NPA MANAGEMENT POLICY

VIDHARBHA KONKAN GRAMIN BANK

HEAD OFFICE, NAGPUR

NPA MANAGEMENT POLICY

NOVEMBER-2016

NPA MANAGEMENT POLICY – 2016 Page 1

SR .NO TABLE OF CONTENTS

PAGE NO.

1

PREAMBLE

2

2 ASSET QUALITY

4

3 MONITORING AND FOLLOW UP MEASURES

5

4 PRUDENTIAL NORMS OF INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING PERTAINING TO IMPARED ASSETS

20

5 WILLFUL DEFAULTERS

34

6 STAFF ACCOUNTABILITY

42

7 COMPROMISE SETTLEMENTS

43

8 FRESH LENDING TO OTS BORROWERS

67

8A PERMITTING HOLDING ON OPERATIONS IN NPA ACCOUNTS

70

9 RECOVERY ACTION

71

10 SARFAESI ACT 2002

92

11 RECOVERY AGENTS/ENFORCEMENT AGENTS /DETECTIVE AGENCY

126

11A MODEL CODE ON COLLECTION OF DUES & REPOSSESSION OF SECURITY

161

11B ENGAGEMENT OF RECOVERY AGENTS

163

11C PUBLICATION OF NAMES AND OTHER DETAILS OF DEFAULTERS ALONGWITH PHOTOGRAPH IN THE NEWSPAPERS

167

12 WRITE OFF POLICY

170

13 BID POLICY

182

13A BID POLICY (Acquisition of Assets by bank under SARFAESI ACT)

185

14 CONCLUSION –RD A PROFIT CENTRE

188


Chapter- 1

Preamble

1.1 Lending is a business associated with risks. One of the risks being risk of default. Banks being commercial organizations have to continue lending activity to earn profits. Profitability very much depends on how Banks are able to roll over their advances portfolio. Rolling over of advances would be possible only if there is a timely recovery of money lent. Prompt recovery of Loans and Advances by Banks not only increases liquidity and profitability but it also keeps funds cycle moving by continuous lending for the development of the economy. Further, recoveries in written-off accounts/URI/UCI have direct and significant bearing on the Bank’s bottom line.

1.2 Following the introduction of Income Recognition and Asset Classification (IRAC

norms) and Capital Adequacy norms, Banks have become increasingly sensitive to credit risks and there is a growing awareness of the need to keep Non Performing Assets (NPAs) at a low level. Hence, it is imperative to abide by stricter risk assessment norms and provision requirements.

1.3 With the last modifications in IRAC norms and provision requirement announced by

the Reserve Bank of India in July 2015, it is implied that an asset will require 100% provision after 48 months from the date of the account becoming NPA, irrespective of availability of any security or not. The 100% provision to be made on an account which does not yield any income to the organisation is a severe strain on the bottom line of any Bank. In this context, the management of NPA portfolio assumes paramount importance.

1.4 The basic concept of Recovery Policy is that the advances made/ money lent should be

recovered along with interest at contractual rate and costs. In order to maximise the recoveries and keep NPAs at a low level, this NPA Management Policy booklet seeks to consolidate all the present general guidelines for NPA reduction based on guidelines issued by the Reserve Bank of India (RBI) and our Bank.

1.5 Restructuring, Rehabilitation, Change in Management (both under CDR/SDR

mechanism and under Bank’s own scheme) is an important tool for resolution of NPAs having economic value and capacity to generate income in future. Such proposals involving credit decisions & risk evaluation, processing of same shall be done by concerned functional department (ARD / Credit Department). Recovery Department will provide necessary input / information by giving the present status of NPA accounts requested /required by the Credit Department Accordingly, in the matters of NPAs where proposals for restructuring/additional funding/renewal of non-fund based limits are being considered by functional Credit Department, the Recovery Department would provide inter-alia on a case-to-case basis following information/certificate:


A) Noted the contents of the proposal; B) Confirm the status and developments in the accounts after slipping to NPA;

C) Recovery Department does not anticipate any recovery in the immediate future by initiating recovery proceedings;

D) The up-gradation of the account in due course would be the best possible solution under the given circumstances; and

E) The account will be continued to be monitored by Recovery Department till it is up-graded.

Recovery Department shall continue to monitor such account till its up gradation to standard category, as hitherto.

1.6 This comprehensive booklet shall be called NPA Management Policy. 1.7 This NPA Management Policy shall be reviewed/ revised annually and shall be used only

for private circulation to our Branches/Controlling Offices.

******


Chapter- 2

Asset Quality

2.1 Quality of borrowal accounts assumes greater importance in the wake of stricter

Prudential Accounting Norms. The quality of borrowal accounts can be ensured by: i) Proper and careful evaluation of risks associated with the borrowers and their

activities; ii) Meticulous compliance of pre-sanction / post-sanction formalities; iii) Regular follow-up of borrowal accounts to ascertain the efficiency of operations and

end use of credit; iv) Timely recovery of interest and installments ; v) Timely detection of symptoms of sickness; vi) Timely initiation of corrective measures in respect of irregularities. 2.2 On account of changing market scenario, the monitoring system is required to be

changed by identifying the risks associated with the individual borrower. 2.3 In order to maintain the quality of assets, Branches may look into the cash flow of the

borrowers so as to assess the payment of interest and installments in time. 2.4 Quality of assets charged to the Bank like stocks, goods, properties mortgaged, etc.

assumes great significance for their marketability and realisation of the values presumed. In order to have a clear picture of the realisable value of securities, especially mortgaged immovable assets (land, building, plant and machinery) it is advisable that a valuation of the same is done once in every three years. Preferably the task may be assigned to a different panel valuer at each time. If the present valuation shows substantial variation from the previous valuation (other than on account of standard depreciation) by about 15% downwards, we may analyse the case in detail and endeavour to impress upon the borrower to provide additional securities. A strict watch on the control and monitoring of realisable value of immovables will help in maintaining good asset quality and will stand in good stead in times of difficulty.

******


Chapter-3

Monitoring and Follow up Measures

3.1.1 Regional Office / Branches are required to keep updating the master circulars with the

modifications that may be advised by RBI / our Bank from time to t time. 3.1.2 With the Income Recognition and Asset Classification Norms becoming stricter,

Branches are required to be more alert and proactive in monitoring the accounts. For this purpose, monthly interest application has become a useful tool to tackle potential delinquencies or defaults in standard accounts. To retain the asset quality, Branches should promptly act and :- a) Recover the overdue or at least the critical amount through active follow up with borrowers; b) Put the accounts under holding on operations in case of temporary cash flow mismatches; c) Reschedule the repayment terms as per expected cash flows;

3.2 Measures for follow up of Watch Category Accounts / NPA Accounts

3.2.1 The various means of monitoring /resolving NPAs generally available to the Banks are

listed below:- A) Before the account becoming NPA (Watch Category A/c) I) Close monitoring for compliance of sanction terms to maintain asset quality. ii) Reminders to be sent promptly to borrowers as well guarantors whenever

irregularities are observed. Iii) To recover overdues quickly to ensure account does not slip to NPA category. iv) Periodic inspection of the unit and charged assets along with analysis of

financial data. v) To restructure the dues before accounts become NPAs. Remedial action

includes enhancement of moratorium period, funding of interest, and deferment of instalments. Such rescheduling /restructuring/ rehabilitation to be done under Bank’s restructuring Policy approved scheme of review.

B) After the account becoming NPA – following measure to be initiated for recovering Bank’s dues.

i) Appropriation of liquid securities (TDR, NSC, Shares, margin money etc.) and pledged goods, to reduce outstanding

ii) Disposal of other securities, with the co-operation of borrowers.


iii) Restructuring under Bank’s policy, for viable units

iv) Compromise settlement of dues through negotiation under Bank’s

Recovery Policy and special RBI OTS Schemes (in force from time to time)

v) Forum of Lok Adalat and Recovery Camps

vi) Recalling the advance

vii) Publication of names and other details of defaulters along with photograph in the newspaper

viii) Use of detective agency to trace out the assets of the borrower /guarantor.

ix) Initiating action under SARFAESI Act against charged securities

x) Adoption of E-auction/E tender process. xi) Use of Recovery agents on commission basis for LOSS assets. xii) Stock audit in eligible NPA accounts where current assets are available. xiii) Filing suit in Court / DRT – Execution of decree/Winding up petition if

any. xiv) Filing up of criminal action in the account where willful default has been

declared. xv) CGTMSE Claim, if any, to be lodged after recalling the advance/filing of

suit, reporting the default and follow up for early settlement of the claim

xvi) Lastly, after all the chances of recovery of dues are exhausted, we may resort to writing off of the balance dues

All these means have to be effectively pursued for resolution of NPAs.

3.2.2 Action Taken Report: Branches are require to submit Action Taken Report (ATR) for NPAs of Rs. 1.00 to Rs.5.00 lakh on quarterly basis and above Rs.5.00 , on monthly basis in the prescribed formats. Formats of ATRs have been revised and enclosed herewith.

*****


कर्ज खाते क्र._______________ विदर्ज कोकण ग्रामीण बँक

संदर्ज क्र.__________________ ____________ शाखा प्रतत, श्री./श्रीमती._____________ तालुका________

_________________________ जर्ल्हा_________

_________________________ ददनांक :________

विषय : आपले कर्ज खात्यासंबंधी

महोदय / महोदया, आपणास आमचे बँकेन े ददनांक ................. रोर्ी ........................ कररता रु.............................................. कर्ज ददले आहे. आपण सदर कर्ज परतफेड रु................. च्या ..................... हप्तत्यामध्ये व्यार्ासदहत करण्याच ेकबूल केले आहे. आपल्या सदरच्या खात्यात आर् रोर्ी रु.................. इतकी बाकी असून त्यापैकी रु................ थकबाकी आहे ि या खात्यामध्ये दद.................. पासून व्यार् आकारणी करणेची आहे. आपणास या पत्राद्िारे कळविण्यात येते की , आपणाकड ेअसणारी थकबाकी आपण दद...................... च ेआत र्रणे र्रुरीच ेआहे. त्यासाठी आपण योग्य ती तर्िीर् करािी ि समक्ष बँकेत येऊन र्ेटािे. आपणाकडून याबाबत ददरंगाई झात्यास बँकेत तारण ददलेल्या ...................िस्तूचा, आपल्या ि र्मीनदाराच्या मालमत्तेचा ताबा घेऊन त्याची विल्हेिाट लािणे ि िसुलीसाठी कारिाई करणे र्ाग पडले. तरी हे पत्र ममळताच आपण थकबाकी र्रण्याची व्यिस्था करािी ि आपणास याबाबत काही अडचण असल्यास त्िररत बँकेत हे पत्र सोबत घेऊन स्ित: येऊन र्टेािे. आपला

शाखाधधकारी

__________________________________________________________________

प्रतत, र्मीनदार

श्री./श्रीमती._________________________ आपला _________________________________

_________________________________ शाखाधधकारी ( कायद्यानुसार र्ामीनदाराची र्बाबदारी दह

कर्जदाराच्या र्बाबदारी एिढीच असते कृपया

दह बाब लक्षात घेऊन आपण व्यजततश: लक्ष

घालून कर्जदारास थकबाकी रतकम र्रण्यास र्ाग पाडािे )


(ATR format for NPAs Outstanding of Rs. 1.00 lakh to below Rs. 5.00 lacs)

Branch : Region:

For Quarter ended – Rs. In Thousand

S

r.

B

ra

nc

h

Cu

st

id

Nam

e of

acco

unt

Name of

Promoter/gua

rantor,addres

s& contact

No.

Activity

at the

time of

san & at

present

Reas

ons

for

defa

ult

Cred

it

facili

ties

since

NPA

since/

Ash

code

Ledg

er

outst

andi

ng

Pr

ov

hel

d

U

RI/

FI

TL

Claim

positon

GTMS

E/ECG

C a/c

1 2 3 4 5 6 7 8 9 10 11 12 13

Value of securities Details of SARFAESI

ACTION

Resu

lt of

E-

aucti

on

Suit/

RRC

filed

Amt

&

date

If suit

not

filed

Doc

valid

upto

Statu

s of

SAR

Remark

/resoluti

on plan Descri

ptrion

Actual

value

Value in

finance

US

13/2

date

US

13/4

date

E-

auction

date

14 15 16 17 18 19 20 21 22 23 24

Remark column should contain following details: i. Details of restructuring

ii. Details of fraud/CBI investigation (if any) iii Details of last 3 meetings with dates and its out come( response of

borrower/guarantor) iv. Proposed line of action of branch /Region and likely resolution time.

Counter claim by borrower /guarantor ,if any

Indicative list of resolution plan:- a. Willful Defaulters – threat notice issued on _____. Name recommended to Regional

Office on ------- b. Photo publication on ________

c. DRT /Suit filed on ________ stage ______

d. Impounding of Passport /winding up petition _______

e. FIR in identified wilful defaulter lodged on

f. Meeting with other members of consortium/MBA

g. OTS

Officer Branch Manager ___________ Branch


ATR format for NPAs of Outstanding above Rs. 5.00 lacs to below Rs. 25.00 Lacs Month – (Rs. In Lacs)

At contractual ROI SAR details:

SAR Status If Closed Authority &

Date

If No, reasons

there for findings in brief

REGION BRANCH

01 NAME OF ACCOUNT/ CUST ID

02 Address-office

-Unit (factory/godown )

03 Group /Parent Co.

04 Principal Person / Contact No

05 Nature of Activity- At the time of sanction At present

06 Consortium / MBA-Lead Bank-share Our- share

07 Total Exposure (fund plus NFB) to Banks* FB Rs. NFB Rs.

* separate sheet may be used for latest balance / exposure of various Banks

08 Reasons for turning into NPA –Internal

09 NPA Since/Intt ceased date/ Asset Code

10 Recovery during Current- FY/quarter Rs.

11 Claim Lodged/ amount/ settled if any ( CGTMSE/ECGC/any other)

12. Names of the Proprietor/

Partners / Directors/ Individual Address and

Contact No. Worth- Basis

12a.Names of Guarantors

13. Latest sanction Authority/ Date PROVISION

AS ON last Facilities LIMIT LEDGER

O/S URI UCI* quarter

FBL

NFBL

Total

Include details of restructuring, if any


15. Security Status:-

Security value as per finacle (CCIS) as at end of previous quarter :

Rs. In Lacs

Sr no.

A/c No. NPA date

/asset code

O/s Value of security

URI/FITL Provision

17. Details of Insurance of Assets charged

18. Details on Legal Action:

Amt. of suit and date

Name of DRT/Court

Present Status of Suit/Decreed

Decreed

amount

Suit /RC Filed/ Decreed

If not filed , Document valid upto

For NPAs of more than one year, if suit is not filed reasons of same to be given:- 19. Status on SARFAESI Action

Details of Date of Date of Symbolic/ Reserve Price / Result of Amount

Property Notice Physical Auction held on sale , if any recovered

possession after Notice

If action not concluded ( up to E-auction) reasons thereof and authority allowed deferment:

Details of counter claim, if any: Details of Compromise approved

Authority & Date & OTS Amount

Terms of Payment- Recoveries made

Principal/ Collateral:

Particular Original value Present Value (date of valuation and basis)

CurrentAsset- Stock/Book Debts/other

Fixed Asset MV RVS DSV

Land/ Building -Situate at --Area-

Owned by-

P/M – Plant and Machinery

Total

Separate value of each item –land, building, P& M and F/F are to be given.Suitable justification is required if there is decline in value of collateral security from original valuation.

Nature Agricultural/Residential/Commercial of landed securities and last 3 dates of inspection:


Action taken on account of failure of terms of OTS

2. Other coercive action:

Date on which letter to present bankers written Date on which threat notice for declaring willful Defaulter issued

Date of Notice issued for photo publication Any other action

24 Remark:- 1. Brief history (Maximum one para) 2. Details of fraud/CBI investigation (if any) 3. Date of last Inspection and Findings: 4. Latest development including details of out come of Suit/SARFAESI action, progress

made in current quarter: 5. Details of last 3 meetings with dates and its out come( response of

borrower/guarantor) 6. Likely resolution by-----------(date) 7. Proposed line of action and likely resolution time: 8. What is Branch’s further course of action?

9. Regional office comments

Branch Manager Date:-

____________ Branch

Indicative list of resolution plan:- i. Holding on operation/restructuring ii. Meeting with other members of consortium/MBA

iii. SARFAESI -Action with CAVEAT in DRT

iv. Willful Defaulters

v. Photo publication vi. OTS

vii. Suit with impounding of Passport /winding up petition

viii. FIR in identified wilful defaulter lodged on


ATR format for NPAs of Rs. 25.00 lakh & Above

Month

Amount Rs.in Lakh

Branch : Region

Customer Id

01 Name of the Borrower

02 Constitution

03 Date of establishment

04 Date of finance

05 If Ltd / Pvt Ltd Company : CIN

06 Group / Parent / Holding Company, if any

07 PAN of Company/Firm

08

Registered Address

Factory Address

Mobile/Telephone No of office

Email Id

09 Details of Promoter

Name of the Principal Person

Residential Address

Mobile/Telephone No

Email Id

10 Nature of Business / Activity Sector

Business / Activity-At the time of sanction At present

If Ceased since when and reasons thereof

11 Credit Rating

Internal Credit Rating / Date

External Credit Rating / Date

Name of Credit Rating Agency

12 Details of Borrower

Name -Proprietor/Partner/

Director/ Trustee

Address/Mobile

No. PAN Worth Basis of Worth

13 Details of Guarantor(s)

Name Address/Mobile No PAN Worth Basis of Worth

14 Banking Arrangement Sole Consortium / Multiple


15.a Consortium/Multiple Banking Arrangement : If YES details

S.No Name of Bank / FI FBL NFBL Total Share in %

1

(Leader)

2

3

TOTAL

16 Details of Credit Facilities Sanctioned by our Bank

S.No

Facility

Finacle Account No

Sanction Limit Purpose for which the credit facility was sanctioned

1 Term Loan

2 Cash Credit

3 BG/LC

TOTAL

17 Original Sanction Authority / Date

18 Last Sanction Authority / Date

19 Details of Asset Classification

Date of NPA

Interest Ceased Date

Asset Code as on Date of ATR

Turnover in CC A/c during the Current Year

Date and Amount of Last Credit in the A/c

Whether Restructured A/c

If YES brief details and sanctioning authority /

Date

20 Financial Indicators for the last3 years

FY 2013-14

FY 2014-15 FY 2015-16 Estimated

Paid up Capital

Net Worth

Net Block

Current Assets

Total Sales

EBIDTA

Net Profit / Loss

Debt Equity Ratio

Current Ratio

Debt Service Coverage Ratio


21 Reasons for Account turning as NPA

Internal External

22 Details of Security

DETAILS OF PRIMARY SECURITIES – Moveable Assets

Nature of Security

Original Valuation

Present Valuation

Our Share

Basis of Valuation Amount %

Stocks

Book Debts

Land & Building/ shed

/Plant & Machineries etc.

Cash Margin on NFBL

Other Assets (please

specify)

DETAILS OF PRIMARY SECURITIES – IMMOVEABLE PROPERTIES

Owned by/

Address

Type of the

Property

Agri/Com

ml/Resi/Indl

Land Area

Sq.ft/

Sq.mtr/

etc

Building

Area

sq.ft/sq.mt etc

Original Value and

Date

Present Market Value

(FMV)

Present Distress

Value

(DSV)

Present

Realizable

Value of Security(RVS)

Date of Valuation

Report &

Name of Valuer

DETAILS OF COLLATERAL SECURITIES – IMMOVABLE PROPERTIES

Owned by/

Address

Type of the

Property

Agri/Com

ml/Resi/Indl

Land Area

Sq.ft/

Sq.mtr/

etc

Building

Area

sq.ft/sq.mt etc

Original Value and

Date

Present Market Value

(FMV)

Present Distress

Value

(DSV)

Present

Realizable

Value of Security(RVS)

Date of Valuation

Report &

Name of Valuer

CERSAI Asset Id / Date of Registration

Whether Memorandum of Entry (MOE) registered with the concerned Sub- Registrar

MOE Document Regn. No / Date

Name of the Sub-Registrar Office


CERSAI Asset Id / Date of Registration

Whether Memorandum of Entry (MOE) registered with the concerned Sub- Registrar

MOE Document Regn. No / Date

Name of the Sub-Registrar Office

If leasehold Property then details of the lease is to be given

Nature of the Property

Name of the Lessor

Name of the Lessee

Period of Lease

Expiry Date of Lease

Lease terms in brief

NOC, if any, for lease obtained from the appropriate authority – Details

Details of Any Other Securities

Any other Security

Nature of the Security

Details of the Securities

Value of the Securities

Date of Valuation

Our Share, if applicable

Please explain whether we hold First Charge or Paripassu Charge or Second Charge etc. and if so with whom and Total Value of the Security and our Share in Rs. Lakhs and Percentage.

23. Details of Group Accounts with us, if any N/A

Branch Name of Account

Facility Sanctioned

Limit Position of Account Last San Auth/Date

Bal o/s In order

24 Details of Insurance of Charged Assets

Nature of Security

Insurance

Amount Expiry

Date Remarks, if any

Primary Security

Stocks

Plant & Machineries

Factory Land & Buildings

Collateral Security

Land and Buildings situate at:

House / Flat situate at:


Other Assets – Please specify

25 Registration of Charges with ROC (Applicable in the case of Public Ltd / Pvt Ltd Co)

Whether our Charge is registered with ROC Yes/ No/ NA

ROC Search Report date

Brief Comments on the ROC Search Report

If ROC Charge not applicable reasons thereof

Whether a Listed Company

If Listed – Name of the Stock Exchange

Share Price as on the date of ATR

Share Price – 52 Week High : Low:

26 Comments of the CIBIL Report of the Borrower / Guarantor

CIBIL Report of the Borrower / Guarantor Obtained Yes / No

Name Branch Comments

27 Details of ECGC Claim N/A

ECGC Claim (Export Credit Guarantee Corporation)

If Applicable

Date of Default Reported to ECGC

Date of Claim

Amount of Claim

Date of Settlement of Claim

Amount of Claim Settled

Whether Adjusted in the Account

If not adjusted reasons thereof

Remarks if claim is pending

Follow up Action taken by the Branch

28 Details of Stock Audit

Date of Stock Audit

Authority & Date of Closure of Stock Audit

Major adverse Observations, if any pending and Branch Reply

29 Details of Inspection of Charged Assets / Stock Inspection

Stock Inspection Done on

Brief findings of the Inspection

Inspection of Mortgaged Property done on

Brief Findings of the Property Inspection

If Inspection done by Consortium date of inspection

and brief findings


Whether a copy of the inspection report is held on record

30 Details of Consortium Meeting

Date of Last Consortium Meeting held

Major decisions in the Meeting

Brief details of the future action points discussed in the Meeting

Details of follow up /implementation of major action points

31 Validity of Security Documents

32 Details of Legal Action

Memorandum for filing Suit Approval Authority and Date

Advocate Legal Notice sent on

Suit Filed on

Amount of Suit

OA No / Suit No

Name of DRT / Court

Name of Advocate / Contact No, E-mail Id

Present Status of the Suit

Winding up Petition filed

Details of Winding up Petition / present Status

Whether Decreed and if yes date of Decree

Details of the Decree and the present status of its execution

33 Details of Action under SARFAESI Act

Memorandum for Issue of Notice under SARFAESI Act Approved – Authority and Date

Notice under SARFAESI Act Issued on

Borrowers Acknowledgement of Notice Received on

Date of Symbolic Possession taken

Date of Application to DM / CMM for Permission to take Physical Possession

Date of DM / CMM Order

Date of Physical Possession

Details of Reserve Price and Approval Authority / Date

Date of E-Auction

Result of E-Auction

Whether Sale Price received in full if not reasons therefore

In case of failure of E-Auction further action by the Branch

34 Details Compromise Settlement – OTS N/A

Application for Compromise Settlement received on

Upfront Amount Received – Amount & Date

OTS approved by Authority / Date / Amount

Terms of OTS Payment in brief


Balance amount under OTS received Amount & Date

Action taken on account of failure of OTS

35 Details of Identification as Willful Defaulter

Whether the Branch has identified the Borrower as Willful Defaulter?

If YES reasons thereof

Reporting to HO for the Quarter ended

36 Assignment of Debts to ARCs (only in case of Consortium / Multiple Banking Arrangement)

Whether any of the member bank has assigned the debts to ARC

If Yes – Details thereof like name of ARC etc.

