relation with a borrower after sanctioning a loan or

management company. In this regard RBI has issued a advance. The bank should hold a meeting with the

guidelines on July 13, 2005. borrower after a particular intervals, and get a

4 Participation in Revenue or Profit: If borrower fails to feedback of the paying capacity of the borrower.

repay the loan or principal amount of credit within the 4 Appraisal of Credit load: If a borrower having a loan or

given time, such amount will be part of NPAs. After advance from other bank, is the duty of the next bank,

that total dues or NPAs related to such borrower should to analyse the credit load or paying capacity of the

be divided in 60 months or more time. After that borrower before approving the second loan.

outcome, value after divided can adjust or recover from 4 Audit of Customer Paying Ability: Before sanctioning
the revenue or profit, till whole amount of due or NPAs
the loan or advance, it is necessary that one survey
are not recovered.
team should be constituted for verifying the paying

4 Declare willful Defaulter: According to RBI, a willful ability of the customers.

defaulter is one who has not used bank funds for the 4 Loan Recovery Responsibility Centre : Each and every
purpose for which it was taken and who has not repaid
officers involved in the sanctioning or approving the
loans despite having adequate liquidity.
loan and advances should be equally responsible against

The Securitisation and Reconstruction of Financial the borrower. And they should play a significant role in
Assets and Enforcement of Security Interest Ordinance the recovery of NPAs.

was termed "draconian" by a section of the industry, Conclusion
which had sought clarification on the definition of willful
defaulters. Non-performing assets, also called non-performing loans,
are loans, made by a bank or finance company, on which

RBI had constituted two working groups to come up repayments or interest payments are not being made on

with the detailed guidelines of securitisation of assets time. A loan is an asset for a bank as the interest payments

and for asset reconstruction companies. and the repayment of the principal create a stream of cash

It must be made mandatory for all Scheduled flows. It is from the interest payments that a bank makes
Commercial bank that they declare or disclose the its profits.

names of the willful defaulter in the national newspaper Banks usually treat assets as non-performing if they are not
after fulfill of all legal requirement regularly. It shall be serviced for some time. If payments are late for a short
comply in two or three stages, like in first stage, giving time, a loan is classified as past due. Once a payment
a notice to the defaulter parties for the declaring becomes really late (usually 90 days) the loan is classified
willful defaulter. And in the second stage giving a last as non-performing. In Indian banking system various rules

and regulations are available for the managing NPAs.

But apart of them, MRST system can be used for the
managing of NPAs of the banking sector. Mixed Role System
Therapy is a combination of various parameters of business
regulatory system which can be helpful in the managing of
NPAs. This system is also known as SIGMA TEN Therapy.

References

References has been taken from various sources. It has not
been listed here due to space constraint.

46 | 2015 | AUGUST | BANKING FINANCE