37 Details of Corporate Debt Restructuring (CDR)

Whether referred to CDR Cell

Date of Reference to CDR

Date of Cut Off

Classification of A/c as on the date of Cut off

Original Date of DCCO

Revised date of DCCO

Date of implementation of CDR Package

NPV Sacrifice

Borrower’s Contribution towards NPV Sacrifice

Bank Supported CDR or Exit option exercised

Date of TEV Study conducted

Date of Stock Audit conducted

Date of Special Investigative Audit conducted

Date of Forensic Audit conducted, if allotted

Final Restructuring Package (FRP) submitted by the Lead Bank to CDR

Date of acceptance of FRP by CDR-EG

Whether the FRP is approved by our Bank and if so Authority and Date

Date of CDR-EG Approval of the FRP

Date of issue of Letter of Agreement (LOA) by CDR-EG

Date of Execution of Master Restructuring Agreement (MRA) by all the banks

Present status of implementation of the CDR Package

38 Details of Fraud / CBI

Whether declared as Fraud / CBI investigation (if any)

Brief details thereof


39 Details of Staff Accountability Report

Date of submission of SAR by the Branch

Date of Closure of SAR – Authority & Date

If SAR is pending reasons thereof

Details of SAR observations if any

40 Brief History of the Account

41 Position of the Accounts as on the Date of ATR / Provision as on Latest Quarter ended

Nature of

facility &

Account no

Present

San Limit

Value of

Security

Balance

o/s

Overdue

since

URI UCI Provision

Fund Based Limits

Term Loan

Cash Credit

TOTAL

FBL

Non-Fund Based Limit

TOTAL NFB

Aggregate

Limits

42 Details of any un-encumbered Credit Balances

Whether any un-encumbered Deposits /Credit Balance available in the Account

If Yes whether appropriated to the account

If No the reasons for holding such credit balance

43. Progress of Recovery Action by the Branch during the Month :

(This should include the Recovery Action made by the Branch during the month under Report) a) Progress in General Recovery Action: b) Progress in Action under SARFAESI : c) Progress in Suited before the DRT / Court : d) Progress in BIFR / CDR referred Accounts: e) Progress in Compromise Settlement : f) Any other matter :

Officer Branch Manager Date : ……………Branch


Chapter - 4

Prudential Norms of Income Recognition, Asset Classification & Provisioning pertaining to Impaired Assets

In line with international practices, RBI introduced a system of Income Recognition, Asset Classification (IRAC) and provisioning from 1993 onwards based on the findings/recommendations of Narasimhan Committee. RBI, vide Circular DBOD.BP.BC.10:21. 04.048:2004-05 dated 17.7.2004 which came into force from the year ending 31.3.2005 again issued comprehensive guidelines in respect of IRAC norms(except asset classification norms of direct agricultural advances which have come into force w.e.f. 30.9.2004). To fine tune IRAC norms with global practices and to face new challenges emerged due to slowdown in economy worldwide resulting in high slippages, RBI issues guidelines/circulars from time to time. RBI also issues Master circular every year on the subject, latest Circular is DBOD.No.BP.BC.2 /21.04.048/2015-16 dtd. 01.07.2015. Accordingly prevalent IRAC norms are being given below:-

1. Asset classification and provision requirement:-

1.1 Standard Assets:- The standard assets consist of assets which are totally regular, safe and conducted as per norms of sanction. However, during the operations of such accounts, some of them, at times, show signs of deviations, sickness, out of order position wherein they became irregular. When such irregularities are noticed, they are classified as ‘Watch Category” assets with asset Code No.12.These accounts need higher level of monitoring and have to be regularised before these irregularities continue for more than 90 days.

1.2 Definition of an NPA:- An asset becomes non-performing when it ceases to generate income to the Bank. A Non-Performing Asset (NPA) is defined as a credit facility in respect of which the interest and / or instalments of principal has remained ‘overdue’ for ‘specified period’ or remained ‘out of order’**(for cash credit/Over draft facility) .

The concept of ‘specified period’ is reduced in a phased manner from 4 quarters in 1993 when the concept of IRAC norms was first introduced in India to present level of 90 days.

Thus in the present context, 90 days ‘overdue’* norms for various facilities (Term loan/Bill etc.) and ‘out of order’** norms for CC/OD facilities for identification of NPAs are applicable in all advances except direct agricultural advances where the norms are different. Thus an advance or loan (other than direct agricultural advance) shall be classified as a NPA where -

a) Interest and / or instalment of principal remain ‘overdue’* for a period of more than 90 days in respect of a term loan.

b) The bill remains ‘overdue’* for a period of more than 90 days in the case of bills purchased and discounted facility.


c) Any amount to be received remains overdue for a period more than 90 days in respect of any other accounts.

d) The account remains out of order* in respect of an overdraft / cash credit facility.

*Overdue

Any amount due to bank under any credit facility is ‘overdue’ if it is not paid on due date fixed by the Bank.

**Out of order An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. 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 as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'

Note-I:-In case of interest payment the account will slip to NPA, only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

Note-II: Branches are advised to make an estimation of interest chargeable in CC/OD limits during the month in the beginning of month itself and ensure that turn-over equivalent to

estimated interest is made upto 20th of the month, failing which a written communication

should be sent to the borrower/promoters for improving turn over. The Regional Manager should monitor the accounts of Rs. 5.00 lacs and above.

1.3 Basically the classification of an asset as NPA is based on the record of recovery. However there are some other deficiencies such as non-availability of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non-submission of stock statements and non-renewal of the limits on the due date, etc. which impacts asset classification of accounts. Relevant guidelines in this regard are as under:

i) Drawing power calculated from stock statements older than three months, would be deemed as irregular. Account will become NPA if such irregular drawing is permitted for a continuous period of 90 days even though the unit may be working or the borrower’s financial position is satisfactory.

ii) Regular limits need to be reviewed not later than three months from the due date. An account where the regular limits have not been reviewed within 180 days from the due date will be treated as NPA.

iii) Ad-hoc credit limits need to be regularized not later than three months from date of Ad-hoc sanction. An Ad-hoc credit limits which has not been renewed within 180 days from the date of ad hoc sanction will be treated as NPA.


1.4 Norms for project loan:-

A loan for infrastructure/ non-infrastructure project will be classified as NPA if it fails to commence commercial operations within two years/twelve months from the original DCCO, even if it is regular as per record of recovery.

1.5 Exceptions of above guidelines:-

i) The credit facilities backed by the guarantee of Central Government though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked. This exemption is not available for accounts guaranteed by State Government for which 90 days delinquency norms are applicable.

ii) Advances granted against Banks own term deposit, NSCs, IVPs and KVPs and life policies shall not slip to NPA category provided adequate margin is available, interest may be charged and transferred in P/L a/c in such accounts on due date. However, advances against gold ornaments and other Government securities, shares are not covered under this exemption.

2. IRAC norms for Agricultural advances:

a) Following norms for classifying NPA in respect of Farm Credit extended to agricultural activities listed (Annexure-A of chapter) at paragraph III

b) Loans granted for short duration crops (period upto harvesting of the crops) will be treated as NPA, if the installment of principal or interest thereon remains overdue for two crop seasons.

c) Loans granted for long duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for one crop season.

Depending upon the duration of crops raised by an agriculturist, the NPA norms would also be applicable to agricultural term loan availed of by him.

2.1 In respect of agricultural loans, other than those specified in above mentioned circular of RBI (Priority sector lending) and term loans given to non- agriculturists, identification of NPAs would be governed by 90 days delinquency norm.

2.3 Miscellaneous issues of Agricultural advances

i) Where natural calamities impair the repaying capacity of agricultural borrowers, the Banks may decide on their own as a relief measure conversion of the short term production loans into term loans or re-schedulement of the repayment period; and sanctioning of fresh short-term loans, subject to guidelines contained in RBI circular FIDD No.FSD.BC.2/05.10.001/2016-17.

ii) In cases of conversion or re-schedulement, the term loans as well as fresh short term loans may be treated as current dues and need not be classified as NPA. The asset classification of


these loans would thereafter be governed by the revised terms and conditions and would be treated as NPA on default of revised terms and conditions only.

iii) While fixing the repayment schedule in case of rural housing advances granted to agriculturists under Prime Minister Awas Yojana, Banks should ensure that the interest/installment payable on such advances are linked to crop cycles.

The crop season for each crop, would be as determined by the state level Banker’ Committee in each state.

3. Categories of NPAs & Provisioning norms

The banks are required to classify NPAs further into following categories, based on the period for which asset has remained non-performing, security available, status of activity and realisability of dues.

a) Sub-standard Asset b) Doubtful Asset c) Loss Asset

3.1 Substandard Asset

Upon identification of an account as NPA, normally it moves to Substandard category. As such NPAs of less than or equal to 12 months are Substandard assets. In view of availability of security, exposures of Banks are divided in two categories secured exposure & unsecured exposure. Accordingly substandard assets are divided in following two segments:-

i) Substandard–(Secured) Assets–Code 21 will require 15% provision of the outstanding dues

net of URI parked in sundry credit.(At present our Bank is making 20% provision )

ii) Substandard–(Unsecured) Assets – Code 22: RBI has made norms of provision requirement on unsecured exposure of Banks more stringent, Asset code 22 requires, 25% provision of the outstanding dues net of URI parked in sundry credit.(At present our Bank is making 30 % provision )

3.2 Doubtful Assets:

It consists of 3 stages – Doubtful-I, Doubtful-II and Doubtful-III. The provision requirement in each stage of Doubtful asset is as under:

i. Doubtful-I (Code 31) – NPAs over 12 months and upto 24 months i.e. an asset remains D-1 for a period of 12 months – provision requirement shall be 25% of RVS + 100% of shortfall in security after making allowance for URI parked in sundry credit . At present our Bank is making accelerated provision @ of 30% of RVS + 100% of shortfall for this category of NPAs.

ii) Doubtful II (Code 32) – NPAs over 24 months and upto 48 months i.e. an asset remains D-2 for a period of 24 months – provision requirement shall be 40% of RVS + 100% of shortfall in


security after making allowance for URI , parked in sundry credit. At present our Bank is making accelerated provision @ of 60% of RVS + 100% of shortfall for this category of NPAs.

iii) Doubtful III (Code 33) – NPAs over 48 months or Assets remaining for more than 3 years in Doubtful category. As per extant RBI norms, D-3 category shall require 100% provision of net outstanding dues (irrespective of RVS) after making allowance for URI parked in sundry credit.

3.3 Loss Assets – Code 40

A loss asset is one where loss has been identified by the Bank or Internal or External auditors or RBI inspectors but the amount has not been fully written off. Such an asset is considered uncollectible and of such little value that its continuance is not warranted, even though there may be some small (less than 10%) salvage recovery value.The provision requirement is 100% of net outstanding dues. These loss assets should be gradually written off from the books. *Net Outstanding dues = [ledger O/s less URI parked in sundry credit]

4. Miscellaneous issues in respect of asset classification and provisioning:-

i) An NPA need not necessarily go through various stages of classification, erosion in the value/ non-availability of security and existence of other factors such as frauds committed by borrowers are also important factors to decide asset category of NPAs.

A) When the realizable value of the security is less than 50 percent of the value assessed by the bank or accepted by NABARD at the time of last inspection, as the case may be. Such NPAs may be straightaway classified under doubtful category and provisioning should be made accordingly.

b) If the realizable value of the security, as assessed by the Bank/approved valuers/ NABARD is less than 10 percent of the outstanding in the borrowal accounts, other than those accounts which are unsecured ‘ab Initio’ and adequate proof of worth of borrower/guarantors are available which will be categorized under asset code-22, the existence of security should be ignored and the assets should be straightaway classified as loss asset. It may be either written off or fully provided for by the bank.

ii) Under rehabilitation packages approved by BIFR up gradation of existing facilities can be done upon satisfactorily performance for a period of 1 year of renegotiated terms. In respect of additional facilities sanctioned under the scheme, the IRAC norms will become applicable after a period of 1 year from date of disbursement. iii) In case the advance is covered by CGTMSE guarantee, no provision need be made

towards the guaranted portion. The amount outstanding in excess of the guaranteed portion should be provided as per extant guidelines on provisioning for non performing advances.

iv) In case of substandard assets, 15% / 25% (for both secured/ unsecured substandard accounts) of the net outstanding balance without making any allowance for CGTMSE coverage should be provided for.


v) Provisioning norms in respect cases of frauds identified and declared by the bank are as under: a) 100% provisioning for entire amount due to the bank (irrespective of the

quantum of security held against such assets), or for which the bank is liable (including in case of deposit accounts), over a period not exceeding four quarters commencing with the quarter in which the fraud has been detected;

b) In the cases, where there is delay, beyond the prescribed period, in reporting the fraud to the NABARD, the entire provisioning is required to be made at once. In addition, NABARD may also initiate appropriate supervisory action where there is a delay by the Bank in reporting a fraud or provisioning there against.

4.1 Other guidelines

i. In accordance with the IRAC norms presently practiced in our country, in our Bank also, we do not charge and book income in any NPA account. Charging of further interest is to be ceased as soon as the account becomes NPA. Fees/commission and other similar income also should not be booked as income in NPA accounts.

ii. Asset classification will be borrower – wise and not facility – wise. All the facilities granted by the Bank to a borrower will have to be treated as NPA and not the particular facility or part thereof which has become irregular.

iii. In advances under consortium arrangement, asset classification should be based on record of recovery of individual member Banks. Where the remittance by the borrower are pooled with one bank and/or remitted with one Bank, other members should impress upon that Bank to remit their share or should ensure to obtain an express consent from the Bank having funds for transfer the funds to them to ensure proper asset classification in their books.

5. Up gradation of Loan accounts classified as NPAs

If entire arrears of interest and principal are paid by the borrower in the case of a loan account classified as NPA, the account may be classified as standard account. However, NPA accounts which have been subjected to restructuring will be eligible to be upgraded to standard category only after a specified period as defined by RBI from time to time.(at present 12 months ).

5.1 Normal recoveries in NPA accounts are to be appropriated in the following order-

i. Unrealised interest kept in Sundry Credits. ii. Reversal of Unrealised other charges kept in Sundry Credits. iii. Principal outstanding, which includes forced debits like devolvement of LCs/guarantees

issued, etc. iv. Uncharged interest in the account v. Other charges / commission / fees etc.


Please note that the above guidelines do not apply to cases –

i. where the recoveries are made under a compromise settlement ii. suit decreed cases where the appropriation is governed by the terms of decree

iii. accounts where there is specific agreement for appropriation of recoveries between the bank and the borrower like charging simple interest.

iv. As per extant guidelines – on slipping of an account in NPA, Banks should reverse the interest already charged and not collected, by debiting Profit & loss account and stop further application of interest”- Accordingly we have system of reversing of interest not realized/collected as on date account turning NPA by debiting P&L account and crediting sundry credit account unrealised interest.

6. Valuation of security for provisioning purposes including guidelines applicable for Stock Audit of NPAs

RBI has made the following stipulation for minimising difference in assessment of the value of security :- Collaterals such as immovable properties charged in favour of the Bank should be got valued once in three years by valuers appointed as per the guidelines approved by the Board of Directors.

Accordingly, we stipulate: i. Stock audit of all NPAs with book outstanding of Rs. 50.00 lacs and above in which

principal security by way of current assets i.e. stock/book-debts is available to be mandatorily carried out by the respective Regional Offices. NPAs which are fully provided, may be excluded from this exercise.

ii. Appointment of Stock Auditors will be done by HO :- a) Closure of Stock Audit (observations/report) upto Rs.10.00 lakh to be done by

Regional Manager and above Rs.10.00 lakh by the GM Head Office

b) Branches /LCBs are required to maintain due date diary and to intimate concerned authority for appointment of stock auditors well in advance

iii. Schedule of charges of valuation of fixed assets/ Stock Audit would be same as the standard accounts in our Bank.

iv. Payment of these charges be made to the debit of the corresponding borrowal NPA accounts by way of forced debit.

v. If the borrower is not co-operative for conducting valuation of fixed assets/ stock audit, branch / RO to endvour to classified /identified borrower/promoters as ‘Wilful Defaulter’.

vi. Branches are to maintain a record of valuation date(s) of immovable securities of NPAs other than those a/cs which are fully provided and to ensure in no account valuation date is more than three year old.

It is the responsibility of Regional Office heads of ensuring that:- i. Stock audit is carried out in all eligible NPAs.


ii. In all NPAs of Rs. 10.00 lakh and above, valuation report of immovable securities is not more than three year old and value of security (RVS) and valuation date(s) is/are correctly entered in Finacle.

6.Floating provision and its Utilision in specific provisions for NPA with the prior approval of RBI;

a) In terms of Prudential Norms on Creation and Utilization of Floating

Provisions’, Bank’s should have board approved policy for the level to which

b) floating provisions can be created. Separate floating provision for advances and investments have to be created complying norms prevalent in this regard.

c) Floating provision can’t be used for making specific provisions in respect of non-performing assets or for making regulatory provisions for standard assets.

7.Guidelines on Asset Classification of projects under implementation;

For the purpose of these guidelines, `Project Loan’ would mean any term loan which is extended for the purpose of setting up of an economic venture and divided into the following two categories:- a) Project Loans for infrastructure sector b) Project Loans for non-infrastructure sector

Infrastructure sector is defined in extant Harmonised Master List of Infrastructure of RBI. Bank is required to mention the `Date of Completion’ and the `Date of Commencement of Commercial Operations’ (DCCO) at the time of financial closure of the project and the same should be formally documented. These should also be documented in the appraisal note by the Bank during sanction of the loan

Completion of projects may be delayed due to reasons beyond the control of promoters like court cases, delays in Government approvals etc. Following asset classification norms would be applicable for such project loan in case of restructuring/ reschedulement of repayment schedule before commencement of commercial operations ;

8.Deferment of DCCO

i. Deferment of DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) will not be treated as restructuring provided that :

a) The revised DCCO falls within the period of two years and one year from the original DCCO stipulated at the time of financial closure for infrastructure projects and non-infrastructure projects (including commercial real estate projects) respectively; and

b) All other terms and conditions of the loan remain unchanged.

As such project loans will be treated as standard assets in all respects; they will attract standard assets provision of 0.40 per cent.

ii. When the revision of DCCO is beyond the period mentioned in above paragraph, asset may be classified as ‘standard’ asset by fixing fresh DCCO within the following limits, and ensuring


repayment is forthcoming as per the current repayment ( post deferment of DCCO as per para-8.1-i-a) terms.

A) Infrastructure projects involving court cases/ other reasons

i) Up to another two years (beyond the two year period mentioned above total four years in case the reason for extension of DCCO is arbitration proceedings or a court case.

ii) Up to another one year (beyond the two year period mentioned above total three years, in cases Infrastructure projects delayed for other reasons beyond the control of promoters (other than court cases).

B) Project Loans for non-infrastructure sector(excluding Commercial Real Estate Exposures) Up to another one year (beyond the one year period mentioned above total extension of two years. The asset classification benefits provided here in above (Additional one years total two year) is not applicable to commercial real estate sector. iii) RBI clarified that a loan for a project may be classified as NPA during any time before commencement of commercial operations as per record of recovery (90 days overdue). It is further clarified that the dispensation of paragraph ii- a) & b) is subject to the condition that the application for restructuring should be received before the expiry of period mentioned at paragraph i a) and when the account is still standard as per record of recovery. The other conditions applicable would be:

a) When moratorium for payment of interest is given , Income should not be booked on accrual basis but only after realization beyond two years and one year from the original DCCO for infrastructure and non-infrastructure projects respectively, considering the high risk involved in such restructured accounts.

b) Banks should maintain following provisions on such accounts as long as these are classified as standard assets.

Particulars Provision requirement

If the revised DCCO is within two

years/ one years from the original DCCO prescribed at the time of financial closure for infrastructure &non-infrastructure projects

Respectively

0.40%


If the DCCO is extended beyond two years and upto 4 years or 3 years from original DCCO, as

the case may be, infrastructure

project depending upon reasons forsuch delay . beyond one years and upto two

years from original DCCO, for non- infrastructure project .

Project loans: i) Restructured with effect from June 1, 2013: 5% ii) Stock of project loans restructured upto June1, 2013 3.50% -w.e.f. March 2014(Spread over the four quarters of 2013-14) 4.25%-w.e.f March 2015 (spread over four quarters fo 2014-15) 5.5% with effect from March 2016 (spread over the four quarter of2015-16) The above provisions will be applicable from the date of restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later.

Provision for diminution in fair value due to extension of DCCO has to be made separately. Important Note: Multiple revisions of the DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) will be treated as a single event of restructuring provided that the revised DCCO is fixed within the respective time limits stipulated above, and all other terms and conditions of the loan remained unchanged.

9. Change in Ownership:

9.1 Projects under Implementation –

To facilitate revival of the projects stalled primarily due to inadequacies of the current promoters, further extension of DCCO up to two years in addition to the periods given in paragraph 8.1 above is permitted, without any change in asset classification if a change in ownership takes place any time during the above periods. The applicable norms in this regard is given below .

a) When extension of DCCO, due to change in ownership, maximum upto 2 years takes place before the original DCCO, and project fails to commence commercial operations by the extended DCCO also , the project will be eligible for further extension of DCCO in terms of guidelines quoted at paragraph 8.1 above ( maximum 4 (court case)/3( other reasons) years for infrastructure & 2 years for non-infrastructure project as the case may be) without any change in asset classification.

b) Similarly, When extension of DCCO, due to change in ownership, maximum upto 2 years takes place after original DCCO but within period quoted in paragraph 8.1 i a (2 years for infrastructure & 1 years for non-infrastructure as the case may be), and project fails to commence commercial operations by the extended DCCO also , the project will be eligible for further extension of DCCO in terms of guidelines quoted at paragraph 8.1 ii a & b ( maximum 2 (court case)/1( other reasons) years for infrastructure & 1 years for non-infrastructure as the case may be , without any change in asset classification

Consequentially shift/extended repayment schedule may also be permitted , if required, by an equal or shorter duration.


The above provisions of extension of DCCO in respect of Change in Ownership of are subject to the following conditions:-

i. Implementation of the project is stalled/affected primarily due to inadequacies of the promoters/management

ii. With a change in ownership there is a very high probability of commencement of commercial operations within the extended period. Viability of the project is established to the satisfaction of the banks.

iii. The project in consideration is being taken over/acquired by a new promoter/promoter group with sufficient expertise in the field.

iv. In case acquisition by a SPV (special purpose vehicle-domestic or overseas), there are conclusive proof that SPV is part of a new promoter group.

v. Intra-group business restructuring /mergers /acquisitions and/or takeover/ acquisition of the project by other entities /subsidiaries /associates etc. (domestic as well as overseas), belonging to the exiting promoter/promoter group are not eligible for this benefit. There should be conclusive proof that the acquirer does not belong to the existing promoter group;

vi. In case of resident new promoters, they should own at least 51% of the paid up equity capital of stake in the acquired project.

vii In case of non-resident promoters if there is any ceiling in foreign investment in sector, new promoter should own at least 26% of the paid up equity capital or up to applicable foreign investment limit, whichever is higher and lenders are satisfied that with this equity stake the new promoter controls the management. If no ceiling new promoters’ stake should be as applicable for resident new promoters.

viii. The new owners/promoters are expected to demonstrate their commitment by bringing in substantial portion of additional monies required to complete the project within the extended time period.

ix. Financing of cost overruns for the project may be allowed subject to the adherence of guidelines given in paragraph 11 b below.

x. Financing of cost overrun beyond the ceiling prescribed in paragraph 11 b would be treated as restructuring even if the extension of DCCO is within the limits prescribed above.

Xi The repayment schedule does not exceed 85% of the economic life/concession period of the project including extension granted due to change of DCCO.

Xii This facility would be available to a project only once and will not be available during subsequent change in ownership, if any;

Xiii Asset classification of the account as on the `reference date’$ would continue during the extended period. During the intervening period, the usual asset classification norms would continue to apply.

c) Banks may refinance the existing debt, considering the changed risk profile in view of new management, same shall not be treated ‘restructuring’ provided provisions for diminution in fair value of the existing debt on account of the refinance has been made ;

d) Banks may reverse the provision held against the said account only when all the outstanding loan / facilities of the borrowing entities perform satisfactorily during the

‘specified period’ applicable for restructured advances ;


e) If satisfactory performance during the specified period is not evidenced, the asset classification of the refinanced account would be governed by the extant asset classification norms with reference to the repayment schedule applicable before the change in ownership and assuming that upgrade in asset classification had not been done.

10. Following shall also not be treated restructuring as per extant RBI guidelines

10.1 Any change in the repayment schedule of a project loan caused due to an increase in the project outlay on account of increase in scope and size of the project, would not be treated as restructuring, if :-

i. The increase in scope and size and size of the project takes place before commencement of commercial operations of the existing project.

ii. The rise in cost excluding any cost-overrun in respect of the original project is 25 % or more of the original outlay.

iii. The bank re-assesses the viability of the project before approving the enhancement of scope and fixing a fresh DCCO.

iv. On re-rating (if already rated) the new rating is not below the previous rating by more than one notch.

10.2 Where the initial financial closure does not envisage, financing of cost overruns, RBI has allowed the banks to fund cost overruns, which may arise on account of extension of DCCO for two years for Infra Structure project and one year for non Infra Structure project, without treating the loans as restructured assets complying following conditions:

Banks may fund additional ‘Interest During Construction” which may arise on account of delay in completion of a project; I. Other cost overruns (excluding interest during construction) upto a maximum of 10%

of the original project cost; II. The Debt Equity Ratio as agreed at the time of initial financial closure should remain

unchanged subsequent to funding cost overruns or improve in favour of the lenders and the revised Debt Service Coverage Ratio should be acceptable to the lenders;

III Disbursement of funds for cost overruns should start only after the Sponsors/Promoters bring in their share of funding of the cost overruns; and

IV All other terms and conditions of the loan should remain unchanged or enhanced in favour of the lenders.


Annexure

Relevant extract of the list of Farm Credit, from the Circular Priority Sector Lending- Targets and Classification- Paragraph III (1.1) of FIDD.Co.Plan.BC.54/04.09.01/2014-15 dated April 23, 2015.

Farm Credit

A. Loans to individual Farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs) i.e. groups of individual farmers, provided Banks maintain disaggregated data of such loans], directly engaged in Agriculture only, This will include :-

i. Crop loans to farmers, which will include traditional/non-traditional plantations and horticulture.

ii. Medium and long term loans to farmers for agriculture (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm).

iii. Loans to farmers for pre and post-harvest activities viz. spraying, weeding, harvesting , sorting grading and transporting of their own farm produce.

iv. Loans to farmers upto Rs.50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months.

v. Loans to distressed farmers indebted to non-institutional lenders. vi. Loans to farmers under the Kisan Credit card scheme. vii. Loans to small and marginal farmers for purchase of land for agricultural purposes

B. Loans to corporate farmers, Farmers’ producer organisations /companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture only upto an aggregate limit of Rs.2.00 crore per borrower. This will include:

i. Crop loans to farmers which will include traditional/non-traditional plantations and

horticulture. ii. Medium and long term loans to farmers for agriculture (e.g. purchase of agricultural

implements and machinery, Loans for irrigation and other developmental activities undertaken in the farm.

iii. Loans to farmers for pre and post-harvest activities, viz- spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce.

iv. Loans upto Rs.50.00 lakhs against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months.

C) Bank loans to Primary Agricultural Credit Socieities (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS) for on-lending to agriculture.

Glossary

Long duration crops- would be crops with crop season longer than one year and crops.

Short duration” crops- which are not “long duration” crops, would be “short duration” crops.


Exposure’ shall 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 (including State Govt. Guarantees), comfort letters etc .

Unsecured exposure is an exposure where the realisable value of security (Principal/collateral both) as stipulated and ascertained by the Bank/ Approved valuers/Reserve Bank’s inspecting officers, is not more than 10 percent , ab-initio, of the outstanding exposure.

$Reference date of execution of preliminary binding agreement between the parties to the transactions, provided that the acquisition/takeover of ownership as per the provisions of law/regulations governing such acquisition/takeover is completed within a period of 90 days from the date of execution of preliminary binding agreement. If the change in ownership is not completed within 90 days from the preliminary binding agreement, the ̀ reference date’ would be the effective date of acquisition/takeover as per the provisions of law/regulations governing such acquisition/takeover. ******


Chapter- 5

Willful Defaulters

RBI vide its Master Circular No RBI/2015-16/100 DBR.No.CID.BC22/20.16.003/ 2015-16 dated July 1,2015 has modified the guidelines on the declaration of Willful Defaulters. The Circular has brought out the modifications in its guidelines to bring in greater transparency and accountability in the process of identification of “willful defaulters”.

Purpose: To put in place a system to disseminate credit information pertaining to Willful Defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them.

1.1 Definition of Willful Default : The term ‘lender’ appearing in the Master Circular of RBI covers all Banks/FIs to which any amount is due, provided it is arising on account of any banking transactions, including off balance sheet transactions such as derivatives, guarantee and Letter of Credit. The term ‘Unit’ appearing therein has to be taken to include individuals, juristic persons and all other forms of business enterprises, whether incorporated or not. In case of business enterprises (other than Companies), Banks/FIs may also report the names of these persons who are in charge and responsible for the management of the affairs of the business enterprise. The term ‘Willful Default’ has been defined as under: A Willful Default would be deemed to have occurred if any of the following events is noted:- a) The Unit has defaulted in meeting its payment/repayment obligations to the lender

even when it has the capacity to honour the said obligations. b) The Unit has defaulted in meeting its payment/repayment obligations to the lender

and has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.

c) The Unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the Unit in form of other assets.

d) The Unit has defaulted in meeting its payment/repayment obligations to the lender and has also disposed off or removed the movable assets or immovable property given by him or it for the purpose of securing a term loan without knowledge of the Bank/Lender.

The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions /incidents. The default to be categorized as willful must be intentional, deliberate and calculated.


1.2 Diversion and siphoning of funds. The term ‘diversion of funds’ and ‘Siphoning of funds’ are construed to mean the following:- Diversion of funds referred to above would be construed to include any one of the under noted occurrences:- a) utilisation of short term working capital funds for long term purposes not in conformity

with the terms of sanction; b) deploying borrowed funds for purposes / activities or creation of assets other than

those for which the loan was sanctioned. c) transferring borrowed funds to the subsidiaries / group Companies or other Corporates

by whatever modalities; d) routing of funds through any Bank other than the lender bank or members of

consortium with prior permission of the lender; e) investment in other companies by way of acquiring equities / debt instruments without

approval of lenders; f) shortfall in deployment of funds vis-a-vis the amounts disbursed / drawn and the

difference not being accounted for.

Siphoning of funds referred to above, should be construed to occur if any funds borrowed from Banks/FIs are utilized for purposes unrelated to the operations of the borrower, to the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgment of the lenders based on objective facts and circumstances of the case.

The identification of the willful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorized as willful must be intentional, deliberate and calculated.

1.3 Cut Off Limits. While penal measures indicated at Para 1.5 below would normally be attracted by all

the borrowers identified as ‘willful defaulters’ or the promoters involved in diversion / siphoning of funds, keeping in view the limit of Rs. 25.00 Lacs fixed by the Central Vigilance Commission for reporting of cases of willful default by the Banks/FIs to RBI, any willful defaulter with an outstanding balance of Rs.25.00 Lacs and more, would attract the penal measures stipulated below. This limit of Rs.25.00 Lacs may also be applied for the purpose of taking cognizance of the instances of ‘Siphoning / Diversion of funds’.

1.4 End-use of funds. In case of project financing, the Banks / FIs to ensure end use of funds by inter alia,

obtaining certification from the Chartered Accountants for the purpose. In case of short term corporate / clean loans, such an approach ought to be supplemented by ‘due diligence’ on the part of lenders themselves and to the extent possible, such loans should be limited to only those borrowers whose integrity and reliability are above Board. The banks and FIs therefore, should not depend entirely on the certificates issued by Chartered Accountants but strengthen their internal controls and the Credit Risk Management system to enhance the quality of their loan portfolio.


Penal Measures.

Bank is required to initiate following penal measures against Willful Defaulters identified as per the definition indicated at paragraph 1.1 above. a) No additional facilities should be granted to the listed Willful Defaulters. b) Entrepreneurs/Promoters of Companies where diversion of funds/ siphoning of funds,

misrepresentation falsification of accounts and fraudulent transactions have been identified by Banks/FIs should be debarred from Institutional Finance Banks/FIs, Government owned NBFCs, Investment Institutions etc. for floating new ventures for a period of 5 years from the date of the name of willful defaulters is published in the list of Willful Defaulters by RBI.

c) Initiate legal proceedings wherever warranted against the borrowers / guarantors and foreclosure of recovery of dues expeditiously.

d) Initiate criminal proceedings against willful defaulters, wherever necessary. e) Bank should adopt proactive approach for a change of management of the willful

defaulting borrower Unit wherever possible. f) Incorporate a covenant in the loan agreement with borrowing Companies stipulating

that they should not induct on its Board a person whose name appears in the list of willful defaulters and that in case, such person is found to be on its Board, it would take expeditious steps for removal of the person from its Board. It should also be ensured that the penal provisions are used effectively and

determinedly. Towards this RBI has advised the Banks to put in place a transparent mechanism for entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should be ensured that a solitary or isolated instance in not made the basis for imposing the penal action.

Accelerated Provisioning With a view to ensure better corporate governance structure in companies and ensuring accountability of independent / professional directors , promoters, auditors etc the following prudential measures shall be applicable: a) The provisioning in respect of existing loans / exposures to companies having director/s

(other than nominee directors of government/ financial institutions brought on Board at the time of distress), whose name/s appear more than once in list of willful defaulters, will be 5% in cases of standard accounts.

b) If such accounts are classified as NPA, it will attract accelerated provisioning as

indicated below:

Asset classification Period of NPA Current Provisioning (%)As per RBI norms

Revised accelerated

provisioning (%)

Sub-Standard

(Secured) Upto 6 months 15 No change

6 months to 1 year 15 (20% by our Bank) 25

Sub-standard(un secured ab-initio)

Upto 6 months 25 other than infrastructure loans)

25

20(infrastructure loans)

6 months to 1 year 25 other than infrastructure loans) (30% by our Bank)

40

20(infrastructure loans)

Doubtful –I 2nd year 25 (secured portion ) 40 (secured portion )


(30% by our Bank)

100 (unsecured portion ) 100 (unsecured portion )

Doubtful –II 3rd & 4th year 40(secured portion ) (60% by our Bank)

100 (for both secured & unsecured portion )

100 (unsecured portion )

Doubtful –III 5th year onward 100 100

1.6 Mechanism for identifying of Willful Defaulters: i. The Regional Managers, shall identify the accounts having outstanding Rs 25.00 lacs

and above to be reported as ‘willful defaulters’ and report (format given in NPA Management Policy Booklet) to Head Office, Recovery Department on quarterly basis;

ii. The reports / recommendations shall be signed by the Regional Manager. Regional Managers to submit the reports HO, Recovery Department

iii. Branch / Region shall submit conclusive documentary evidence leading to willful nature of the default;

iv. The reports shall be processed by HO, Recovery Department and eligible cases will be submitted to an ‘Identification Committee’ headed by the Chairman (consisting of General Manager and Chief Manager ARD & Credit Monitoring).

v. The committee would examine the evidences of wilful default on the part of the borrowing company and its promoter/whole time director.

vi. If the committee concludes that an event of willful default has occurred, a show cause notice shall be issued, through the Branch / Regional Office to the concerned borrower and promoter / whole-time director and call for their submissions, if any. After considering their submissions issue an order recording the fact of willful default and the reasons for the same.

vii. An opportunity should be given to the borrower and the promoter / whole time director for a personal hearing if the committee feels such an opportunity is necessary.

viii. The order of the committee should be reviewed by another committee headed by the Chairman and consisting, in addition of General Manager and nominee Directors from RBI and Order shall become final only after it is confirmed by the said Review Committee.

ix. Head Office, Recovery Department shall report the account to RBI in the prescribed format after getting concurrence from Review Committee.

We propose to constitute Following Committees for the above purpose:

Identification Committee Review Committee

The Chairman Nominee Director RBI/NABARD

General Manager (Chief Manager ARD / Chief Manager Credit ) The Chairman


This procedure for identifying and reporting of willful default by Head Office to RBI is

applicable only for A/cs with outstanding dues of Rs. 25 Lacs and above. However, Regional Offices, as well as branches are also required to examine each account turning to NPA (with outstanding dues below Rs. 25 Lacs) to the extent of ascertaining whether any act of willful default is discernable from the part of the borrowers. Even though these Accounts with outstanding dues below Rs. 25 Lacs, need not be reported to Head Office/ RBI, it is advised that the branch / Region should take adequate penal measures against such borrowers as mentioned in Para 1.5 above.

1.7 Guarantees furnished by individuals, group Companies & non-group Companies: While dealing with Willful Default of a single borrowing Company in a Group, the Bank

should consider the track record of the individual Company with reference to its repayment performance to its lenders. However, in cases where guarantees furnished by the Companies within the Group on behalf of the Willful defaulting units are not honored when invoked by the Banks/FIs, such Group Companies should also be reckoned as willful defaulters.

When a default is made in making repayment by the principal debtor, the bank will be able to proceed against the guarantor / surety even without exhausting the remedies against the principal debtor. As such, where a bank has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. In case the said guarantor refuses to comply with the demand made by the Creditor/Bank, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a willful defaulter. It is clarified that this treatment of non-group corporate and individual guarantors would apply only prospectively and not to cases where guarantees were taken prior to the above mentioned RBI Circular. Bank to ensure that this position is made known to all prospective guarantors at the time of accepting guarantees.

1.8 Role of Borrower’s Auditors:

In case any falsification of accounts on the part of the borrowers is observed by the bank and if it is observed that the auditors were negligent or deficient in conducting the audit, it should lodge a formal complaint against the auditors of the borrowers with the Institute of Chartered Accountants of India (ICAI) to enable the ICAI to examine and fix accountability of the auditors. Pending disciplinary action by

ICAI, the complaints may also be forwarded to RBI (Department of Banking Supervision, Central Office) and IBA for records. IBA would circulate the names of the CA firms against whom many complaints have been received amongst all Banks who should consider this aspect before assigning any work to them. RBI would also share such information with other financial sector regulators/Ministry of Corporate Affairs (MCA) / Comptroller and Auditor General (CAG.)

With a view to monitoring the end-use of funds, if the Bank desires a specific certification from the borrowers’ auditors regarding diversion / siphoning of funds by the borrower, the Bank should award a separate mandate to the auditors for the purpose. To facilitate such certification by the auditors the bank will also need to ensure that appropriate covenants in the loan agreements are incorporated to enable award of such a mandate by the lenders to the borrowers / auditors.


In addition to the above, it is advised that with a view to ensuring proper end-use of funds and preventing diversion / siphoning of funds by the borrowers, Bank could consider engaging their own auditors for such specific certification purpose without relying on certification given by borrower’s auditors. However, this cannot substituted bank’s basic minimum own diligence in the matter.

1.9 Role of Internal Audit / Inspection:

The aspect of diversion of funds by the borrowers should be adequately looked into while conducting internal audit / Inspection of their offices / branches and periodical reviews on cases of willful defaults should be submitted to the Audit Committee of the Bank.


Annexure

Branch: ____________________ Branch Code: ________

Region: ____________________

Memorandum for identifying borrower as “Willful Defaulter”

Reporting case of willful default of Rs.25.00 lakh and above for the quarter

ended June 20….

1. Borrower Code: 1A. Cust ID:

Borrower Name:______________________________________________________

3. Suit Filed: Yes / No. 3. A. If Yes, date of suit filed:_____________

4. Outstanding balance and provision held as on 30.06.20….. (amount in Rs. lakh):

Asset Code

Cr. Facility

Since NPA since

Balance

outstanding

Provision

held

1 Funded

2 Non-funded

Total

5. Registered address ________________________________________________

6. Directors / Partners / Proprietor: (Mention Full Name, Address , PAN No. of proprietor / director / partner & Din No. of director):

Sr. Name Address Pan No /Din No. Cust ID, if has personal accounts in our bank

7. If SARFAESI Action taken: Yes or No. If Yes, Date of notice issued : 8. Reasons for treating the borrower’s as willful defaulter: (While reporting mention appropriate reason / s from a, b, c, d given below)

a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations. (Please mention details for classifying an account as Willful Defaulter for this reason. Attach proof in support of arriving at the decision / judgment)

b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes particularly in the following manner:-

i. Utilisation of short-term working capital funds for long term purposes not in conformity with the terms of sanction;


ii. Deploying borrowed funds for purposes / activities or creation of assets other than those for which the loan was sanctioned;

iii. Transferring borrowed funds to the subsidiaries / group companies or other corporates by whatever modalities;

iv. Routing of funds through any bank other than the lender bank or members of consortium without prior permission of the lenders;

v. Investment in other companies by way of acquiring equities / debt instruments without approval of lenders.

vi. Shortfall in deployment of funds vis-à-vis the amounts disbursed / drawn and the difference not being accounted for. (Please mention details for classifying an account as Willful Defaulter for any one or more reason/s mentioned herein above. Attach proof in support of arriving at the decision/s and judgment/s)

c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets i.e. if any funds borrowed from Banks / FIs are utilized for purposes unrelated to the operations of the borrower, to the detriment of the financial health of the entity or of the lender. (The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgment of the lender, based on objective facts and circumstances of the case). (Please mention details for classifying an account as Willful Defaulter for this reason. Attach proof in support of arriving at the decision / judgment).

d) The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank / lender. (Please mention details for classifying an account as Willful Defaulter for this reason. Attach proof in support of arriving at the decision / judgment)

10. Conduct of the account / the past track record of the borrower: (please offer comments in brief on conduct of account, verification of end use of funds and recovery efforts made before account is classified as NPA. The default to be categorised as Willful must be intentional, deliberate and calculated.)

Willful default has occurred / been detected in the borrower account during

______________ quarter. We certify the correctness of the above information and recommend that the borrower shall be declared as Willful Defaulter.

Date

Place

Branch Manager Regional Manager

___________ Region


Chapter - 6

Staff Accountability

Staff Accountability Policy circulated vide branch circular 5/31 , Dtd. 04/06/2016

6.1 Normally, by the time memoranda for legal action/ waiver of legal action/ waiver of appeal/ write off/ compromise proposal are submitted, SAR should have been dealt with. Hence, all memoranda for legal action/write off/compromise proposal shall be accompanied by a staff accountability certificate as per format. If however for any reason SAR is not dealt with, such memoranda for legal action/write off/compromise proposal shall be accompanied by an undertaking from the recommending authority to look into the staff accountability within 30 days from the date of such recommendation.

Branches/ Regional Office, while preparing proposals for the above purpose shall advise the GM /Head Office, status of closure of staff accountability clearly stating as to how the staff accountability is closed i.e.; a) whether any deficiencies were observed requiring disciplinary action

b) negligence/malafide, fraud/ cheating are observed requiring investigation

c) any vigilance angle is observed and action taken on the observations.

6.2 If SAR is dealt with more than two years prior to the proposal, Branch / Regional Office shall give a certificate to the effect that SAR for the interim period (from date of SAR closure to date of proposal) is examined by them and that no lapses are noticed in follow up of the account. Specific comments to be made when there is erosion of securities.

6.3 At the time of submitting the compromise / write off proposal, if the SAR is not conclusively dealt with by the competent authority, the Branch / Regional Office shall mention clearly the date when they have submitted the Memo for consideration at Regional Office / Head Office (respectively) and the gist of their recommendations.

******


Chapter – 7

Compromise Settlements

A compromise is a settlement of disputes reached by mutual consent. It is a negotiated settlement with sacrifice component on all the parties to the dispute. It is a non legal remedy for reduction of NPAs of the Bank. Negotiated compromise settlements should be made to maximise the compromise amounts.

Special one-time settlement schemes of RBI announced from time to time are not covered by these guidelines. Separate guidelines will be issued from time to time for such schemes as per the instructions of the RBI and delegation of powers for approval of such schemes will be advised separately.

The following procedures and systems are applicable for compromise settlement as per Bank’s NPA Management policy.

7.1 Negotiation Process

7.1.1 We should negotiate compromise offer taking into account various parameters as below: i. age of the NPA. ii. strength of documentation. iii. age and stage of proceedings in the suit. iv. condition of charged assets and realizable value/distress sale value. Its marketability,

ascertainibility , adverse possession and social status of the borrower. v. capacity for negotiation by the Bank and the borrower. vi. Position of group accounts and present status of activity of the borrowers

7.1.2 In the process of negotiation, sacrifice of various components of the dues as below in the order of desirability would be considered –

i. penal interest ii. incidental expenses including inspection/insurance charges. iii. ECGC/CGTMSE guarantee fees/Back ended subsidy. iv. Legal expenses incurred and to be incurred. v. Compounding effect of interest. vi. uncharged interest vii. Ledger write off is to be considered only when it is unavoidable.

7.1.3 The following factors would also be considered while negotiating : i. Time value of money and probable future recoveries compared with the offer amount. ii. Realisable value of security evaluated on a distress sale basis.


iii. means of borrowers/guarantors other than the security charged in the account or attached in execution proceedings and their current income if they are engaged in gainful activities.

iv. the amount repayable to CGTMSE/ECGC on settlement. v. if there are credit balances in the name of the borrower in margin or other deposit

accounts. vi. component of amount outstanding and uncharged interest in the total dues (age of

NPA) vii. stage of recovery action such as recall, filing of suit, decree, etc. viii. strength and weaknesses of bank’s case in respect of documentation, realisation of

security, etc. ix. Cost of maintaining the suit, maintaining the security (godown charges, inspection

expenses, receiver dues, insurance, security wages, etc.) x. Impact of accepting the compromise proposal on P&L A/c (by way of write back of

provisions/URI and recovery of uncharged interest).

7.1.4 Compromises may be negotiated with –

i. principal borrower ii. guarantors either for partial payment or full payment iii. parent company

iv. other interested parties like drawees of bills, legal heirs, etc.

7.2 Eligibility

a) The eligibility criteria for entering into compromises are –

i. The account should be classified as non performing asset. Accounts which have become non performing assets, during the course of the year, for which provision is to be made at a future date and written off accounts, are eligible.

ii. The default should have occurred due to reasons beyond the control of the borrower. iii. Efforts for up gradation either by restructuring or rehabilitation have either failed and/

or may not yield desired results. iv. The securities, income/ worth of the borrower/ guarantors is not sufficient to ensure

full recovery of the dues. v. Any other reason in which continuation of relationship with the borrower is considered

not in the interest of the Bank. vi. All suit filed / decreed accounts, accounts considered under restructuring schemes are also

eligible to be considered for OTS under Bank’s NPA Management Policy. Wherever the matter is pending before the Court/ DRT the settlement between the parties should be intimated to the Court / DRT etc.

Ineligible Cases

The following cases are not eligible in the normal course and should not be entertained by the regular delegatees below the level of GM (refer para 7.4.4) i. Wilful defaulters

ii. Cases of malfeasance/ misfeasance

iii. Fraud/ cheating


Before identifying an applicant as wilful defaulter Branch should keep sufficient data / records to prove and establish that the borrower is a wilful defaulter. In the absence of such proof the borrower should be given the benefit of the policy. Even in case of wilful default or fraud accounts, the compromise offers, if valuable in money terms, shall be referred to GM Head Office through Regional Office

7.2.1 The detailed guidelines for classifying an account under ‘wilful default’ category and further course of action are given in a separate Chapter (5).

7.3 Compromise settlement and sacrifice :

The authority for approval shall be determined by the “sacrifice” proposed under a settlement. For calculating sacrifice concept of Adjusted Net Amount Payable (ANAP) is of paramount importance. Both ANAP & sacrifice shall be arrived at as under –

a) Adjusted Net Amount Payable (ANAP): Considering the age of NPA, nature of asset classification and the ground realities, we are adopting a two way system of arriving at the ANAP as below:- i. In accounts where the asset classification is Substandard or Doubtful for calculating the

ANAP, simple interest at (presently 10% p.a.) from the date of ceasing interest till the last date of previous month of the submission of the compromise proposal shall be calculated and added to the ledger outstanding balance as on date of proposal. Value-dating of credits / debits shall be done while calculating the interest from the date of interest ceasing.

ii. In accounts where the asset classification is “loss asset” or the ledger balances is already written off (excluding accounts where only PWO is affected at HO level), No interest shall be loaded to the ledger balances from the date of account classified as NPA.

b) Sacrifice: Sacrifice involved in a compromise proposal shall be determined as under:-

i) Amount by which the Adjusted Net Amount Payable exceeds the proposed compromise amount.

ii) Sacrifice due to interest concession given for OTS repayment period if any

accordingly, the delegation would be determined.

7.3.1 Justification for sacrifice: a) While negotiating compromise branches should have following four dues handy

Contractual dues including details of penal interest

i. Adjustable Net Amount Payable

ii. Benchmark dues recoverable as per Module approach

iii. Net present Value (NPV) of Settlement Amount (offer) & Distress sale value of Securities (DSV) available with account.


and endeavor to recover maximum amount not below ANAP/ Benchmark Dues recoverable as per Module Approach whichever is higher, book write off should be in exceptional cases only. However the delegation would be determined as explained above (para 7.3 b).

b) Bench Mark: It is being calculated on the basis of the module given in Annexure. It is only a guiding tool for negotiations. Compromises below the module/ benchmark should not be treated as deviation.

7.3.2 Payment Terms:

a) The amount of settlement should preferably be paid in one lumpsum. b) In case the borrowers are unable to pay the entire amount in one lump sum, the

following procedure may be adopted - “Normally minimum upfront/ down payment of 10% of the compromise offer be deposited in a No Lien account / sundry credit Upfront must be insisted upon; however, it shall not come in the way of entertaining OTS proposal if otherwise acceptable. In case, where the compromise amount is expected to be paid by the sale of securities charged to the Bank, the down payment may not be insisted upon”. Not obtaining of upfront / down payment shall not be treated as deviation.

c) Delegatee upto Regional Manager can approve repayment periods up to 06 months subject to levying applicable interest.

d) General Manager can approve repayment periods up to 12 months and also deviation in rate of interest for repayment period within their delegated authority of approving sacrifice.

e) Chairman shall have full powers to approve repayment periods even beyond 12 months and also deviation in rate of interest for repayment period subject to reporting to Board

f) Repayment of compromise amount to be fixed such that minimum 25% of amount is paid within 3 months.

g) Balance amount of 75% should be recovered in equal monthly / quarterly installments within a period of further 9 months (maximum 1year) together with applicable interest from the date of approval for the sanctions up to Regional Office level. For sanctions of General Manager onwards, longer repayment period may be stipulated. While recommending repayment period more than 12 months Regional Office to ensure reliability of sources of payment (cash-flows) and to make specific comments in this regard.

h) The rate of interest to be charged for payment of compromise amount is as under:-

i. No interest if, 25% upfront is received and full OTS amount paid within 90 days of conveying approval of OTS.


ii. For other cases

Particular Applicable interest

Repayment period upto 12 months

1% below MLR (simple) on reducing balance from date of approval of OTS till full payment

Repayment period

more than 12 months

At MLR presently @ 14.50% p.a. (simple) on reducing balance from date of approval of OTS till full payment *

* Delegation for concession in ROI General Manager and above

Where the borrower is not offering interest for the OTS/extended period of repayment, the notional interest applicable for OTS repayment period as above should be calculated and be added to the sacrifice amount for the purpose of determining the delegated authority. Please note importantly that delegatees up to Regional Office have no power to approve any deviation in applicable interest on OTS repayment period. Authority for approving concession on interest, for OTS repayment period starts from General Manager onwards.

7.3.2 Extension of time and charging of interest a) Delegatees are empowered to approve extension of repayment period over the initial

period such that the total repayment period of the compromise amount shall not exceed 12 months provided interest is recovered from the date of approval of OTS till full payment.

b) In case repayment period exceeds 12 months as in (a), further extension of maximum 24 months (up to 36 months) may be sanctioned by Chaiman for the proposals sanctioned by delegatee up to Regional Manager.

c) General Manager can approve extension of repayment periods up to 36 months and deviation in rate of interest for the OTS earlier sanctioned by them within their delegated authority of approving sacrifice.

d) Chairman has full power for extension of repayment period and deviation in rate of interest.

7.4 Delegation:

The delegation for approval of sacrifice in the compromise proposals, subject to cap mentioned below (para 7.4.1)

Rs. In lacs

1. Chairman 10.00

2. General Manager V 5.00

3. General Manager IV 3.00

5. Regional Manager Scale-IV/Chief Manager HO 1.50

6. Regional Manager Scale-III/ Chief Manager Branch 1.00

i. (*)The powers are to be exercised by the Chief incumbent at the Branch. ii. (*)The official approving the compromise proposal should not have sanctioned the

facilities earlier in his personal capacity. In such cases it would be referred to the next higher authority for approval with specific details.


iii. Delegatee below General Manager are not authorized to consider Compromise proposals involving/fraud/malfeasance.

iv. Chairman is the authority to consider OTS proposals involving willful default cases irrespective of amount involved

v. Normally, settlement should be considered in all the group accounts of the borrower simultaneously. However, for the purpose of delegation, sacrifice involved in individual borrower accounts shall form the basis (There is no group concept for approving sacrifice). Combined proposals of various borrowers (may be group for other purposes) are to be considered individually by apportioning proportionate amount to each borrower. Lower delegatees to exercise delegation first thereafter may recommend residual proposals for consideration to higher authority.

7.4.1 Cap on delegation:

In OTS proposals with Adjusted, Simplified, sacrifice in UCI, Net Amount Payable (ANAP) up to Rs.5.00 lacs sacrifice amount shall not exceed 50% of ANAP, in case sacrifice exceed 50%, the case may be referred to the next higher authority for approval. Where Net Adjusted Amount Payable is over Rs.5.00 lakh, following cap to be observed:-

a) Delgatees below the rank of Regional Manager shall exercise powers, subject to sacrifice not exceeding 50% of the ANAP and delegated monetary ceilings

b) In case of deviation (sacrifice exceeding 50% of ANAP), the General Manager and onward shall approve the proposal within their delegated authority of sacrifice.

7.4.2 Other delegation:

Delegatees approving sacrifice in the compromise proposal are also authorized to approve release/ discharge of the borrower/ guarantors, release securities charged to the Bank, withdraw suits/ appeals/ execution proceedings, etc. subject to recovery of full OTS amount and compliance of other terms of sanction irrespective of any other delegation conferred elsewhere for such purposes. 7.4.3 Modification/ Deviations :

Modification in an earlier sanctioned OTS can be considered by same delegatee within the delegated authority for sacrifice (including modification) and within their authority of allowing time for repayment (Regional Manager-up to 12 months, General Manager-up to 36 months & Chairman–full power).

General Manager onward may approve deviations/modification in rate of interest / payment terms and extension of time (over and above sanction of Regional Manager but maximum up to 36 months) for the proposals which fall within their delegated authority and below.

In the case of proposals sanctioned by General Manager, modifications to the terms of sanction including extension of repayment period shall be approved by Chairman subject to the cap of 25% on reduction in compromise amount and reporting to Management Committee.


7.4.5 Delegation for Ineligible cases:

Though cases of willful default, fraud, malfeasance are kept outside the purview of the policy, the compromise can be negotiated for recovery of the dues without prejudice to criminal / other action. Compromise proposals involving fraud / malfeasance shall be approved by General Manager and onwards as per the delegation regarding sacrifice amount subject to informing the investigating authorities such as CBI/Police etc. For wilful default cases, the proposal will be approved by General Manager irrespective of amount involved.

7.4.5 Delegation of powers for Release/ substitution / Realisation of the principal/ collateral security charged to the Bank in respect of NPA accounts:-

The approving authority for considering the release/substitution/realisation of the security will be the next higher authority not below General Manager under whose powers the review of aggregate outstanding inclusive of uncharged interest calculated as applicable for calculating Adjusted Net Amount Payable & considering credit rating at entry level falls. The authority minimum General Manager would consider the request after obtaining valuation of immovable assets not more than 12 months from date of proposal from one valuer (original market value below Rs 25.00 lakh) and 2 independent valuers (original market value Rs 25.00 lakh and above) of the property /asset proposed to be released/ substituted /realized. All proposals for release/ substitution of security and/or guarantee at head office in NPAs, are to be routed through the Screening Committee detailed in para 7.5.6 below. Cost of valuations is to be born by the borrower/guarantor but not by debiting NPA account.

7.5 Other matters connected to compromises:

7.5.1 Group accounts: Normally, settlement should be considered in all the group accounts of the borrower simultaneously. However, where the borrower offers compromise settlement of dues in any one of the NPA account leaving other NPA account without any offer, Chairman would be the minimum level to consider continuation of relationship.

Where some of the accounts are NPA in the group and the branch desires continuation of relationship in respect of non NPA accounts in the group, Chairman would be the minimum level to consider continuation of relationship. However course of action for recovery in the other group NPA accounts shall be simultaneously dealt with by the authority empowered to approval legal action/waiver of legal action in the accounts.

7.5.2 Staff loans and staff related accounts : The occasions to approve compromises in staff/staff-related accounts will be very few and should be considered very judiciously as per the following guidelines: a) Compromises in accounts of close relatives of staff members (where staff member is

not a guarantor) – shall be approved only at the level of Chairman . b) Compromises in accounts (of third parties or relatives) where our Staff Member is a

guarantor- shall be approved by Chairman as per the delegation subject to SAR duly dealt with and prior clearance from General Manager, Head Office as the case may be, to be obtained.

c) In respect of loans in the name of ex-staff members who have deceased/retired or are no more in the service of the bank for more than 2 years, compromise proposals may


be approved on merits by the delegatees as per normal terms (Delegation as per para 7.4).

d) Any other cases involving compromises in accounts shall be considered only by Chairman and above as per delegation in para 7.4.

7.5.3 Counter claims : If there is a counter claim from the borrowers/guarantors in respect of a suit, compromise will be entered into on condition that the counter claim will be withdrawn.

7.5.4 Limitation : a) In respect of non suit filed accounts documents should be kept alive by obtaining

periodical renewal documents till full repayment of compromise dues. Where the ANAP is more than Rs.5.00 lakh, post dated cheques as per terms of repayment should be obtained towards payment of the compromise dues. For any valid reason, if this is not possible, specific mention should be made in the proposal and waiver shall be approved by sanctioning authority.

b) In suit filed accounts consent decree is to be obtained wherever recovery is in instalments exceeding three months period.

7.5.5 Other Miscellaneous matters regarding compromise proposals:

In the compromise proposals, Branch /Regional Manager/General Manager shall mention and comment upon following aspects particularly:- a) Value of security should be given as of original sanction date, last review date and

present position. If there is wide variation (especially for land / building etc.) in value, proper explanation should be given. It is essential that the Branch / Regional Manager shall have a fair idea of the realisable value of charged securities. If need be, for compromise proposal of Rs. 50.00 lakh and above, officials from Regional Office should visit the location of the land/building and comment on the reliability of valuation. Valuation of immovable assets not more than 12 months old from date of proposal from one valuer (original market value below Rs. 25.00 lacs) and two independent valuers (original market value Rs. 25.00 lacs and above) has to be obtained and necessary comments thereon be offered in the compromise proposal justifying the same. Cost of valuations is to be borne by the borrower/guarantor but not by debiting NPA account.

b) Staff Accountability Report (SAR) to be dealt with prior to submitting the proposal for OTS/Write Off. The details of examination and closure with authority and date of closure along with finding thereof should be given in the proposal. If any lapses are noticed, punishment awarded to erring officials, if any, shall be mentioned. If no lapse/malafide is observed on the part of any staff member in handling/follow-up of the account, then specific mention to be made accordingly. In the accounts where Branch / Region has submitted the SAR (not yet closed) to higher authorities for examination (to Regional Office / Head Office as the case may be), date of submission of report and gist of recommendations shall be provided. If the SAR closure date is more than 2 years from the date of proposal, Branch Manager / Regional Manager shall examine and certify that there are no lapses in follow up during the intervening period.


c) As far as possible, Branches should get some amount as upfront before submitting the proposal to the competent authority (refer Para 7.3.1 (b)). In extreme cases, where upfront is not available, specific reason for the same shall be furnished in the proposal.

d) In case the compromise amount is not paid by the borrower as per terms of approval, the Branch Manager shall review the situation periodically and take decision for future course of action. If the approved compromise is to be revoked, Branches shall put up a Memo to their Regional Office. Regional Managers are empowered to take decisions for revoking the compromise (irrespective of the sanctioning authority of the compromise proposal). Along with approval for revoking the compromise, Regional Managers shall give clear guidance / instructions to the Branches for future course of action. Regional Office shall report the decision to HO-Recovery Department, if the original compromise approval was done at HO level.

e) As a result of any compromise settlement, if there is any ledger write off (as approved by sanctioning authority) the write off shall be effected only after full recovery of compromise amount + interest as per terms of compromise. But without waiting for recovery of recompense amount if any. Needless to mention that if in any sanction right of recompense clause is added and accepted by borrower, release of securities/guarantees is to be effected only after finalisation of right of recompense.

f) In Accounts where criminal action is initiated or matter is under investigation by any investigating authority such as CBI etc., Bank may enter into a compromise / out of Court settlement in such accounts purely as a commercial consideration, (the delegated powers to approve such cases are vested with General Manager onward without prejudice to such proceedings/actions. However, in such cases, the approval of the Compromise Settlement/Out of Court Settlement shall be subject to the condition that the same shall be communicated to the investigating authority before conveying the terms of settlement to the borrower/guarantor. Such communication of compromise settlement of dues will be signed by the General Manager HO only. In case communication of compromise settlement is required to be signed by the GM HO, Recovery, Department must send the copy of approved compromise proposal along with a copy of the complaint made to CBI/Investigating Agency, etc. to Head Office for verifying the facts as also the latest position of the matter in case CBI/Investigating Agency has already started pursuing the matter.

g) After informing CBI/Investigating Agency, branches should wait for a period of 30 days. In case there is no response from them during the said 30 days, the borrowers should be informed of the terms & conditions of compromise. In the event of CBI/ Investigating Agency choosing to respond, the matter should be brought to the notice of the sanctioning authority and reconsidered in the light of observations made by the CBI/Investigating Agency.

h) Branch Manager/ Regional Manager shall take care to incorporate the details of enquiry / investigation by CBI / any other investigating agency in all their compromise proposals. While processing matters which are directly or indirectly connected with the investigation by CBI/any other Investigating Agency, the memorandum for submission to the Top Management/Board/other Board level Committees should bear on the top of first page itself a proper notation such as “ CBI/ Investigating Agency referred matter” in bold for immediate attention of the Top Management.

i) Branch/ Region to add a clause in the `No Dues Certificate’ to be issued to the borrowers / guarantors as under –


“This `No Dues Certificate’ is issued without prejudice to any criminal cases initiated against the borrowers and/or guarantors and/or third parties irrespective of whether the offence is compoundable or not and Bank intends the law to take its own course till logical conclusion of such criminal cases as compromise is entertained as a commercial prudence to recover the money without prejudice to such criminal actions.”

j) As per the directions given by the RBI, henceforth the authority sanctioning a compromise/OTS should append a certificate stating that the compromise settlements are in conformity with the RBI guidelines in the matter.

7.5.6 A) Screening Committee: “All proposals of Release/ Substitution / Realisation of the principal/ collateral security in respect of NPA accounts to be considered within the delegated authority of Chairman are to be first cleared by a Screening Committee formed at the Head Office by Recovery Department. The General Manager Chief Manager- Credit, ARD, Credit Monitoring and Audit shall be the members of committee. Minimum quorum shall be 3 including compulsory attendance of General Manager. The Chief Manager HO, ARD shall be the convenor of the Committee. 7.5.7 NPV of securities and offer amount

The value of securities and Bank’s ability to dispose the same is other guiding factor while negotiating compromise. The net present value (NPV) of OTS amount and distress sale value of the available securities be calculated, generally NPV of OTS amount should not be less than NPV of the distress sale value of the available securities. In cases of lower value, the same has to be justified with valid and sufficient reasons. Average period for calculating NPV based on overall view of resolution of NPA accounts from the date of NPA is to be taken as under:

a) Accounts where SARFAESI Action is taken

NPV to be calculated for 2 to 3 years

depending upon realisability of security

b) Accounts where Suit is filed

or Decreed

NPV to be calculated for 5 to 7years


c) Accounts which are referred

to CDR/BIFR

NPV to be calculated for 7 to 9 years


4.5% below MLR with annual rests should be taken as rate of discount for NPV calculation.

NPV is to be mentioned in the proposal while giving the justification for acceptance of compromise amount.

7.5.8 Reporting: a) Details of compromises approved by the Branch shall be reported to Regional Office

every month as per format. Branches shall include all the proposals sanctioned at Branch level / Regional Office / Head Office in the format. Regional Office shall submit

to Head Office by 10th of every month in the prescribed format all compromise

proposals involving sacrifice of Rs. 5.00 lakh and above sanctioned at various levels i.e. Branch, Regional Office, and Head Office.


b) Compromise proposals sanctioned at Head Office by Chairman shall be reported to the Board on quarterly basis.

*********


COMP-1

Proposal For Compromise Settlement for ANAP above Rs. 1.00 Lac

MEMORANDUM FOR APPROVAL OF (Authority)

Ref. No.: Date:

Region: Branch:

I. Particulars of account 1. Name of the account Cust ID : A/C No :- 2. NPA since/ Asset Code : 3. Date of establishment : 4. Credit facilities since : 5. Category : AFD/SME/RETAIL/C & IC/OTHER (Specify) 6. Activity –At the time of sanction : At present : 7. Constitution Individual/Proprietorship/Partnership/Other(Specify

8. Banking Arrangement :Sole/Multiple/Consortium

For Multiple/Consortium Major share holder/LeaderOur share

9. Group : 10. Principal Person

Particulars of borrower & guarantor/s: Details Worth Rs. In Lacs

At the

time of

original

sanction

Basis of assessment like

CBD 23/Net worth

certificate (CA certified,

wealth tax return)

Audited B/S with date

At

present

Basis of assessment

CBD 23 / branch/zone

assessment based on

market survey/

detective agency

report/ audited B/S$

Borrower Firm/

Company

Proprietor/

/Partners/

Directors

Guarantors

@

Total

@ In case of company, guarantors which are also director, their worth to be mentioned

in one place only. $ Should be of latest financial year (Audited).


II Details of the facilities and security :

1. a) Details of facilities and present position of account:

Rs. In Lacs.

San details Position of a/c as on close of previous month Original Sanction Last sanction

Authority & date Authority & date

Facility San limit Facility San limit O/S UCI Total Dues

Total

1) Date of interest ceased: 2) Recoveries made after the account classified as NPA : 3) Documents valid up to : ( in suit file a/cs , date of suit is to be mentioned) 4) Other debits (Already absorbed in P/L or kept in GENSUS a/c ) 5) Quantified further debits with probable date of payment : (BG/LC, court fee, advocate,

enforcement/recovery agents etc.) 6) Particular of liquid securities held reasons of non-appropriation, if any: (TDR/NSC/LIC

policies/ Share/bonds/gold etc. taken as securities/margin): 7) Particular of subsidy, if any:

( If eligible for any subsidy as per original sanction amount and date of receipt of same and date of appropriation, if not received reasons thereof)

II a) Particulars of security and comments: ( Rs.in lakh)

Securities

Principal:

Particular Original value (date of valuationand basis)

Present Value(date of valuation and basis)

Current Asset

Stock/Book Debts/other

Fixed Asset Valuer one $ Valuer two$

MV RVS DV MV RVS DV

Land

Situate at -- Area- Owned by-

Building

P/M,

Total


Collateral

Current Asset

Stock/Book

Debts/other

Fixed Asset Valuer one $ Valuer two$

MV RVS DV MV RVS DV

Land

Building Land

P/M

Total

(Two Valuations (not more than 12 months old) from two independent valuers on Bank’s approved panel, in case the original market value of immovable property is Rs. 25.00 lakh & above, has to be obtained. Major variations should be properly justified). In case of valuation of factory/constructed property, separate value of each item –land, building, P& M and F/F are to be given. In case of additional securities are obtained in subsequent reviews, their original value with explanatory note has to be given. Suitable justification is required if there is decline in value of collateral security from original valuation.

Note-In case of immovable properties not requiring two valuations - value below Rs. 25.00

lakh, column of 2nd valuation must be deleted.

b. Finacle (CCIS) details as at end of previous quarter : Rs. in lacs

Sr no. A/c No.

NPA date

/Asset code O/s

Value of security URI/FITL Provision

i. Valuation of immovable securities by one/two valuers has been obtained as on--- date) and ------ (date).

ii. Inspections of the mortgaged properties has been carried out by one/two Branch

Officials on--- (date) and ------ (date) . As per both the reports, the value of the properties is reasonable and according to prevalent market rate.

iii. Primary security -------- (description) and mortgaged properties are insured up to (date).

Date of Suit

Suit Amount

Date of Decree

Amount of decree

Decreed rate of interest

Date

of EP

Present position of suit/decree/EP


III) a) Position of suit, if filed: (Rs.in lakh) b) Counter claim, if any:

Consent for withdrawal upon approval of OTS has to obtain.

d) Position of Action under SARFAESI Act 2002 : (Rs.in lakh)

Date of issue of notice

Possession date (whether symbolic/physical)

Auction

date/s

Result of action

Remarks

IV) Position of Claims

(Rs.in lakh)

Date of Claim

Amount of claim

Date of settlement

Amount settled

Bal.in

Claim a/c. Reasons for not filing/

rejection

(ECGC, CGTSI, Insurance claim, CGTMSE etc. garnishee order, attachment of receivables, etc. to be given Chart of ECGC/ CGTMSE Claim refund to be given): (In case of rejection of claim by CGTSME/ECGC due to delay in lodging claim specific comments on staff accountability aspects has to given. Comments on sharing of loss/waiver for same in respect of CGTMSE covered a/cs has also be given)

V) Amount offered under compromise: Rs. lakh Sacrifice Rs. lakh

a) Bench mark amount as per module approach: b) NPV of settlement amount and NPV of DSV of available securities ( for NPAs Rs. 25.00

and above) (Justification if considering below Bench mark level/ NPV of settlement amount is below than and NPV of DSV of available securities)

c) Source of payment : d) Advance payment, if not reason thereof : e) Schedule of payment : f) Details of PDC :

g) Details of litigation filed by borrower against Bank ,if any

h) Other conditions :

VII) Conformity with the Recovery Policy guidelines: (Deviation, if any, from the policy to be specified) VIII) Financial implications: Data should be furnished as per relevant Annexure.

OA Number and name of DRT: Name of Advocate:


IX) Other liability including Indirect liability/concurrent dealings: (Rs.in lakh)

Account How

related

Limit enjoyed

Outstan

ding

Total dues (ANAP) in case of NPA with us

Asset Code

a) Liability of borrower/ guarantor /sister concern

b) Liability as a

guarantor, if any

c) Details of accounts with other banks

Besides liabilities of financial institutions(includes suits with costs/ cases with Ombudsman/ consumer courts, etc.), claims of government departments such as Income tax/ Custom & Excise/ Sale tax/electricity department etc. , wages, any court order etc has to be given.

X Salient features of balance sheets of last 3 years:

(if the unit is still working please give data from audited balance sheet)

XI) Comments of RBI/Internal Inspection:

XII) (a) Comments on staff accountability@ :

i. Any deficiencies negligence, malafide, fraud and cheating observed, disciplinary/ vigilance action is taken, etc.

ii. If no malafide/ lapse observed in handling/follow-up of the account, then specific mention should be made.

(b) Comments on monitoring and follow up /any other laps observed$:

(@Authority and date of closure and how SAR is dealt with is to be given. Staff Accountability Report (SAR) to be dealt with prior to submitting the proposal for OTS/Write Off as per SAR policy). ($Applicable for those a/cs in which SAR closure date is prior to two year from the date of OTS proposal)

XII) (b) CERTIFICATE:

i. It is certified that no investigation/fraud has been reported in this account and no investigation by Police/CBI/Economic Offence Wing (EOW)/ and/or by any Investigating Agency is pending/ initiated/ contemplated by the Bank against any borrowers/guarantors/ company/partners/directors of either this account or any other group account.”

ii. It is certified that all terms of sanction are complied.

iii. It is certified that format used for compromise proposal is the format (COMP-I) given in NPA Management Policy 2015 for the purpose and all the relevant/material information has been incorporated in the proposal


iv. It is further certified that compromise settlements is in conformity with the RBI guidelines in this regard.

XIII) (a) Branch/ Regional Office/ General Manager /Head Office Comments & recommendations:

(Should cover Brief history including details of holding on operation/restructuring etc, present position of activity /securities including enforceability of securities, efforts made for recovery (Details SARFAESI/SUIT etc including services of outside agency ) ,efforts made in arriving at the settlement, justification for accepting compromise below bench mark level as per module approach, with basis of offer amount and scope for further improvement, any other important issue & Justification of OTS ( NPV, P/L impact etc.).

b) Approval for :

a. Terms and Condition of OTS:

XIV) Authority for sanction: As per para no.7.4 of NPA Management policy -2016, sacrifice of Rs. ------ is within the delegated authority of --------

Important Note: i. Proposals directly/ indirectly connected with investigation by CBI/any other

Investigating Agency should bear on the top of first page itself a proper notation such as “ CBI/ Investigating Agency referred matter” in bold for immediate attention of the sanctioning authority.

ii. In suit filed accounts consent decree is to be obtained wherever recovery is in instalments exceeding three months period.

iii. OTS received in different format or in which column of standard format is omitted will get delayed solely on the responsibility of Regional Manager.


Annexure –A

Financial Implications: A/c: Branch: (Rs.in lakh)

I) Ledger outstanding as on date ________ when the account became NPA

Add: a) Devolvement and other debits including interest debit if any , subsequent to date of NPA

b)Quantified future devolvement

c)Other cost/expenses (including legal)

d)Other forced debits

Total

e) Uncharged Int. from to at 10% simple#

# From the date interest seized

Adjusted total dues

Less :Recoveries made in the account since the date of NPA (including ECGC/CGTMSE credit) - Normal Recovery - ECGC/CGTMSE (ECGC/CGTMSE claims settled amount should be included here irrespective of the fact whether the same is credited to the A/c or kept in separate A/c)

II Net Amount Payable

Add: Amount to be refunded to ECGC/GTMSE

III) Adjusted Net Amount Payable (ANAP)

IV) Amount offered under compromise

V) Shortfall/sacrifice – in ANAP ( III – IV) (A) Of which -

a) Write off of book outstanding

b) Waiver of UCI

c) Absorption of legal expenses already incurred and debited to P&L

(B) Sacrifice due to interest concession proposed for OTS payment period

VI) Total sacrifice (A+B)

VII) Amount payable as per module approach - Bench mark amount

VIII) Contractual dues as on date of OTS proposal

Particulars of write off effected, if any; Particulars of claim appropriated in the account.

Note: Simple interest at the above mentioned rate for items (a) and (d) from the date of their debiting the borrowers account and giving value-dating effect for recoveries made shall be calculated from the date of ceasing interest till the last date of previous month of the submission of the compromise proposal

II) Impact on P&L A/c. :

(Rs. in lakh)

a) Balance outstanding in the books as on the date of proposal

Add b) Amount kept separately towards quantified future

Devolvement

add c) Amount to be refunded to ECGC/DICGC


Less d) Amount offered under compromise

e) Surplus (+) or Deficit (-) (b – a – c–d )

Add f) URI kept in Sundry Credits ( as same will be credit in P/L upon closure a/c

Add g) Provision held as on (last quarter ended)

h) Impact on P&L a/c. (e + f+g) (+ or -)

ECGC/CGTMSE

claim received

A

Less Bank’s share to beretained

B

Amount to be

refunded to the

Corporation

C

Adjusted Net Amount Payable (ANAP)= UCI calculated as per para I (e) above +Y+Z

NPV Calculation : In OTS proposal for the account with outstanding balance of Rs. 25.00 lakh and above NPV of OTS amount and value of the available securities has to incorporated in following format :- In Lacs

Valuation report one Valuation report two

NPV of settlement Amount OF RVS OF DSV OF RVS OF DSV

For $ years

For $ years

a) Accounts where SARFAESI Action is taken

For 2 to 3 years depending upon realisability

of security

b) Accounts where Suit is filed or Decreed

For 5 to 7years depending upon realisability

of security

c) Accounts which are referred to

CDR/BIFR

For 7 to 9 years depending upon realisability

of security

Net Present Value (NPV) is a formula used to determine the present value of an investment by the discounted sum cash flows receivable in future for calculating same function in Microsoft Excel taking discounting rate 10%, yearly basis may be used.

Ledger O/S as on date ofNPA D

Add: Further debits after date of NPA E

Less: Recovery after date of NPA including ECGC/ CGTMSE claim amount considered as recovery

F

Present Ledger O/S (D+E-F) Z


MODULE APPROACH

Calculation of benchmark Annexure –B

A/c: Branch: Region: Amount due i.e Adjusted Net Amount Payable:- Rs. Lakh

Parameters POINTS

Distress Sale value of security (Distress Sale Value) charged to the bank

More than equal to the amount due

75%-99% of the amount due

50-74% of the amount due


Less than 25% of the amount due

7

5

3

2

0

Net worth of Borrowers / Guarantors put together (excluding encumbered assets) More than equal to the amount due

75%-99% of the amount due


Less than 25% of the amount due

3

2

1

0

The Account has been NPA under Sub-standard Category

Doubtful Loss asset

2

1

0

If aggregate points are

Over 10 - Ledger O/s + 75% to 100% of Interest. (@10%)

7 to 10 - Ledger O/s + 50% to 75% of Interest ( @10%)

5 to 7 - Ledger O/s + 0% to 50%of Interset ( @10%)

3 to 4 - 75% of Ledger O/s

Below 3 - 50% of ledger O/s

If the point is “0” in all parameters, OTS may be considered at any reasonable amount depending upon the value of the account and other factors associated. Endeavour to be made that OTS amount should not be below 10% of book outstanding. However, sanctioning authority may take suitable decision depending on merit of the case and time value of money.

Ps: Interest as above to be calculated only for Substandard and Doubtful Assets (not to be calculated for Loss Assets and Written off Accounts). * Ledger outstanding on the date when the account became NPA (with adjustments for subsequent credits/debits).

(Rs. in lakh)

Ledger outstanding on the date of proposal

URI kept in sundry credit or fully provided

Realizable value of security charged

Worth of borrowers/guarantors

NPA since

Marks obtained

Rate of interest applicable for calculation of ANAP

Minimum Acceptable Compromise Amount

Compromise amount proposed.

Total Contractual dues as on date of proposal


COMP-2 Memorandum in lieu of proposal for compromises for Adjusted Net Amount Payable dues upto Rs. 1.00 Lakh

Track Sheet Register/ Follow up statement to be submitted by Branches to Regional Office and Regional Office to Head office.

Sr Branch Name of account and guarantors

Along with worth

Sector Agriculture

SSI OPS

Others

Nature of activity &

Present Status

Credit facilities

since

Ledger O/s.

Value

Of securi Ties

NPA since

Sub-std. Doubtful Loss

1 2 3 4 5 6 7 8 9

Reaso

ns for default

Suit/RRC

Filed Amt. &Date

Adjusted Net Amount Payable

Prov

Held

Compro

mise

offer

Sacrifice

Auth. & date

Source of payment

Status of SAR

Amt. recovered

Remarks

10 11 12 13 14 15 16 17 18 19

$ Information in respect of ECGE/CGTSME etc may be furnished in separate annexure.

Certify that:- The staff accountability aspect was examined and closed on _________ (date) by__________ (Auth.). While closing the staff accountability report, the competent authority has not found / suspect any malafide/ negligence, fraud/ cheating in the account.

OR

Has/ has not found any vigilance angle and ordered investigation. OR

Disciplinary action was initiated and the erring officials have been punished with_________ (nature of lapses and details of punishment to be given in detail)

OR

Deficiencies are such they do not warrant any disciplinary action

OR

Staff accountability report will be examined and closed within 30 days.

Ps: In case SAR was closed more than 2 years prior to date of the proposal, specific comments to be made as to any lapses observed (or not observed) during the intervening period. If lapses are noticed, the ZM shall undertake to review the SAR position again within 30 days.

Regional Manager Branch Manager ________ Branch __________ Region

Date:


COMP-3

DRAFT COMPROMISE DEED (NON-SUIT FILED ACCOUNT)

Vidharbha Konkan Gramin Bank

________ Branch

Sirs, I/We, the Borrowers have been enjoying the undermentioned facilities with your Bank:-

1)

2) I/We, the Guarantors have stood guarantee for the above mentioned facilities. Due to various reasons, I/We have not been able to repay our dues as per our

Agreements. With the result that the above mentioned accounts have gone out of order/ overdue.

In view of difficulties faced by me/us, I/We have approached you with a request to consider certain reliefs/concessions and allow me/us time to repay the advances in the aforementioned accounts.

You have considered my/our request relying on the representations made by me/us and have agreed to allow me/us to repay my/our dues to your satisfaction on terms and conditions hereunder mentioned :-

1) I/We hereby admit confirm and acknowledge that the outstanding in the aforementioned accounts on (date of compromise) is as under:-

Name of Account Outstanding

With further interest thereon as mentioned in the respective documents executed by me/us from time to time. 2) I/We further acknowledge that the debit balance in my/our aforesaid accounts

is secured by:- i) Demand Promissory Note of Rs................dated................drawn by................in favour

of................. ii) Letter of Guarantee dated ...........................executed by

iii) Agreement of Pledge dated .....................of stocks of ................fromtime to time deposited with the Bank

iv) Agreement of Hypothecation dated ...................of all tangible movables

including.............. v) Equitable/Legal Mortgage of immovable property situated at ............ created by

deposit of title deeds made at....... on the ........day

3) I/We the Guarantors hereby confirm acknowledge and declare that the Letter of Guarantee dated ....................executed by us is in full force and effect and that I/We are liable to you in accordance with the terms thereof for the above amounts.

4) I/We hereby confirm that the aforesaid documents of security and the mortgage/equitable mortgage by deposit of title deeds are in full force and effect and that the security thereunder


is also in full force and effect and that I/We are liable to you in accordance with the terms thereof.

5) I/We agree and confirm that the Bank will be entitled to claim the full amounts of the debit balances shown above with interest thereon as state above if I/We do not make the payments to the Bank in the following manner :- a)RsRs....................to be paid by me/us on or before the execution of these terms. b)RsRs...................to be paid by me/us within a period of...........years from the date of these presents in ............. Monthly instalments of Rs.............per month together with interest at the rate of ...........% per annum on reducing balance with each instalment till full payment is received by the Bank.

6) I/We agree that the first of such instalments with interest at the rate of..........% per annum on reducing balance will be payable by me/us to the Bank on or before........... and thereafter to pay to the bank the recurring instalments of Rs............ with interest

at rate of ..........% per annum on reducing balance on or before the 15th of each

succeeding month until the full amount of Rs.......... with interest at the rate of.......... % per annum reducing balance as set out in

Clause (5) above is fully paid.

7) I/We hereby agree that if I/We commit any two defaults in payment of instalments or interest as set out here in above. Or upon our committing any breach of any of the terms and conditions herein contained, irrespective of what is stated herein the full amount will become due and payable by us as mentioned in Clause (1) above with interest thereon at.......... % per annum with quarterly rests and costs charges and expenses incurred by the Bank.

8) In the event of default or breach mentioned above being committed by me/us, the Bank shall have the right to take such action as it may deem fit and as provided for in the documents hereinabove referred to including enforcement of its securities and the Guarantee for realisation of the full amount mentioned in Clause (1) above with interest thereon at the rate of .............% per annum with quarterly rests and for costs charges and expenses incurred by the bank.

9) I/We hereby undertake not to deal with in any manner or dispose of or transfer alienate or encumber or create any third party rights in respect of the mortgaged and/or hypothecated/charged securities of the Bank as more particularly described in the Annexure hereto till entire amount due by us is fully paid.

Dated this……………… day of…………………..200

Borrowers Guarantors

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COMP-4

Draft Consent Terms (Suit filed accounts)

1) Decree in favour of the Plaintiffs against the Defendants jointly and severally as prayed and also a decree absolute for sale of immovable property described in Exhibit _______________ of the Plaint.

2) By consent agreed that the decree as per Clause (1) herein to be marked as fully satisfied and not to be executed in the event of the Defendants making payments to the Plaintiffs for the following amounts :- i. Rs.___________ to be paid on or before the execution of the consent terms

herein. ii. Rs.____________ to be paid by the Defendants to the Plaintiff within a period

of __________ years from the date of filing of the present consent terms in _________ monthly instalments of Rs._________ per month together with interest at the rate of _______ percent per annum on reducing balance with each instalment till full payment is received by the Plaintiff.

3) Agreed and ordered that first of such instalments as per Clause (2) above with interest at the rate of _______ % p. a. on reducing balance will be payable by the Defendants to the Plaintiffs on or before ________ and thereafter the Defendants do pay the Plaintiff the recurring instalment of Rs.____________

with interest at the rate of _______% p.a. on reducing balance on or before 15th of

each succeeding month until the full amount of Rs._______ with interest at the rate of _________ p.a. on reducing balance as set out in Clause (2) hereof is full paid.

4) If the Defendants commit any two defaults in payment of instalments or interest set out in paragraph 2 herein above, then the decree as per Clause (1) herein above will be executable forthwith.

5) The Defendants hereby undertake to this Hon'ble Court not to deal within any manner dispose off transfer alienate or encumber or create any third party rights in respect of the mortgage and/or hypothecated securities of the Plaintiff as more particularly described in Exhibit __________ of the Plaint.

6) In the event of the defaults as mentioned in Clause (4) above being committed by the Defendants the Court Receiver will take charge in execution of the decree herein of all the assets mentioned in prayers _________ of the Plaint with all powers including power to sell the same by public auction or by private treaty and to pay over to the Plaintiff the net sale proceeds realised therefrom in or towards the satisfaction of the decretal amount mentioned in clause (1) hereof together with interest costs charges and expenses.

Note: The above draft consent terms is to be used as a general guideline and this should be amended on a case to case basis in consultation with the solicitors/ advocate dealing with the suit.

******


Chapter - 8

Fresh Lending to OTS Borrowers

8.1 In cases of borrowers who had, in the past, settled Bank’s NPA Accounts through OTS schemes (either Bank’s schemes or other RBI schemes) the following guidelines shall be applied. With a view to help the borrowers who suffer genuine business loss for reasons beyond their control and whose debt burden increased on account of periodical restriction on account of natural calamities like drought, floods, etc. and the borrowers are not in a position to repay the dues other than under compromise, these guidelines are framed by the Bank so that such borrowers need not be deprived of the opportunity to come out of the situation and have a new lease of life with fresh dosage of Bank credit.

8.1(a) Eligibility Criteria

When a request is received for fresh lending from the applicant who has paid the bank’s dues under OTS scheme / compromise settlement (other than cases stated in para 8.1 above), the following are required to be complied with-

i. The applicant should have suffered genuine business losses. ii. The applicant paid Adjusted Net Amount Payable under RBI OTS policy or notional

amount due if covered under Bank’s policy (other than under special schemes listed in para 8.1 above). This means that if Bank had, in earlier OTS settlements, approved any “sacrifice” (OTS below the adjusted Net Amount payable as per RBI scheme or Notional Dues calculated as per Bank’s scheme), the borrower shall make good these sacrifices to become eligible for fresh lending.

iii. In respect of request from applicants who have entered into OTS / compromise settlement of dues with branch (A) of our Bank and approach for fresh lending another branch (B), the (B) branch may consider such request on merits, after ascertaining from the branch (A), as to the sacrifice incurred by them, and the applicant agreeing to repay the sacrifice amount.

iv. There should be cooling period of at least 3 months from the date of full payment of compromise dues, and the applicant’s request for fresh financial assistance be considered strictly on merits with due justification.

8.1(b) Ineligible Cases

The following cases shall be ineligible: i. Borrowers who are wilful defaulters or where criminal/ other investigations are

pending, compromises were entertained as a commercial prudence to recover the money without prejudice to the criminal/ other actions.

ii. Applicants who have entered into OTS of dues with other Banks and approach our Bank for fresh lending with No Objection Certificate.( Except for priority sector )


8.2 Terms and Conditions for consideration of Finance

Before considering fresh facilities on merits to applicants who settle their dues under a compromise formula/ OTS of dues, the following aspects should be looked into by the sanctioning authority.

i. Compromise proposals/ OTS of dues is considered when the borrowal unit has become non-viable, and there is no scope for rehabilitation and revival. Hence, before considering fresh lending, these aspects should be looked into in detail with due diligence, to ascertain afresh the viability of the project.

ii. The compromises are entered into with different kinds of borrowers –

a) Accounts where suits are filed or decreed

b) Group accounts

c) Borrowers of the same family

In respect of accounts where suits are filed/ decreed, the bank may consider the request for fresh finance provided the applicants have not acted adverse to the bank’s interest during the course of legal action, i.e. like unlawful disposal of securities.

In respect of group accounts, there may be cases where compromises are struck in some of the group accounts, while other group accounts continue to be NPAs. If such applicants come for fresh financing, it is essential that the other group NPA accounts are regularised or closed before any request for fresh lending is considered on merits.

In respect of family accounts, all close relatives as defined by various bank circulars may be treated as family accounts. In family accounts, controlling interest by others is presumed. However, the applicant can submit required proof of not having such control by others when he applies for fresh lending, after settlement of the dues under compromise/ OTS. For the purposes of determining controlling interest, applicant residing separately, or having a separate ration card etc. can be accepted as proof of independent nature.

Guarantors who have been discharged from their obligations after settlement of the dues under OTS Policy / compromise settlement, even in a suit filed/ decreed account can be considered for fresh finance on merits with independent appraisal.

8.3 Administrative clearance and cooling time

There is a moral hazard in entertaining the borrowers’ request for fresh facilities in that a situation may arise whereby the borrowers repay the dues under OTS/ compromise and seek fresh lending immediately. In order to avoid such a situation, it is proposed to have the following safeguards.

a) Regional Manager shall be the competent authority for granting administrative clearance for all such applicants where compromise is approved at the level of Chief Manager / Scale IV and below.


b) All other references should be made to Head Office for administrative clearance. Chairman Committee HO Level shall be the competent authority for granting such clearance.

c) The applications shall be considered only after expiry of 3 months from the date of full payment of compromise amount.

d) No delegatee who sanctioned / reviewed the original credit proposal of the borrower shall approve administrative clearance under this policy.

8.4 Sanction

After obtaining the administrative clearance from the appropriate authority as above, the delegatees may consider applications strictly on merits, with due justification depending on the requirement of the borrower. While sanctioning the proposal, the delegatees shall make specific mention regarding details of earlier compromise approved and paid, and particulars of administrative clearance obtained, in the proposal.

This policy aims at financing the borrowers who suffer losses for reasons beyond their control like continuous drought, floods and natural calamities, etc. and who availed the benefit of OTS of dues. Delegatees shall apply the guidelines strictly on the merits of each case.

8.5 In cases of borrowers who have paid their dues under compromise settlements under special scheme, such as RBI OTS for small loans (upto Rs.25,000/-), Farmers under distress, Farmers in arrears, we may grant fresh loans without the cooling period of 3 months. (Willful Defaulters shall not be given this benefit of fresh loan.)

*****


Chapter- 8A

PERMITTING HOLDING ON OPERATIONS IN NPA ACCOUNTS

During the recent past, large number of accounts slipped to NPA and it is observed that a majority of such units are viable. However, these accounts slipped, due to temporary liquidity mismatch and fixation of unrealistic repayment schedule or non generation of cash flow envisaged at the time of original sanction. In such accounts, there is an imperative need to capture the cash flow by allowing Holding on operations.

Accordingly, “Holding on Operations” to be considered in the viable NPA accounts after the Delegatee is satisfied of the following factors:

i. The default is not deliberate and there is no diversion of funds outside business of the borrowing unit.

ii. The reasons for the irregularities in the account were beyond the control of the management of borrower Company.

iii. Cash flow aberration/s prima facie appear to be genuine and reasonable perceived to be manageable in foreseeable future

iv. The involvement and dedication of the management of the borrowing company in the process of recovery from aberration/s is complete

v. The accommodation being considered is only for genuine business related requirement of the borrower,

vi. Holding on operations should be restricted to maximum period of six months. Thereafter, the account should be comprehensively reviewed by the competent authority as per the extant guidelines.

a) Holding on operations to be permitted with reasonable cutback (depending upon merit of each case) towards reduction in following cases:

i. Allowing operations in Cash Credit account even though

interest/forced debits are not cleared, fall in drawing power.

ii. Holding on operations to be allowed within the existing outstanding/ exposure level. (Exposure Neutral)

Delegation for allowing HOLDING ON OPERATIONS as under:

(Rs. in Lacs)

Delegated authority San limit/ O/S whichever is higher

Chief Incumbent of the Branch not below

the level of Chief Manager 1.00

Regional Manager 5.00

General Manager 10.00

Chairman Full powers

*****


Chapter- 9 Recovery Action

9.1 With increase in non-performing assets, the recovery of the dues in an increasing number of sticky accounts has become a Herculean Task. Since the need to recycle the funds for meeting the objectives of the Bank thereby earning profit, strenuous efforts are needed on a continuing basis not only to monitor the health of advances but also to recover the Bank’s dues expeditiously. In that setting, the policy is laid down about recovering the dues of the Bank through various actions permissible under the provisions of Law.

9.2 When action should be proposed / initiated:

9.2.1 The Branch Manager should not recommend action at the first sign of difficulty without ascertaining whether or not the difficulty is temporary or is willful or beyond the control of the borrower and whether or not it is likely to get resolved. Constant vigil and timely action will minimize the causes for legal action.

9.2.2 If the Branch Manager has come to the conclusion that there are no chances of getting the account in proper shape either by way of restructuring of account or the borrower is not forthcoming for a viable compromise and looking to Bank’s security, limitation period and prospects of recovery of Bank’s dues, if Branch Manager is convinced that there is no hope of revival or recovery in the account without legal action, he should recommend, depending upon facts and circumstances of each account appropriate action in the account out of the following actions permissible under the Law for recovery of Bank’s dues. Branch Manager should also ensure that after filing suit and obtaining decree, Bank will be able to recover the dues. In any case the Branch Manager should decide or recommend to the Competent Authority the course of action in a Non Performing Asset (NPA) Account within maximum period of 3 months of the account becoming NPA. The Branch should make one time recommendation for action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) / filing suit wherever warranted. The Competent Authority should take appropriate decision about future course of action within one month of receiving the recommendation.

9.3 Authorities for approval of issuance of recall notice, legal action including mandate to other lenders for filing of Joint suit in case of

consortium/MBA (Rs.in lakh)

Chairman Full powers

General Manager Up to 25.00 lakh

Regional Manager Upto 10.00 lakh

Chief Manager (RO/HO) Up to 10.00 lakh

Sr. Manager at RO Up to 5.00 Lakh


The amounts represent suit claims/ contractual dues.

a) The official approving issue of notice should not have sanctioned the credit proposal. In such case, it should be submitted to the next higher authority. However, this clause is not applicable for the proposals sanctioned by committees

b) The powers may also be exercised by second line designated officers of level of Senior Manager (Scale –III) and above branches/controlling within their functional area.

9.3.1 The delegatees may exercise the above authority, provided the credit proposal of the borrowal account is not sanctioned by them. Where the advance/ credit proposal is sanctioned by them, proposal for legal action in such cases should be submitted to the next higher authority.

9.3.2 Reference regarding permission to file suit must be made at least 6 months before the date of expiry of the documents. Once permission to file suit has been given, a report must be submitted to the concerned Competent Authority within 1 month regarding filing of suit or otherwise.

9.3.3 After permission has been given by the competent authority for filing suit and if afterwards for any reason/s it is thought fit not to file a suit or it is felt advisable to defer filing of suit, matter should be referred to the authority expeditiously, who has given permission for filing a suit for approval of non-filing or deferment of a suit.

9.3.4 Authorities to finalise and approve the draft plaint :- ( Rs.in lakh)

Authority Suit Amount

Chairman

Full Powers

General Manager (Scale IV / V) Up to 50.00 lakh

Regional Managers / Chief Manager (Scale IV) Up to 30.00 lakh

Regional Manager (Scale III) Up to 20.00 lakh

The powers are to be exercised by the Chief incumbent at the Branch.In respect of administrative/ controlling/ Regional Offices designated officers of the rank of Chief Manager/ Scale IV and above may exercise the above delegation within their functional area. At Head Office level, the powers will be exercised by the General Manager. Plaint must be approved by the concerned office within a maximum period of one month. In case of delay, matter is to be reported to next higher authority.

9.3.5 Along with filing of suit, specific prayer should be made to the DRT/Court for injunction/ attachment of uncharged properties of the borrower/ guarantor before judgment and also for an injunction against alienation of any assets by the borrower/ guarantors. In case of properties of borrower/ guarantor charged to the Bank, prayer for appointment of Court Receiver should be made to take possession for disposal of the properties. On merit of the cases suitable request to be made to the DRT/court for surrender/impounding of the passport of Borrowers/guarantors.


9.3.6 Appropriate prayer should be made in the suit against the guarantors also simultaneously to bring pressure for recovery of our dues. Wherever corporate guarantee is available, the same should be invoked as per the law. Wherever appropriate, acceptors and drawees of the Bills should also be made parties to the suit.

9.4 Lok Adalat

9.4.1 For simpler, quicker and cost effective disposal of cases, branches should make use of institution of Lok Adalat. Lok Adalats are organised under Legal Services Authority Act, 1987 by the State and / or District and/ or Taluka Legal Services Committee.

9.4.2 Lok Adalat is a process of administering justice without resorting to courts. The process is voluntary and works on the principle that both the parties to the dispute are willing to sort out their dispute amicably. The functioning of Lok Adalat is entirely voluntary and conciliatory. The proceedings are relatively simple.

9.4.3 All cases/ suits/ disputes pending before a court or likely to be referred to court, can be referred to Lok Adalat. The award of Lok Adalat has the effect of a decree of a civil court and binding on the parties to the dispute. No appeal can be filed by either of the parties.

9.4.4 Prior approval of the competent authority shall be obtained for committing sacrifices at Lok Adalat.

9.4.5 The maximum claim amount that can be dealt by Lok Adalat is Rs.20.00 lakh.

9.5 Types of legal action:

In the present scenario, in a NPA account the Bank may have the option to take legal action by any of the following ways:

a) Enforcement Action under SARFAESI Act, 2002 to enforce Bank’s rights as a secured creditor in respect of assets charged to the Bank by way of mortgage / charge / hypothecation and / or assignment.

b) Action under SARFAESI Act, 2002, can also be initiated in Suit filed / DRT accounts if the suit / Recovery Application is filed prior to 11/11/04 and the securities by way of mortgage / charge / hypothecation / assignment are enforceable i.e., limitation period is available to enforce the mortgage / charge / hypothecation etc.

c) Where the contractual dues of the Bank are Rs. 10 lakhs and above recovery Applications before the Debts Recovery Tribunals can be filed and where the dues are below Rs.10 lacs recovery suits can be filed before Civil Courts.

d) Where the borrower / guarantor is a Company registered under Companies Act, 1956, which is under winding up, the Bank can file its claim before the Official Liquidator attached to the High Court within whose jurisdiction the Registered Office of the Company is situate.


e) Bank can file insolvency proceedings / winding up petition before the Competent Court (Insolvency Courts) against the borrower / guarantor to get them declared as Insolvent.

f) Sometimes the Bank can also be impleaded as a proforma defendant in a Recovery Suit / DRT Application filed by another Bank / Financial Institutions against a common borrower to enforce the securities charged to our Bank as well as such another Bank / FI.

Irrespective of any type of legal action, before initiating action the Branch must take action for appropriation of margin money, any credit balance available in any Current / Savings Account of the borrower / guarantor, TDR’s, sale of pledged goods, realisation of surrender value of Insurance Policy assigned to the Bank, NSC/KVP’s pledged to the Bank etc.

In case of Book Debts (Receivables) hypothecated to Bank, Branch should call upon the book debtors of the borrower to make payment to Bank directly instead of the Borrower.

9.6 Legal action by filing recovery application before DRT

9.6.1 If action under SARFAESI Act is found not feasible for specific reasons to be recorded and outstanding contractual dues are Rs. 10 lakhs and above and/or full dues of the Bank can/could not be recovered from the sale proceeds of the secured assets under enforcement action under SARFAESI Act, Recovery Application should be filed before Debts Recovery Tribunal (DRT).

9.6.2 DRTs, established at many centres, are vested with exclusive jurisdiction to

Entertain Bank’s Application for recovery of their dues of Rs. 10 lakhs and above. DRTs have created a relatively favourable atmosphere of recovery. DRTs are normally not bound by the Code of Civil Procedure, 1908 (CPC) and consume comparatively lesser time to award Recovery Certificates (RC) in favour of the Banks. Their system of execution of RCs through Recovery Officer is also more effective and expeditious leading to recovery either by sale of assets or compromise. DRTs have power to order arrest of defendant / judgement debtor before and after passing of Recovery Certificate.

9.7 Bullet points in recovery through DRT Steps to be taken under DRT route

a) Procedure Before Filing the Case before DRT

Sell pledged goods after sending reasonable notice to the borrower

In the case of hypothecated goods, take possession of the assets, and sell them after giving them due notice.

In the case of LIC policies, surrender such policies and appropriate the surrender value towards the loan account.

Set-off the credit balance in any current/savings account/ and/or TDRs in the name/s of the Borrower/s or Guarantor/s, prior to filing a suit.


Proceeds of securities such as shares, debentures, NSC, Mutual Fund Securities should be realised and be adjusted against the out standings.

Ensure that documents/securities are enforceable against borrowers/guarantors. Don’t simply handover files to Advocates for filing Recovery Application before the DRT. Brief the Advocate properly by providing a detailed narrative/write-up and by

discussing in detail the conduct of the account, documents obtained from time to time, securities created and other relevant information relating to the conduct of the account and exchange of correspondence with the borrower/guarantor where some issue is in dispute.

Ensure that the draft Recovery Application is prepared by the Advocate within a reasonable time of assignment of the case.

Peruse the draft Application to check the correctness of every facts, figures and relevant details stated in the draft Application.

After checking the correctness of the draft Application, the Branch should send the draft Application to the Competent Authority for approval alongwith the copy of the Memorandum according approval for legal action in the account and copy of the narrative/write-up provided earlier to the advocate alongwith the list of documents.

After getting approval from the Competent Authority, the Branch should discuss with the Advocate about the changes/observations made by the appropriate authority while according approval and finalise the Application for recovery of updated dues of the Bank.

b) Procedure while filing the Case in DRT

The Recovery Application, in the prescribed format, complete in all respects should be filed with the DRT within a reasonable time from the date of the Appropriate Authority according approval for legal action.

Recovery Application should contain description of all relevant documents and securities charged to the Bank.

While filing Recovery Application, Xerox copies of documents only need be given to the Advocates.

Original Documents should be retained with the Branch till DRT requires the same. Interim reliefs such as injunction against properties, attachment before judgement,

appointment of Receiver, Recovery Certificate for admitted dues should be prayed as a rule.

Account Extracts should be produced and certified as per the provisions of Bankers Books Evidence Act and be annexed to the Recovery Application.

Penal Interest should not be compounded. Costs for preserving the securities prior to filing suit and during the pendency of the

suit should be claimed.

c ) After filing the case before DRT

If the Recovery Application filed is complete in all respects, DRT gives a serial number; issues summons to borrowers/guarantors called defendants.


Serving of summons is very important for quick disposal of the case and the Branch/Advocate should take maximum care to see that summons are served within a period of one month.

If summons are served on the defendants, proceedings commence with evidence by way of affidavits filed by Bank followed by cross-examination of Bank’s witnesses and vice versa followed by arguments ending up in Recovery Certificates in favour of the Bank.

Evidence by way of affidavits as aforesaid, clarifications/documents required by DRT should be filed in time and no adjournment should be sought on this score. Reply to counter-claims raised by the borrower/s should be filed without delay.

Defendants’ attempt to take adjournment on various grounds including that their compromise proposal is pending consideration before the Bank should be opposed by the Bank’s Advocate.

The DRT has the powers to order arrest and detention in civil prison of those defendants who does not obey the orders of the DRT. Wherever the orders of the DRT are disobeyed by the defendant, the Branch should instruct the Bank’s Advocate to plead for arrest and detention of such defendant.

d) Execution of Recovery Certificates

Recovery Officer of DRT executes Recovery Certificates (RCs) issued by Presiding Officer of DRT.

Successful execution of RC depends upon proper details of assets being supplied by the Branch to the Recovery Officer.

Branch/Region should ascertain the asset details by making local enquiries and by perusing the Income Tax/Wealth Returns, CBD 23 etc of the borrowers/guarantors.

Branch/ Region should supply the Assets details within one month of the issuance of the RC.

Under Section 28 (4A) of the DRT Act, the Recovery Officer can order any judgement debtor to declare on affidavit his assets. Branch must move Application for such an order to get full details of assets.

Wherever Advocates are engaged, the Nodal Officer/Representative of the Branch/Bank should closely monitor with the Advocate for the purpose of executing the RC.

Adjournments sought by judgment debtors (defendants) should be opposed unless there is a letter in writing to that effect from the Competent Authority.

Where the Judgment Debtor is entitled to any shares or Debentures in any Company or has deposits in any other Bank or Company, the Bank should initiate “Garnishee” proceedings.

The Asset Recovery Departments at different levels should keep a complete track record of all the cases before DRTs and if any legal complication arises in guiding the Regions/ Branch, the Asset Recovery Department at Regional Office, can take up the matter with the Head Office, ARD Department for appropriate guidance.

The Recovery Officer has got the power under Section 25 of the DRT Act to recover the amount under the RC by arrest and detention of the Judgment Debtors.

Wherever the Branch is convinced that the judgement debtor, though having means, is intentionally avoiding to make payment, the branch may, after obtaining permission


from the Authority who had authorized filing of Recovery Application, file Application before the Recovery Officer for arrest and detention of the defaulting judgment debtor.

9.8 Recovery through filing of Civil Suit 9.8.1 If the contractual dues are less than Rs.10 lakhs, civil suit can be filed before the Civil

Court. A civil suit to be filed before the Court can be mortgage suit, summary suit or money suit depending on availability of securities.

a) Mortgage Suit:

In accounts where the mortgage has been obtained as security for advance and the Bank want to realise its dues through such security, only mortgage suit is to be filed. Summary Suit: i. A Summary Suit can be filed as per the provisions laid down in Order 37 of Code of Civil

Procedure (CPC) at specific centres notified by the respective High Courts. The summary procedure is not available when the Plaintiff seeks to enforce any securities by way of mortgage, hypothecation or pledge or any other charge on any property. So far as Bank advances are concerned, Summary Suits can normally be filed, inter alia, in the following cases : When the suit is against a borrower on a mere Promissory Note or a Term Loan

Agreement, wherein no security is to be enforced; or When the suit is against a borrower on a Pro-Note or Term Loan Agreement and

/ or guarantor on his Letter of Guarantee, wherein no security is sought to be enforced against either of them; or

When the suit is against a guarantor alone on his Letter of Guarantee, wherein no security is to be enforced against him; or

When, in a Bills Purchase or Discount facility, the suit is against the borrower (who would be the drawer) and acceptors and guarantors, if any, wherein there is no security to be enforced.

ii. In the suits tried under Order 37 of CPC the Defendant has to apply for leave to defend

such suit and the Court may not grant such leave but decree the suit in favour of Bank if the Court is satisfied that the Defendant has no substantial defence to raise or that the defence intended to be put up by him is frivolous or vexatious. Even when he is permitted to defend the suit, the Court has powers to direct him to give such security and within such time as the Court may fix.

iii. Order 37 of CPC applies to all High Court, City Civil Courts and Courts of Small Causes.

It also applies to all other courts, subject to the proviso that the High Court may, by notification in the Official Gazette, restrict the operation of the Order only to such categories of suits as it deems proper. The summary procedure normally takes shorter time than the usual procedure. Therefore, in cases mentioned hereinabove or where the security is negligible after taking the decision at appropriate level to give up such security the Branch Advocates may be instructed to consider filing wherever possible, a Summary Suit under Order 37 of CPC.


c) Money Suit: Where there are no securities by way of Mortgage and the Bank is to recover the dues on the basis of loan documents or amounts paid to the borrower, the suit will be filed to get a money decree against borrower/guarantor.

9.9 Bullet points in recovery through Civil Suit Steps to be taken in cases before Civil Courts i.Before filing suit. Sell pledged goods after sending reasonable notice to the borrower In the case of hypothecated goods, take possession of the assets and sell them after

giving due notice. In the case of LIC policies, surrender such policies and appropriate the surrender value

towards the loan account. Branch should set-off the credit balance in any current/savings account/ and/or TDRs

in the name/s of the Borrower/s or Guarantor/s, prior to filing a suit. Proceeds of securities such as shares, debentures, NSC, Mutual Fund Securities should

be realised and be adjusted against the out standings. Ensure that documents/securities are enforceable against borrowers/guarantors. Don’t simply handover files to Advocates for filing suits before Civil Court. Brief the Advocate properly by providing a detailed narrative/write-up and by

discussing in detail account of the account, documents obtained from time to time, securities created and other relevant information relating to the conduct of the account and exchange of correspondence with the borrower/guarantor where some issue is in dispute etc

Ensure that the draft Plaint is prepared by the Advocate within a reasonable time of assignment of the case.

Peruse the draft Plaint to check the correctness of every facts, figures and relevant details stated in the draft Plaint.

After checking the correctness of the draft Plaint, the Branch should send the draft Plaint to the Competent Authority for approval alongwith the copy of the Memorandum according approval for legal action in the account and copy of the narrative/write-up provided earlier to the Advocate alongwith the list of documents.

After getting approval from the Competent Authority, the Branch should discuss with the Advocate about the changes/observations made by the appropriate authority while according approval and finalise the Plaint for recovery of updated dues of the Bank.

ii) Procedure while filing the case with Civil Courts The Plaint, complete in all respects, should be filed with the Civil Court within a

reasonable time from the date of the Appropriate Authority according approval for legal action.

Where hypothecated assets are subject to speedy and natural decay and where peaceful possession and sale of the same is not feasible prior to suit-filing, the Branch Advocate must be instructed to file Application under Order 39 of the Code of Civil Procedure for interim sale of hypothecated movable assets, which are subject to speedy and natural decay, alongwith filing of Plaint.


Plaint should contain description of all relevant documents and securities charged to the Bank.

While filing the Suit, Xerox copies of documents only need be given to the Advocates. Original Documents should be retained with the Branch till Court requires the same. Interim reliefs such as injunction against properties, attachment before judgement,

appointment of Receiver, Decree for admitted dues should be prayed as a rule. Account Extracts should be produced and certified as per the provisions of Bankers

Books Evidence Act and be annexed to the Plaint. Penal Interest should not be compounded. Costs for preserving the securities prior to filing suit and during the pendency of the

suit should be claimed. iii) After filing the case with the Civil Court: If the Plaint filed is complete in all respects, Civil Court gives a Suit number, issues

summons to borrowers/guarantors called defendants. Serving of summons is very important for quick disposal of the case and the

Branch/Advocate should take maximum care to see that summons are served within a period of one month.

If summons are served on the defendants, proceedings commence with evidence, which as per the recent amendment to Civil Procedure Code can be filed, by way of affidavits followed by cross-examination of Bank’s witnesses and vice versa followed by arguments ending up in Judgement and Decree.

Evidence by way of affidavits as aforesaid, clarifications/documents required by Civil Courts should be filed in time and no adjournment should be sought on this score. Reply to counter-claims raised by the borrower/s should be filed immediately.

Defendants’ attempt to take adjournment on various grounds including that their compromise proposal is pending consideration before the Bank should be opposed by the Bank’s Advocate.

iv) Steps to be taken for realizing security and recovery of dues after passing of decree in bank’s favour

When a Decree has been obtained by the Bank in its favour, Execution Application has

to be filed within 1 month of obtaining the Judgement and Decree. Branch should ascertain Judgement Debtor’s assets from local enquiries and from

Income Tax/Wealth Tax Returns CBD 23, etc. In addition or in the alternative the Branches concerned may consider applying to the

Court for an Order under Order 21 Rule 41 of Civil Procedure Code, requiring the Judgement Debtor to declare on Affidavit before the Court all the particulars of his attachable assets.

In case of a Decree for realisation of the hypothecated book-debts, the Court will appoint a Commissioner or Receiver to realise the book-debts by sending notices of demand to the Debtors of the Borrower/Guarantor who is the Judgement Debtor and if necessary by filing a Suit and taking legal proceedings against the Debtors for recovery of the amounts which are due by the Debtors and which are hypothecated to the Bank.

Where the Judgement Debtor (Borrower/Guarantor) is entitled to any shares or Debentures in any Company or has deposits in any other Bank or Company, the Bank


should initiate Garnishee Proceedings. (Please see Order 21 Rules 46 and 46A – 46 I of C.P.C)

If the decree provides for payment of moneys to the Bank by agreed instalments or by the instalments fixed by the Court and in case of any such default or in case of default in payment of any two or more instalments as stipulated in the decree, the Branch should immediately proceed with the execution of the decree for the entire outstanding.

If pending the hearing and final disposal of the suit any moneys are deposited by the Judgement Debtor with the Court’s Office or with the

Receiver appointed by the court or such moneys are collected by the Receiver appointed by the Court then care should be taken to ensure that such moneys are expeditiously withdrawn by the Branch from the Court’s Office or from the Receiver in whose hands such moneys may be lying.

Even if an Appeal is filed by the Judgement Debtor against the Bank before the Appellate Court challenging the money decree passed by the lower Court in the Bank’s favour, the Bank should nevertheless proceed to apply for the execution of the decree passed by the lower Court.

Where there are two or more Judgement Debtors in the decree obtained by the Bank, then, in the absence of anything to the contrary provided in the decree, the Bank has an option to execute the entire decree either against any one or more or some or against all of the Judgement Debtors.

If the decree is sought to be executed after a period exceeding two years from the date of the decree or if the decree is sought to be executed against the legal representative/s of the Judgement Debtor, then an Application will have to be made in the first instance before the executing Court for leave of the Court to execute the decree

If a decree is passed against a partnership firm then the Bank will have to apply for leave of the Court under Order 21 Rule 50 of C.P.C. for the purpose of executing such a Decree against a partner who was not made a party to the suit or who was not individually served with the Summons in the Suit.

9.10 Recovery by filing winding up petition / claim before Official Liquidator 9.10.1 If the Bank is an unsecured creditor of a borrower Company or if the secured assets of

the borrower Company are of negligible value or are not traceable and there are no guarantors of substantial means and the Company fails to pay the Bank’s dues, in such cases also the Bank may consider filing a Winding up Petition against the Company instead of filing a suit against the Company. The filing of a Winding up Petition by the Bank against the Company will in cases provide a relatively a speedier and cheaper remedy than the filing of a suit by the Bank against the Company.

9.10.2 If an Order for winding up of the borrower / guarantor Company is passed by the

Company court and if the Court appoints an Official Liquidator of the Company and if the Bank is an unsecured creditor of the borrower Company and its claim is not time barred at the date of the winding up order, then in most of such cases, the Bank need not file a suit against the borrower Company and thereby incur costs. Instead, the Branch should only file its Affidavit of proof of debt before the Liquidator stating the amount claimed by the Bank and giving a list of the documents in support of the Bank’s


claim and produce the documents and prove the claim before the Liquidator when required to do so by the Liquidator. The Bank will in such a case only get only a proportionate amount out of the Company assets realised by the Liquidator after meeting the claims of the secured creditor. In all such cases the Branch should obtain prior consent of the concerned Competent Authority in the Bank. In these circumstances, where there is / are a guarantor/s the Branch will have to sue / continue the suit against the guarantor/s within the period of limitation. For this purpose, the worth of the guarantor/s will have to be taken into consideration. If the worth is nominal, we should not go in for suit filing with approval from appropriate authority.

9.10.3 When a Company which is the borrower or a guarantor is taken into liquidation either

before filing the suit or pending the hearing of the suit or after the decree is obtained, then leave of the Company Court should be obtained to file and / or continue the suit or to execute the decree as the case may be as provided in Section 446 of the Companies Act. No Receiver can be appointed in the Bank’s suit in respect of assets, which are in the possession of the Official Liquidator. However, such leave is not necessary regarding cases filed / to be filed before Debt Recovery Tribunals. DRTs have been empowered to try Bank’s claim and execute the Recovery Certificate against Companies in liquidation even without permission from the Company Court under Section 446 of Companies Act.

9.11 Filing of insolvency proceedings Bank can file insolvency against borrowers / debtors in the following two conditions : a) If the debtor is a judgement-debtor (against whom a money decree has been passed)

and he has failed to pay the decreetal dues in terms of notice served on him by the Bank; or

b) If any debtor owing Rs.2000 or above, commits any of the following acts of insolvency: i. He makes a transfer of his property or part thereof with intend to defeat or delay his

creditors, or ii. With intent to defeat or delay his creditor he departs or remains out of India, or from

his dwelling house or usual place of business or otherwise absents himself or secludes himself so as to deprive his creditor of the means of communicating with him, or

iii. He gives a notice to any of his creditors about his suspending payment of his debts. c) Branches may in fit decreed cases, where there is no security and no other known

assets are available, consider taking insolvency proceedings against the Judgment Debtor, since this has a statutory effect on the borrower and he may be prompted to offer payment to the Bank. In the first instance, the concerned Branch will have to apply to the Court for issue of notice requiring the Judgment Debtor to pay the decreetal amount or to furnish security for payment thereof to the Bank within the time prescribed in the notice. On default of the Judgment Debtor in complying with the notice, the Bank can proceed with the Insolvency Petition before the Court for an order adjudicating the Judgment Debtor as an Insolvent. Courts exercising Insolvency jurisdiction, have power to order interim reliefs such as arrest of the borrower, attachment of his assets. Upon the passing of the order of adjudication against the insolvent, all the assets of the insolvent will stand vested in the Official Assignee or


Receiver. Such Official Assignee or Receiver will take possession and control and management of the properties and income of the Insolvent and distribute the income / sale proceeds of the assets of the Insolvent amongst the creditors.

d) `Where the borrower is not a Judgment Debtor then filing of Insolvency Petition should

be considered in exceptional cases where the Bank is in a position to prove the acts of insolvency mentioned above.

9.12 Where our bank is impleaded as a defendant in a DRT suit filed by other banks / financial institutions

At times our Bank is impleaded as a defendant / proforma defendant in a suit filed before DRT by any other member Banks / FIs where the limits are sanctioned under the Consortium / Multiple Banking or where common securities are charged to our Bank and such other Banks / FIs. In such cases, where our Bank has not already filed Recovery Application against the same borrower for enforcement of the securities and our Bank is intending to file the same then our Bank may file an Application in such suits, praying for transposition of our Bank as a co-plaintiff under Section 19(2) of the DRT Act.

In other cases, where our Bank is impleaded as a defendant or a proforma defendant and having regard to the fact that our Bank is having pari passu charge over the securities then our Bank should file its appearance before the DRT and defend the Bank’s interest appropriately to ensure that sale proceeds realised, if any, are ratably paid to our Bank in terms of charges created in favour of our Bank. On account of the multiple suits filed by the various member Banks/ FI’s, an effort should be made to keep the legal costs to the bare minimum. For each of such suit/Recovery Application filed by the member Banks/FI’s, where our Bank is made party defendant, our Bank should pay to the Advocates professional fees of Rs. 7,500/- maximum per suit/Recovery Application plus out of pocket expenses and 15% of the clerkage . Please note in such Accounts where various suits / Recovery Applications are filed by various Banks/FIs and our Bank is made party defendant in all or most of such cases, then the maximum fees payable to the same Advocate who appears for the Bank on behalf of all such cases should not exceed Rs. 40,000/- per account with pro rata fees not exceeding Rs.7500/- per suit (i.e. considering all the suits/Recovery Applications filed against the Bank). The Advocates will be paid out of pocket expenses and clerkage of 15%.

9.13 Steps after obtention of recovery certificate from DRT/decree from Civil Court 9.13.1 Debt Recovery Tribunals, in cases filed before them, issue Recovery Certificates to the Recovery Officer for recovery of the amount of debt specified in the Certificates. On the basis of the said Recovery Certificates, the Recovery Officer proceeds to recover the amount in any of the following ways : a) attachment and sale of the movable and immovable property of the borrower /

guarantor b) arrest of the defendant and his detention in prison c) appointing a receiver for the management of the movable or immovable properties of

the defendant.


d) issue Garnishee Order against third parties if any amount is due from them to the defendant.

9.13.2 When a Recovery Certificate is issued by DRT or Decree has been obtained by the Bank in its favour, prompt steps should be taken for execution of such Recovery Certificate / decree for recovery of the Bank’s dues. Lack of prompt action and proper follow up at the Branch and Regional level in the matter of execution of Recovery Certificate/decree may jeopardize and adversely affect the Bank’s interest and result in the weakening, deterioration and frittering away of the securities obtained by the Bank. Such delays will also make it difficult to enforce or realise the securities for recovering the RC/ decretal amount. In many cases, after a Recovery Certificate / decree is obtained, the Branch /Regional Office fails to identify the assets of the borrower / guarantor, which can be attached in execution of the decree, with the result that the execution proceedings remains pending without the decree getting executed. In the absence of details of attachable assets, Bank’s Advocates for recovery are also helpless, resulting in the entire proceedings being futile, in spite of the Bank having to incur enormous legal costs. Branch should make local enquiries and take services of detective agency to ascertain the attachable assets of the Judgement Debtors. Where the Branch has on its records copies of Income Tax / Wealth Tax Assessment Returns, ascertainment of assets will be easier. 9.13.3 Branches should closely liaison with the Advocate handling the execution case and the Recovery Officer for the purpose of ensuring execution of Recovery Certificate / Decree. 9.14 Arrest of defendants / judgment debtors 9.14.1 The DRT has the power to pass interim orders by way of injunction, attachment or direct the defendant to furnish security in pending cases. In case of disobedience of such orders the DRT can order such persons to be detained in Civil prison for a term not exceeding 3 months. The Branch should file petition seeking injunction and attachment orders against defendants and their properties. Wherever such orders are defied by the defendants, the Branch must file petition for arrest of the defendants. 9.14.2 In the case of Recovery Certificate issued by DRT, the Recovery Officer has got the powers under Section 25 of the DRT Act inter alia, to recover the amounts under the RC by arrest and detention of the judgment debtors in prison. Therefore, in cases wherever our Bank / Branch concerned is convinced that the borrower/ judgment debtors are intentionally avoiding making payments though they have means to pay, then in fit cases, the branch may, after obtaining permission from the authority which has authorized filing Recovery Application, file an Application before the Recovery Officer for arrest and detention of such judgment debtors. 9.14.3 In execution of money decree awarded by the Civil Courts, the executing court can send the judgement debtor into prison if the court is satisfied that the judgement debtor, with the object of delaying the execution of decree, has after filing of the suit in which decree was passed, dishonestly transferred, conceal or remove any part of the property. 9.14.4 Further, in the case of decrees obtained from Civil Court, if the decree is for payment of money exceeding Rs.500/- and if the Judgment Debtor has or has had since the date of the decree the means to pay the amount of the decree or substantial part thereof and refuses to


pay the same, then in fit cases, the Branch should execute the decree by way of the arrest and detention of the Judgment Debtor in prison. This is provided in Section 51 of CPC. 9.15 Advocate’s Fees 9.15.1 DRT

Regular Recovery Applications (*)

All Metros, Ahmedabad and Bangalore

All other places

Where the debt due is Rs.10- lakh

Rs.12000/- Rs. 12000/-

Where the debt due is above Rs.10- lakh

Rs.12000/- upto Rs.10.00 lakh Plus Rs.500/- for Rs.1- lakh or part thereof Maximum Rs.50000/-


Appeals before(**) P.O.(Including under SARFAESI)

Rs.15000/-

Rs.10000/-

DRAT

Appeals (**) (Regular)


All other places

Where the debt due is Rs.10- lakh

Rs.12000/-

Rs.12000/-

Where the debt due is above Rs.10- lakh



Misc. Appeals(**) Including under SARFAESI

Rs.15000/-

Rs.10000/-


All other places

Interlocutory Applications/ (**) Third Party Objections etc

Rs.12000/- Rs.10000/-

In all cases, additional 15% of total professional fees can be paid towards clerkage and out of pocket expenses (*) In respect of Recovery Application filed before DRT, fees to be paid to the Advocates stage-wise as under: - 20% of total fees at the time of filing Original Application - 20% of total fees on obtaining Interim Orders - 20% of total fees on obtaining Final Order/Judgment - 15% of total fees on issuance of Demand Notice


- 25% of total fees on execution of Recovery Certificate (**) In respect of other matters listed above 50% fee can be paid on first hearing and balance on disposal of the application/appeal) 9.15.2 Head Office shall fix the fee structure of the Advocates for other matters before the DRT/DRAT not specifically mentioned above. It should be taken care to ensure that the fee is reasonable. 9.15.3 Professional fees for Senior Advocates/Counsels

Normally the engagement of Senior Advocates/Counsels should be avoided. However, where a genuine need for such an expertise is felt in complicated cases and where the Bank’s stakes are very high, the Regional Manager/ may, in consultation with the ARD Department, approve engaging the Senior Advocates/ Counsels on case to case basis. The fees payable to the Senior Advocates/Counsel should be fixed beforehand. Similarly, in genuine cases, Regional Manager may in consultation with Head office ARD Department, agree for enhanced fee to Advocates depending on the extra efforts involved. This shall be strictly on case to case basis and on merits. The approval for fees in above cases should be obtained from competent authority as per delegation. Whenever Indian Banks’ Association has been intervening in the Special Leave Petitions and Writ Petitions filed or defended by member Banks before the Hon’ble Supreme Court of India/various High Courts to support the cause of the banking industry, Banks are advised by the IBA to consider engaging Senior Counsels to be on par with the Senior Counsels engaged by IBA. 9.15.4. For Civil Cases Each Region shall maintain the fee structure of the Advocates for all other matters either as per the scale prescribed by the Civil Court Rules or High Court of the respective states or otherwise following the general practice prevalent in the respective city/ area and followed by other Banks. Every endeavour should be made to keep the cost of legal proceedings to the minimum. Fees payable to the Advocates should be based on actual work involved and should not be disproportionate to the amount for which suit is to be filed and amount likely to be recovered. 9.16 Waiver of Legal Action and withdrawal of suit / waiver of execution of decree

Normal requests for waiver of legal action should be submitted to competent authority when security documents are in force. If by any reason, the documents have expired before submission of waiver of legal action memo, the Branch should give cogent reason for not obtaining the renewal documents in time and the approving authority shall examine and comment on SAR aspect of this lapse in his approval note.

9.16.1 There may be few cases where the borrower and guarantors have expired and/ or their

whereabouts are not known and / or cannot be traced inspite of all the efforts and the security/ worth of the borrower/ guarantors’ available is insignificant compared to the outstanding dues or the outstandings are too small that the effort is considered cost ineffective. In such cases delegatees may consider waiver of legal action.

9.16.2 The authority to approve waiver of legal action and withdrawal of suit / waiver of execution of decree is as below:- Rs.in lakh)


9.16.3 For the purposes of determining the authority, likely suit amount as at the close of

previous month to the month in which the proposal is to be considered. 9.16.4 The above powers are also applicable to cases where it is considered to terminate the

suits which are in progress in the Court/DRT, waive appeals in suits filed by the Bank which are dismissed by the Courts/DRTs. In such cases, the amount for the purposes of delegation is the suit amount plus interest as prayed for till the close of previous month plus other forced debits incurred in the account such as legal expenses, expenses for protection/ preservation of security, advertisement & other charges in connection with the suit.

9.16.5 It is understood that the approval of waiver of legal action, termination of suit

proceedings, waiver of execution of decree, waiver of appeal in suits filed by the Bank and dismissed shall be followed by memorandum for write off before expiry of documents wherever applicable.

9.16.6 Memoranda for waiver of legal action for contractual dues upto Rs.1.00 lakh may be

submitted in the statement form. 9.17 Waiver of Appeal 9.17.1 The waiver of appeal normally arises where – a) the suit filed by the Bank has been dismissed by the Court b) the suit is decreed in Bank’s favour but for the amounts lower than prayed for 9.17.2 Where the suit filed by the Bank has been dismissed by the Court/DRT, the situation is

to be dealt as in 9.16.4. 9.17.3 Where the suit is decreed in Bank’s favour but for amounts lower than prayed for, the

following factors are to be taken into account while considering the appeal/ waiver of appeal in decreed accounts – a) reasons for award of lower than the prayed for and chances of success of appeal b) availability of security from which to recover the dues c) Cost benefit analysis, if appeal is preferred d) Time value of money and the possibility of delay in execution of decree in case

of preferring appeal

Authority Amt.

Chairman Full Powers


Regional Manager 2.50


The delegation of powers for approval of waiver of appeal is – Rs. in lakh)

Authority Amt.

Board Full power

Chairman 50.00


Regional Manager Scale IV 5.00

Regional Manager Scale III 1.00

The amount represents the notional sacrifice consisting of the difference between the dues as prayed in the suit and the dues as decreed. 9.18 Time frame for various actions 9.18.1 For action under DRT Act In cases where competent authority has permitted to file Recovery Application before DRT, such an Application has to be filed with DRT within two months from the date of sanction of the competent authority. Similarly, towards execution of Recovery Certificate, it is the responsibility of the Branch / Regional Office to ensure that the Recovery Certificate is taken on the record of the Recovery Officer for the purpose of execution within one month from the date of passing of the Recovery Certificate. Further, particulars of assets, location of assets and other necessary particulars should also be provided to the Recovery Officer within one month of date of passing of the Recovery Certificate. 9.18.2 For action before Civil Courts In cases where Competent Authority has permitted to file civil suit before Civil courts, such case has to be filed with the Civil Court within two months from the date of sanction of the Competent Authority. Similarly, towards execution of Recovery Certificate, it is the responsibility of the Branch / Regional Office to ensure that the Recovery Certificate is taken on the record of the Revenue authority for the purpose of execution within one month from the date of filing of the Bank’s Application / Requisition. Further, particulars of assets, location of assets and other necessary particulars should also be provided to the Revenue Officials within one month of date of filing of Bank’s Application / Requisition. 9.19 Reporting of Civil Court and DRT matters Regional Office should report the progress of suit filed and decreed accounts to the Head Office in the following manner: i. Monthly Statement of DRT pending / decreed accounts above Rs 25 lacs to be

submitted every month. (Account wise) ii. Quarterly Statement of DRT pending / decreed accounts above Rs 10 lacs but below Rs

25 lacs to be submitted every quarter. (Account wise) iii. Quarterly Statement of DRT pending / decreed / closed accounts (cumulative data) in

RBI format to be submitted every quarter. (Figure wise)


iv. Comprehensive half yearly statement on pending suit filed / decreed accounts including DRT accounts (Year wise / Sector wise /Figure wise).

9.20 A.Review of suit filed /decreed cases The developments of all suit filed and decreed accounts irrespective of book outstanding shall be assessed and reviewed by the Branch and report to the Regional Office/Head Office as the case may be, once in a quarter. Region shall further scrutinize such review report of the Branch to guide the branches and to monitor the progress of the suit filed and decreed accounts so as to enforce or realize the charged securities for recovering the bank dues. Such review is to ensure that

all suit filed accounts are properly followed up by the Branch and its Advocates

the summons is served on all the defendants at the earliest

the assets of the borrowers / guarantors are identified by making local enquiries by taking the services of detective agency and by perusing the Income Tax / Wealth Tax Returns, CBD 23 etc of the borrowers /guarantors so as to attach the same before Judgment to ensure realization of suit amount

the Decree / Recovery Certificate is obtained at the earliest

the Branch supplies the assets detail to the Bank’s Advocates within one month of the issuance of the Decree / Recovery Certificate or files an application, before DRT under Section 28 (4A) of the DRT Act or before the Civil Court under Order 21 Rule 41 of Civil Procedure Code, praying for an order directing the defendants to declare on Affidavit all the particulars of attachable assets of them.

B) Further Review of all suit filed and decreed accounts based on book-outstanding will be done once in a year as follows:

Book outstanding Authority

a) Upto Rs.10.00 Lacs Regional Manager

b) Above10 to 25 Lacs General Manager

e) All other Suit Filed/ Decreed Cases Above 25.00 Chairman


ANNEXURE -1 MEMORANDUM PROPOSING TO INITIATE/ WAIVER OF LEGAL ACTION/ WITHDRAWAL OF SUIT/ WAIVER OF APPEAL/ EXECUTION[FOR RS. OVER 1 LAC]

(Rs. In lakh)

01. Branch

03. Name of account

04. Constitution

05. Nature of Business

06. Category of Borrower

07.Date of Advance

08. Asset code

09. NPA since

10. Amount o/s (as on date ) 10a.Provision held(as on last qurter)

11. document valid upto

12. Whether account cover under ECGC and if so, whether claim lodged and amount received

13. Whether under BIFR/ AAIFR

14. Whether business activity is continuing

15. if stoped, a) since when b) Why c) Present activity of borrower d) Present income

16. Whether advance granted under any of the Central/ State Govt. sponsored scheme and if so, specify the name of the same.

17. Present position of the account : (Rs.in lakh)

* (State basis of valuation) Total approximate suit amount as on the date of proposal: Rs. 18. Particulars of Borrower/s & Guarantor/s : (In case of the borrower/s & guarantor/s is/are dead, the date of death and name & address of all the relatives, legal heirs be stated)

Name/s & address/(es)

Gross worth & basis of worth (at the time of sanction)

Gross worth Present **

Details of attachable Immovable properties & the realizable value thereof

Other liabilities with our Bank & other Bank/s and Institutions

Nature of Facility

S/L Authority & Date of last sanction/ review

Book O/s. as on date

Intt. ceased from

Unch. Intt. Till date

Nature of security (Primary & Collateral)

Value at sanc. time *

Valuation as at *

Realisable value

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix)


(i) (ii) (iii) (iv) (v)

A. Borrower/s

B. Guarantor/s

** If not known, give reasons Note : In case of deterioration in value/ worth from the date of sanction explain reasons. 19. Reasons for default and efforts made for recovery :

Wilful/ deliberate

If not, state reasons in brief for account going out of order

If there is long gap for initiation of proposed legal action from the date account became out of order, explain in brief reasons for the delay

20.Position regarding insurance :

i.Whether assets/ securities are adequately insured ? If not, reasons for the same

Whether Bank is in possession of the policy ?

Whether Bank’s interest is recorded in the policy ?

21. Whether all the original security documents & renewal documents are completely filled in, properly executed by the borrower/s & guarantor/s and are in order. If not, please state the exact nature of defects, document-wise whether such defects would affect/ jeopardise Bank’s interest.

22.Adverse audit remarks, if any and the corrective measures taken by the Branch

23. Whether action initiated under the SARFAESI Act ? If yes, present position of the secured assets If no, reasons for the same

24. Give justification for proposing legal action/ waiver of legal action/ withdrawal of suit/ waiver of appeal: 25. Staff Accountability : (Please enclose the report as per the format with specific comments and recommendations) 26. Estimated legal & other expenses :


27. Branch Recommendations : 28. Regional Manager’s Recommendations : 29. General Manager Head Office Recommendations: 30. Head Office Comments & Recommendations :

ANNEXURE-2

STATEMENT IN LIEU OF MEMORANDUM TO INITIATE/ WAIVER OF LEGAL

ACTION/ WITHDRAWAL OF SUIT/ WAIVER OF APPEAL/ EXECUTION FOR

CONTRACTUAL DUES UPTO RS.1.00 LAKH

Sr. No

Branch Name of the A/c., Guaranters alongwith worth

Nature of Activity and present Status

Credit facility since

Date of NPA/ Intt. ceased

Validity of docs.

Led ger O/s

Unch. Intt.

Total dues

Security value

Suit/ decree particul ars

Remarks


Chapter - 10

SARFAESI Act 2002

The Securitisation & Reconstruction of the Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act 2002) 10.1 The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is an effective tool in the hands of the Bank to enforce the security interests and recover the dues thereby reducing NPAs. The Act has three segments – a) Securitisation and Asset Reconstruction Companies b) Central Registry c) Enforcement of Security Interest This Chapter confines itself to enforcement of Security Interest and gives the gist of the salient features of the Act, Rules and important instructions. The instructions contained below are to be read along with the following: i. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002; ii. The Security Interest (Enforcement) Rules, 2002; iii. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act,

2004. iv. The Security Interest (Enforcement) Amendment Rules, 2007 w.e.f. 02.02.2007. v. Security Interest (Enforcement) (Amendment) Rules, 2007 w.e.f. 26.10.2007. The SARFAESI Act enables the Bank wherever the Bank is a secured creditor to enforce security interest for recovery of its dues without the intervention of the Court or Debt Recovery Tribunal provided that secured interest has been properly created in favour of the Bank. The term Security Interest has been defined under the SARFAESI Act as under: “Security Interest” means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes mortgage, charge, hypothecation and assignment 10.2 Criteria for invoking the provisions of the SARFAESI Act. Before enforcing security interest, branches should ensure that the borrowal accounts comply with the following criteria –

The contractual dues in the account should be Rs.1.00 lakh and above

The default must have occurred i.e. the account should have become NPA as per RBI norms.

The security charged to the Bank must be specific, clear and available to the Bank. It must be duly and effectively charged to the Bank and therefore, enforceable if the borrower fails to pay in response to the Notice.


The security documents in the advance account should be in full force on the date of serving the 60 days notice. As an abundant caution, it should be ensured that they are in force even at the time of the Action that will follow for enforcement of security i.e. at least upto one year from the date of serving the notice.

The security documents should be duly filled in and no column should be kept blank.

Either our Bank must be the sole Banker to the borrower i.e. 100 % lending is done by us or in case of joint lending, at least lenders representing 60 % of the contractual amount due and out-standing agree to take Action.

In case of Multiple Banking, if the security is exclusively charged, the Bank can proceed as though it is the sole Banker.

10.3 Exemptions: The following are exempted from the purview of the Act – Accounts where the contractual dues are below Rs.1.00 lakh. When the security interest is created on agricultural land. However, other agricultural

related assets like tractor, implements etc. can be enforced, if charged as security to Bank’s advance.

Where the contractual dues remaining unpaid are less than 20% of the principal i.e. total amount disbursed and interest.

Assets under pledge, lien/ assets financed under lease or hire purchase are not covered.

10.4 Due Diligence Study: Before invoking the provisions of the SARFAESI Act, a due diligence study should be conducted in respect of the secured assets to be taken into possession covering nature, value of such assets, probability of finding a buyer in the shortest period (it will be better if a buyer is identified before undertaking the exercise) expenses to be incurred in connection with safe-keeping / storage, appointment of security guards, estimated realisable value of the assets in case of sale etc. Branches should keep the above in mind before initiating enforcement Action. 10.5 Procedure for proceeding under the SARFAESI Act: 10.5.1 Identification of accounts & Obtention of Approval for Action The entire NPA portfolio of the Branch should be gone through and accounts fulfilling

the eligibility conditions as given above should be identified. Out of those identified accounts such account should be short-listed in which charged

security can be taken into possession for sale/lease for recovery of Bank’s dues. The Branch must put up the proposal before the Competent Authority for approval for

Action under the Act as per the prescribed format. On obtention of approval, 60 days notice(s) should be sent under the signature of the

Authorised Officer. There is no waiting period for issuing notices under the Act. As soon as the account

becomes NPA, notices under the Act should be issued after obtaining appropriate approval from Competent Authority.


10.5.2 Issue of notices. Service of proper notice is a pre-requisite for enforcement of security interest. Hence, it should be ensured that proper notices are served on the borrowers/ guarantors who have created the security interest. The authority for approving proposal for issuing notice and taking Action under the SARFAESI Act is as under:-

Authority Amt.in lakhs

Chairman Full Powers

General Manager, V 50.00

General Manager IV 25.00

Regional Manager IV 10.00

Note: i) The amounts represent suit claims/ contractual dues.

ii) The official approving issue of notice should not have sanctioned the credit proposal. In such case, it should be submitted to the next higher authority.

iii) Though approval for issuing notices can be given as above, notices are to be signed by the officer duly authorised as Àuthorised Officer’ by the Chairman

Other important instructions regarding issuing of notices: a) Though approval for issuing notices can be given as above, notices are to be signed by

the officer duly authorised by the Chairman as Àuthorised Officer’. b) The period of notice will be 60 days. c) Notices can be issued not only to the principal borrower but also to the guarantor if

security interest is created by the guarantor. However, if no security is created by the borrower but only by the guarantor then notice can be issued ONLY to the guarantor who has created security and the borrower should be issued usual RECALL NOTICE. Notices must be issued in the prescribed format, specimen of which are given in Annexure I & II.

d) The service of the notice is to be made by Regd. Post / A.D., Speed Post, Courier, E-mail, UPC, Fax etc. In case of non-delivery of service, the service is to be affected by affixing the notice on the conspicuous part of the building where the borrower / guarantor resides and / or carries on business and also on the property in which the security interest is created. It may also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality and the other in English.

e) Where the borrower is a Body Corporate, the Demand Notice shall be served on the Registered Office and also on any of the branches of such Body Corporate as specified under Sub Rule (1) of Rule 3 of Security Interest Enforcement Rules 2002.


f) When there is more than one borrower, the Demand Notice shall be served on each borrower.

g) In case of Joint Financing/Multiple Lending, whenever it is decided to proceed under the Act, all the Banks shall issue their notices separately for their respective dues. If all the lenders are agreeable to issue joint notice suitable mandate to be given /obtained for issue of joint notice with the consultation of Head Office, ARD Department.

h) The Authorised Officers so issuing the notice as well as monitoring and follow up of the action will have immunity granted for all Action done in good faith and without negligence while exercising the right on the securities created.

10.5.3 Objection / Representation received from the borrower on receipt of Notice: After issuance of notice under Section 13(2) of the SARFAESI Act by the Bank, if any borrower/guarantor makes any representation or raises any objection, then the Bank, being a secured creditor, has to consider such representation or objections and if the Bank comes to the conclusion that such representation or objection is not acceptable or tenable, then the Bank has to communicate within fifteen days from receipt of such representation or objection, the reasons for non-acceptance of the representation or objections to the borrower. A three members Regional Manager Credit Head of RO, ARD Head of RO, Sr. Manager at RO Committee headed by Regional Manager should finalise the reply in all cases irrespective of any amount. It is made clear that such communication of reasons shall not confer any right upon the borrower to prefer an application to the DRT under Section 17 or the Court of District Judge under Section 17A of the said Act. 10.5.4 Designating Chief Managers and above as Authorised Officers: In terms of the provisions of the aforesaid Act, the rights of the secured creditor under the Act may be exercised by one or more of his officers authorised in this behalf. As per the definition given in the Rules, “Authorised Officer” means an officer not less than a Chief Manager of a Public Sector Bank or equivalent as specified by the Board of Directors of the secured creditor. 10.5.5 Issuance of Notice Notices may be sent to the principal borrower/guarantors who have created equitable/ legal/Registered mortgage/charge/hypothecation/assignment in the Bank’s favour. 10.5.6 After issuance of 60 days’ Notice Branches need not wait for completion of 60 days statutory notice period to initiate follow up Action. Continuous follow up and personal contacts should be made with the borrowers so that pressure is built up for liquidation of the Bank’s dues.


10.5.7. Enforcement action in suit filed / DRT accounts: Position prior to Supreme Court Judgement in M/s Transcore vs Union of India: -

The Banks were taking simultaneous action for recovery under the SARFAESI Act as well as DRT Act, prior to the following amendment.

The Government has promulgated an Ordinance on 11.11.04 named as Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Ordinance, 2004. By the said Ordinance, Section 19 of the DRT Act has been amended. The said Ordinance was repealed and the Act was passed and notified in the Gazette on 31.12.04. The amended Section 19 of the DRT Act prohibits the Banks and Financial Institutions from taking simultaneous action under the SARFAESI Act as well as DRT Act.

However, our Bank had taken a view that the said Amendment Act is not having retrospective effect i.e. the said amendment became effective prospectively from the date of the promulgation of the Ordinance on 11/11/2004. In case of suits pending before the amendment of Section 19 of the DRT Act i.e. suits filed prior to 11/11/04, Bank could always take simultaneous action under the SARFAESI Act as also the DRT Act. As regards the suit filed/decreed cases after 11/11/2004 where the Bank had not taken any action under the SARFAESI Act and decided to take action i.e. after the issuance of the said Ordinance, then it had been decided to file a suitable application before the Hon’ble DRT/Civil Court to keep the Bank’s

OA/Suit adjourned with liberty to the Bank to revive the same after the completion of the proceedings initiated under the SARFAESI Act. If the

Hon’ble DRT/Court did not entertain the Bank’s Application, in that case it was decided to continue the proceedings before the Hon’ble DRT/Court as withdrawing the OA / Suit against the borrowers/guarantors, the Bank may loose its legal right to file fresh OA / Suit as it will be hit by the provisions of the Limitation Act. Position after Supreme Court Judgement in M/s Transcore vs Union of India:- The issue relating to simultaneous action under the DRT Act and the SARFAESI Act was examined by the Hon’ble Supreme Court of India in the Civil Appeal No. 3228 of 2006 between M/s.Transcore and Union of India & Another and a detailed judgment has been given on 29.11.06. In the said Civil Appeal, the Hon’ble Apex Court has interalia considered the following points/issues and has given its findings: i. Whether the banks or financial institutions having elected to seek their remedy in

terms of DRT Act, 1993 can still invoke the SARFAESI Act, 2002 for realizing the secured assets without withdrawing or abandoning the O.A. filed before the DRT under the DRT Act.

ii. Whether recourse to take possession of the secured assets of the borrower in terms of Section 13 (4) of the SARFAESI Act comprehends the power to take actual possession of the immovable property. The Hon’ble Apex Court has answered the above questions in the affirmative i.e. in

favour of the Banks/Financial Institutions (FIs) and accordingly the Appeal filed by the borrower was dismissed. Having regard to the fact that the Hon’ble Apex Court has decided


the above issues in favour of the Banks/FIs, there is no legal bar for taking simultaneous action under the DRT Act as well as the SARFAESI Act and for taking constructive possession. 10.6 Enforcement Action: 10.6.1 If full payment is made during the notice period, no further Action is called for. If part payment is made, the Bank retains the right to claim the balance amount. 10.6.2. If the borrower / guarantor fails to meet their liability in full within 60 days from the date of notice then the Authorised Officer may by himself or through empanelled Enforcement Agency take one or more of the following measures: Take possession of the secured assets Take over the management of the secured assets. Appoint a person to manage the assets so taken over. Issue notice for collection of receivables / book debts Bank can also sell or lease out the business and take over the management of the

Company. In case the borrower refuses peaceful handing over of the secured assets, Bank can

also file an application before the concerned Chief Metropolitan Magistrate /District Magistrate for taking possession of the secured assets.

10.6.3 The possession should not be taken as a matter of routine. A due diligence should be conducted in respect of secured assets to be taken into possession covering nature and value of such asset, probability of finding a buyer in the shortest period (it will be better if a buyer is identified before undertaking the exercise), expenses to be incurred in connection with safekeeping/ storage, appointment of security guards, estimated realisable value of the assets in case of sale, etc. The total costs and expenses incurred should not be disproportionate to the amount of value of security and recovery expected. 10.6.4. Procedure for taking possession/sale of the secured assets 10.6.4.1 Before taking Possession

i. Where secured assets are intended to be taken in possession, a preliminary visit by the Authorised Officer, if necessary alongwith the Board Approved Valuer who should be registered under Section-34AB of the Wealth Tax Act, 1957 to the site is desirable to assess the likely response of the borrower, realisable value of the assets, the requirement of technical support, manpower and items necessary for effectively taking possession of the secured assets, guarding and/or taking the same in proper custody. If the attitude of the borrower is hostile and it appears to the Authorised Officer that the borrower shall not peacefully handover the secured assets or the premises are found locked, the Authorized Officer must seek the assistance of the Chief Metropolitan Magistrate / District Magistrate in terms of provisions of Section 14 of the Act in consultation with Bank’s Panel Advocate for taking over the possession of the secured assets. As per amendment in section 14 of SARFAESI act Chief Metropolitan Magistrate or District Magistrate shall issue the order within a period of 30 days from the date of application . It is further provided that if no order is


passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of 30 days for reason beyond his control, he may , after recording reason in writing for the same , pass the order within such further period but not exceeding in aggregate 60 days.

ii. The decision to take possession of the secured assets will solely depend upon the realizable value of the secured assets and the expenses the Bank is likely to incur towards storage, security, insurance etc. If the realizable value of the secured assets is less than the expenses likely to be incurred by the Bank then before initiating the enforcement Action, the Authorised Officer should bring this fact to the notice of the General Manager and seek the instructions. The General Manager should consider the issue in its entirety and considering the demonstrative effect of the exercise decide the further course of Action.

iii. Having made the assessment as stated in the preceding paras, the Authorised Officer, after making necessary preparation should proceed to take possession. He must have copies of the Notice served on the Borrower / guarantor. He should be accompanied by hamal/mazdoors, carpenter (as per requirement) security guards from approved agency, two independent witnesses and a Valuer approved by the Head Office who should be registered under Section-34AB of the Wealth Tax Act, 1957. He should also carry necessary formats as per Appendix to the Security Interest (Enforcement) Rules for preparation of Panchnama, inventory, Possession Notice, pad locks and other necessary items for putting the secured assets under lock and seal of the Bank wherever necessary. A Sign Board showing Bank’s possession of the site/secured assets may also be carried for putting it up at the site.

iv. Before taking possession of the secured assets, Authorised Officer must ensure that the property which is sought to be taken into possession is listed in the notice and the description thereof tallies. For this purpose the Authorised Officer should carry photocopies of the charge creating documents i.e. Memorandum of Entry/Hypothecation Deed etc.

10.6.4.A. Movable Assets 10.6.4A.1 Taking Possession Normally the movable assets are stocks in trade, work in progress, raw material, finished goods, semi finished goods, parts, tools, stores, movable machinery, book debts, receivables etc. or as may be hypothecated/charged to the Bank. Authorised Officer assisted by persons accompanying him shall take possession of the property in the presence of two independent witnesses. Possession should be taken after sunrise and before sunset. i. Panchnama shall be prepared and signed by the two independent witnesses and the

Authorised Officer. The Panchnama should be drawn as nearly as possible in accordance with Annexure III. Necessary details as required in the format, as per facts and circumstances of the case should be mentioned in the Panchnama (Rule 4 (1)).

ii. After taking over the possession, the Authorised Officer shall make or cause to be made an Inventory of the property immediately in the form given in Appendix II to the Rules. The Inventory must give all the requisite particulars of the property e.g. description of the article, estimated value etc. as per requirements in the Annexure IV. Apart from


the necessary particulars as required in the format of Inventory, details about quality/quantity, measurements, nature/condition of the property should be mentioned in the inventory. It is to be signed by the Authorised Officer and the borrower or his authorised representative. In case there is refusal by the borrower/representative to sign the inventory, a statement to that effect must be recorded in the Inventory as well as Panchnama and signed by the two independent witnesses and the Authorised Officer.

iii. Authorised Officer shall deliver or cause to deliver the copy of the Inventory to the borrower or any other person entitled to receive it on behalf of the borrower. An acknowledgment should be obtained. In case of refusal, the fact of refusal should be recorded in the Inventory. A copy of the Inventory should be despatched to the borrower by Registered Post with acknowledgement due/fax or E-mail. Inventory is to be attached to the Panchnama.

iv. Secured assets shall be kept in the custody of the Authorised Officer or in the custody of any other person authorised or appointed by him in this behalf. The seized assets shall be taken care of in the same manner as the owner of ordinary prudence would take of his own assets. Under no circumstances the possession of the asset should be with the Enforcement Agents appointed by the Bank.

v. The Authorised Officer shall take steps for preservation and protection of secured assets. Wherever the secured assets are not insured or insurance coverage has expired, the Authorised Officer shall take insurance coverage/ continue it till the assets are disposed off. An independent godown/warehouse (as per requirement) should be identified/made available with independent access to the Bank wherein seized assets could be stored and all necessary steps should be taken for protecting and preserving the seized assets including arrangement of security agency for providing security guards to protect the secured assets from theft, pilferage etc.

vi. If the seized assets are subject to speedy or natural decay or the expenses of keeping such assets in custody are likely to exceed its value, the Authorised Officer may direct sale of such goods immediately so as to prevent loss due to decay after completing the aforesaid formalities. In such an event the Authorised Officer shall have to issue Sale Certificate to the purchasers in the prescribed form as given in Annexure V on receipt of Payment. The Sale Certificate shall specify the movable secured assets sold, price paid and the name of the purchaser.

10.6.4.A.2 Valuation / Sale of the Movable Assets i. After taking possession of the movable assets and before the sale, the Authorised

Officer shall obtain the estimated value of the movable assets from a Valuer approved by Bank’s Board who should be registered under Section -34AB of the Wealth Tax Act, 1957 and if considered necessary then fix the Reserve price of the assets in consultation with the Regional Manager. It is mandatory as per amended Section 2(d) of the Security Interest (Enforcement) Rules, 2002 that the valuer should have been approved by the Board of Directors of the Bank. Approved valuer should also be registered under Section -34AB of the Wealth Tax Act in addition to the above. The General Manager will be the minimum authority for approval of the Reserve Price irrespective of contractual dues/value of security.

ii. The Authorised Officer or any representative of the Bank should accompany the Valuers at the time of conducting valuation.


iii. Valuers should be advised to furnish a realistic and reasonable value of the assets after taking into consideration the market conditions and the present prices in general.

iv. Wherever prospective buyers are not available for purchasing the unit as a whole, seized assets should be sorted out in different lots for the convenience of effecting sale.

10.6.4.A.3 Manner of Sale The Authorised Officer shall sell the seized assets in one or more lots by any of the following modes to secure maximum price for the assets to be sold: i. By obtaining quotations from parties dealing in the seized assets or otherwise

interested in buying the seized assets. ii. By inviting tenders from public iii. By holding public auction or iv. By private treaty. 10.6.4 A.4 Sale Notice - To Borrower/owner of assets. The Authorised Officer must serve to the Borrower a Notice of 30 days for sale of the movable assets. Service of Sale Notice is to be done in the same manner as Demand Notice under Section 13 (2) of the Act is served. The Act/Rules do not prescribe any format for this notice. This Notice should contain the Reserve Price, fixed if any and mode of sale, place, date and time of sale and should give the borrower an opportunity to participate in the sale process. 10.6.4.A.5 Publication of Sale Notice in Newspapers If the sale is being effected by either inviting tenders from public or by holding public auction, a Public Notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality must be published. Sale can be conducted only after expiry of 30 days from the date on which the Sale Notice was published in the newspaper or after expiry of 30 days from the date of service of the Sale Notice to the borrower/guarantor whichever is later. The Public Notice shall set out the terms of sale, which may include the following: i. Details about the secured debts, borrower/s /Guarantors and bank. ii. Description of movable secured assets to be sold with identification marks or numbers

if any on them: iii. Reserve Price, if any, and the time and manner of payment; iv. Time and place of public auction or the time after which sale by any other mode shall

be completed; v. Depositing earnest money as may be stipulated by the Bank; vi. Time and place for inspection of the movable assets; vii. Any other thing which the Authorised Officer considers it material for the purchaser to

know in order to judge the nature and value of the movable assets; Wherever Sale Notice is being published in newspaper a copy thereof should be sent to the borrower/guarantor i.e. owner of the property alongwith 30 days Sale Notice referred above.


10.6.4.A.6 Inspection by Prospective Purchasers: The prospective purchasers/tenderers will have to be provided with the details of assets under sale and opportunity for inspection. For convenience, a common date and time may be fixed for inspection for all prospective purchasers and intimation to this effect to be made part of the Sale Notice to be published in newspaper. 10.6.4.A.7 Sale by Public Tender: Wherever sale is to be conducted by Public Tenderor through E-auction/E-tender process , all the tenders received should be opened by the Authorised Officer in the presence of the Tenderers and hence date, time and place of opening the Tenders should also be mentioned in the Sale NoticeE-auction Notice. 10.6.4. A.8 Sale by other methods than public auction/public tender Sale by any method other than public auction or public tender shall be on such terms as may be settled between the parties in writing. However, endeavour should be made to get the maximum sale price for the assets i.e. more than the Reserve Price. Further, if the amount offered is less than the Reserve Price, the property can be sold by the Authorised Officer only with the consent of the Bank and borrower/guarantor i.e. owner of the property. 10.6.4.A.9 Issuance of Sale Certificate Where movable secured assets are sold, sale price of each lot shall be paid as per the terms of the public notice or as per terms settled between the parties as the case may be and in the event of default of payment the secured assets shall be liable for sale again. On payment of sale price, the Authorised Officer shall issue Sale Certificate in the prescribed form as given in Annexure V to the said Rules specifying the movable secured assets sold, price paid and name of the purchaser and thereafter the sale shall become absolute. The Sale Certificate so issued shall be prima facie evidence of title of purchaser. The possession of the assets sold shall be delivered to the purchaser. 10.6.4.A.10 Sale of other movable assets The aforesaid procedure with necessary change shall be followed while taking possession and selling the following movable secured assets also: i. A mortgage, charge, hypothecation of movable property. ii. Any right or interest in the security whether full or part underlying at debt or receivable

(payable to the Bank). ii. Any beneficial interest in the property or in a debt or receivable.


10.6.4.A.11 No Sale or Transfer if Dues are paid: If the dues of the Bank together with all costs, charges and expenses incurred by Bank are tendered to the Bank at any time before sale or transfer, the secured asset shall not be sold or transferred by the Bank. 10.6.4.A.12 Procedure relating to other secured assets not in possession of the borrower: i. If the secured assets is in the form of a debt (not secured by negotiable instrument) not

in possession of the borrower, 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 to the borrower and directing the debtor to make such payment to the Authorised Officer.

ii. If the secured assets are shares in a body corporate, the Authorised Officer shall serve a notice directing the borrower to transfer the same to the Bank and also the body corporate from not transferring such shares in favour of any person other than Bank. A copy of such notice so sent shall be sent to the concerned Body Corporate’s Registrar to the Issue or Share Transfer Agent, if any.

iii. In case of any other movable property, the Authorised Officer shall serve the notice upon the borrower and the person in possession of such assets, calling upon them to handover the same to Authorised Officer and the Authorised Officer shall take custody of such movable property in the same manner as applicable to movable secured assets as aforesaid.

10.6.4B Immovable Properties 10.6.4.B.1 Taking Possession Before taking possession of immovable property the Authorised Officer shall be guided as far as possible by the guidelines as appearing above vide Para 10.6.4.1 (i) to (iv). i. The immovable property to be taken into possession may be house, residential flat,

open plot of land, factory land and building, industrial Gala, warehouse, Plant & Machinery permanently attached to earth etc. As per nature of the property, appropriate preparations should be done for effectively taking possession thereof and keeping the same in safe custody and care.

ii. Possession of the immovable property shall be taken by delivering Possession Notice prepared as per the format given in Annexure VI to the said Rules, to the Borrower/Guarantor whose property is being taken in possession. Duplicate of Possession Notice has to be affixed on the outer door or most visible part of the property itself. If the property is land and large in area, a notice board also can be fixed giving the details of Possession Notice. Where there is refusal to acknowledge the Possession Notice, then the Possession Notice is to be served in the same manner as demand notice issued under Section 13 (2) of the Act is served.

iii. Possession Notice shall be published within 7 days from the date of taking possession in two leading daily newspapers (one in vernacular/local language) having wide circulation in that locality.


iv. While taking possession of immovable property including plant and machinery embedded to the earth or permanently fastened to anything attached to the earth, the Authorised Officer or any person appointed by him shall prepare inventory of such assets giving full description and condition thereof including trade mark, capacity, survey nos., extent, boundaries etc. The inventory should also contain all the movable assets/contents found in the premises, which are taken possession or attached to the premises. Such inventory should be verified with two independent witnesses and should be prepared as far as possible in the form given in Annexure IV and should be delivered to borrower or any person entitled to receive it on behalf of borrower (i.e. owner of such assets)

v. The Rules do not specify any Panchnama in case of immovable property but it is

advisable to record a Panchnama detailing the fact of taking over of possession, its time, date etc, inventory of movables, if any, signed by two independent witnesses.

vi. In case of taking possession of residential properties under Section 13 (a), if peaceful possession of such residential properties is possible, a Panchnama with two independent witnesses is a must and the Panchnama should contain the details of all the contents of such premises such as furniture, fittings etc. If moveable assets found are not charged to Bank then the assets should be handed over to the true owner against proper acknowledgement. If the same is not possible then Inventory of such movables should be prepared as aforesaid and the movables should be kept in safe custody and true owner be notified for taking possession alongwith copy of Inventory.

vii. Even if possession is obtained under an Order of the Magistrate, a Memorandum recording handing/taking over the possession should be drawn disclosing all the contents of such premises such as furniture, fittings etc. followed by handing over of Possession Notice by the Authorised Officer to the borrower and publication of Possession Notice within 7 days from the date of taking possession in the newspapers as aforesaid.

viii. If the possession of the immovable property has been taken, the property has to be kept in the custody of the Authorised Officer or in the custody of any other person authorised or appointed by Authorised Officer in this behalf who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of his property. Hence, the assets taken into possession must be maintained with care and all necessary repairs/cleaning up operations be carried out so as to maintain the property in proper condition. Under no circumstances the possession of the property should be given to the Enforcement Agents appointed by the Bank.

ix. The Authorised Officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. If the seized assets are already insured by the borrower, the same may be renewed. If not, the same must be insured upto such value as may be deemed necessary by the Authorised Officer taking into consideration the realizable value of such property.

10.6.4. B.2 Valuation / Sale of Immovable Property i. The concerned branch must be in touch with prospective buyer(s) (preferably before

expiry of notice period of 60 days) for selling seized assets in order to ensure that there


will not be any depreciation in value of the assets and costs for preserving the assets are minimum.

ii. Before effecting sale of the immovable property taken into possession, the Authorised Officer shall obtain valuation of the property from a Valuer approved by the Board who should be registered under Section-34AB of the Wealth Tax Act, 1957.

iii. The Authorised Officer or any representative of the Bank should accompany the Valuers at the time of conducting valuation. A copy of the Title Deed should be taken during such inspection to identify the property and to ensure that the property as per Title Deeds is same as that being valued.

iv. Valuers should be advised to furnish a realistic and reasonable Value of the assets taking into account the market conditions and present property prices in general.

v. Irrespective of the authority approving the action under SARFAESI Act, the authority for fixation of Reserve Price is as under :

Sr. No

Contractual dues/ Suit claims

Authority

i) Upto Rs. 25.00 lakh Three member committee headed by Regional Manager (ARD Chief/Credit Chief) [ RO Committee ]*

ii) Upto Rs 50.00 lakhs

Three member committee headed by General Manager (ARD Chief/ Credit Chief Manager) [HO Committee ]**

iii) Above Rs. 50.00 lakh

Committee Headed by Chairman ( Two General Manager Two Chief Manager-HO,) [HO Committee ]***

*Minimum two members including Chairman of committee. **Minimum two members including Chairman of committee. *** Minimum three members including Chairman of committee.

Decision of reduction in the Reserve Price in all the cases where our contractual dues / suit claims are upto Rs. 100.00 lakh would be taken by the three member committee headed by Regional Manager based on the parameters presently in vogue. For the cases above Rs.100.00 lakh recommendations of the above three member committee to fall within the authority of the GM, HO, ARD. vi. The authority will fix the reserve price on average of Realisable Value and Distress Sale

Value of the property to be sold. vii. In case no bids are received during the first sell/auction the authority can reduce the

reserve by 10% for subsequent sell/auction depending upon the factors associated with charged assets / market conditions. While deciding the reduction in reserve price the authority should ensure that the valuation report/s should not be more than one year old.

viii. Valuers approved by the Chairman under the SARFAESI Act should execute an Agreement-cum-Indemnity indemnifying the Bank against any financial loss suffered by the Bank on account of major variation in valuation or the ownership of the property.

ix. The charges payable to the Approved Valuers may be as per rates prescribed under Wealth Tax/Income Tax Act subject to a maximum fee of Rs.5.00 lakhs.


Notwithstanding the schedule of rate which is given below, the Branches will negotiate

with the Valuer for lower rates- a) If the value of assets is Rs.50,000/- fee would be @ ½ % of the value subject to

minimum of Rs.2,500/-. b) For the next Rs.1.00 lakh, fee would be @ ¼ %. c) For balance amount fee would be @ 1/8 % on reducing balance.

x. After fixing the Reserve Price the Authorised Officer may sell the whole or any part of such immovable property by any of following methods to ensure maximum price of such property : a) by obtaining quotations from the persons dealing with similar property or

otherwise interested in buying such property or b) by inviting tenders from the public.

c) by holding public auction, or d) by private treaty.

xi. The Authorised Officer shall serve to the borrower a notice of thirty days for sale of the immovable property. Service of Sale Notice is to be made in the same manner as service of Demand Notice is made. The Act/Rules do not prescribe any format for this notice. This notice should contain the Reserve Price fixed, mode of sale, place, date and time of sale and should give the borrower an opportunity to participate in the sale process.

xii. If the sale is conducted by inviting tenders from public (E-auction or E-tenders )or by holding public auction, a Public Notice is to be published in two leading daily newspapers, one in vernacular language, having sufficient circulation in that locality the other in English by setting out the terms of the sale including the following: a) Name of the Bank and the borrower/guarantor i.e. owner of the property b) Description of the immovable property to be sold, including the details of the

encumbrances known to the secured creditor. c) The secured debt for recovery of which the property is to be sold. d) Reserve Price below, which the property may not be sold. e) Time and place of Public Auction or the time after which sale by any other mode

shall be completed. f) Depositing earnest money as may be stipulated by the Authorised Officer of the

secured creditor. g) Any other thing which the Authorised Officer considers material for a purchaser

to know in order to judge the nature and value of the property. h) Wherever Sale Notice is being published in newspapers a copy there of should

be sent to the borrower along with 30days Sale Notice referred above. xiii. Branches should simultaneously also make full use of bank’s website for displaying

particulars of charged securities for wider coverage/range (for auction/inviting tenders/bidding purposes This will enable to fetch better price for the securities to be disposed of in view of nationwide coverage and reaching numerous interested bidders/prospective buyers. Branches should email details (same as proposed to be published in the newspapers which is statutory requirement) to be uploaded on website in PDF Format only at the following address [email protected]

xiv. In terms of Ministry of Finance, Govt. of India guidelines vide Ref. No. 28/4/2011-DRT dated 8th Nov. 2011, it has been decided that all auction notices issued by PSBs/FIs under SARFAESI Act should be uploaded on the website “tenders.gov.in” to give wide

mailto:[email protected]


publicity with a view to get better response. All Branches Regional Offices to get all the auction notices issued under SARFAESI Act uploaded to the said website viz. “tenders.gov.in” simultaneously to its paper publication in newspaper and ensure that no auction hereafter takes place without auction notice being put on the website for at least 30 days. However, this shall not dispense with the notice mandatorily to be published in the newspaper as required under the SARFAESI Act, 2002. The date of auction which is shown in the notice being published in the website as well as in the Newspaper should be one and the same and it is to be ensured that no sale should take place before the expiry of the 30 days from the date on which the notice is given in Newspaper and the website.

xv. The Notice of sale should also be affixed on a conspicuous part of the immovable property to be sold.

xvi. The Authorised Officer/concerned Branch must make arrangement for facilitating the inspection of property under sale and information to this effect should be mentioned in the Sale Notice. For the sake of convenience a common date/s and time may be fixed for inspection by prospective bidders/purchasers.

xvii. In case of sale by obtaining quotations from interested parties, quotations from at least 3 interested parties should be invited. The invitation for quotations should be mailed to as many interested parties as possible. (For example, if the immovable property to be sold is factory land and building, the interested parties could be owners of properties in the neighbourhood, owners of factories engaged in similar Activity etc.).

xviii. Wherever sale is to be conducted by Public Tender, all the tenders received should be opened by the Authorised Officer in the presence of the Tenderers and hence date, time and place of opening the Tenders should also be mentioned in the Sale Notice.

xix. Sale by any method other than Public Auction or Public Tender shall be on such terms as may be settled between the parties i.e. bank and the borrowers in writing.

xx. Every endeavour should be made to obtain a price above the Reserve Price and the property has to be sold only to the Purchaser who has offered the highest sale price in his bid or tender or quotation or offer. Further, if the amount offered is less than the Reserve Price, the property can be sold by the Authorised Officer only with the consent of the Bank and borrower/guarantor i.e. owner of the property.

xxi. Sale by any method can be conducted only after expiry of 30 days from the date on which the Sale Notice was published in a Newspaper/uploaded on Bank’s website or from the date of service of Sale Notice to the borrower/guarantor (i.e. owner of the property) whichever is later. Assets shall be sold in favour of the purchaser who has offered the highest price in his bid/tender or quotation or offer to the Authorised Officer and the sale shall be subject to the confirmation by the Bank.

xxii. On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty five percent of the amount of the sale price, to the Authorised Officer conducting the sale and in default of such deposit; the property shall forthwith be sold again to other eligible bidders.

xxiii. The balance amount of purchase price payable shall be paid by the purchaser to the Authorised Officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.

xxiv. In default of payment within the period mentioned as above, the deposit and earnest money shall be forfeited and the property shall be resold and the defaulting purchaser


shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold.

xxv. On confirmation of sale by the Bank and if the terms of payment have been complied with, the Authorised Officer exercising the power of sale shall issue a Certificate of Sale of the immovable property in favour of the purchaser in the form given in Appendix V to the SARFAESI Rules. All expenses relating to stamp duty, registration etc. including all costs, charges and expenses in relation thereto are to be borne by the purchaser.

xxvi. 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.

xxvii. On such deposit of money for discharge of the encumbrances, the Authorised Officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. When the Authorised Officer has allowed the purchaser to deposit the money to discharge the known encumbrances, surplus if any, after discharging the known encumbrances shall be returned to the purchaser within fifteen days from the date of finalization of sale. Please note that Bank generally sells the property on ‘As is where is’ and ‘As is what is’ basis and in that case the purchaser himself has to discharge all the encumbrances.

xxviii. The Authorised Officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified above.

xxix. The Certificate of Sale issued in respect of property under encumbrances shall specifically mention that the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.

10.6.5. Appointment of Manager Under Section 13(4)(b) power has been granted to the secured creditor to take over the “management of the business” of the borrower. The secured creditor can transfer by way of lease/assignment or sale and the said powers can be exercised only where the “substantial part of the business of the borrower” is held as a security of the debt. It has also been stipulated that where the management of whole of the business or part of the business is severable, then secured creditor should take over the management of such business of the borrower which is relatable to the security for the debt. Under Section 13 (4) (c) of the Act the secured creditor has powers to appoint any person to manage the secured assets the possession whereof has been taken over by the secured creditor. Manager appointed to manage the secured assets 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. The manner of exercise of this power is detailed in Rule 10 of the Security Interest (Enforcement) Rules, 2002. As per this Rule, the Board of Directors may appoint any person as Manager, in consultation with the borrower, to manage the secured assets, the possession of which has been taken over by the Bank. The Manager so appointed by the Board will be deemed to be an agent of the borrower and the borrower shall be responsible for the commission and omissions of the Acts of Manager unless such commission or omissions are


due to improper intervention of the secured creditor/Authorised Officer. The Regional Managers should refer the cases to Head Office for appointment of Managers in specific cases for approval of the Board. The Manager shall have the following powers:- a. Sending notices 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.

b. Giving a valid discharge to such person who has made payment in respect of the acquired assets as aforesaid as if the payments have been made to the borrower.

c. Manager shall apply/appropriate all monies received by him towards liquidation of

Bank’s dues in the following order: i. Firstly in payment of cost, charge and expenses. ii. Secondly in discharge of dues of the secured creditor i.e. Bank. iii. Thirdly, the residue of monies, if any, to be paid to person entitled to it in

accordance with his rights and interest. 10.6.6 Secured Assets in possession /custody of the Court/Court Receiver/Official Liquidator/Provisional Official Liquidator Where the assets to be taken into possession are in possession/custody of the above noted authority, the Authorised Officer can not take possession of such assets without specific and prior permission from the concerned Court etc. This restriction would apply in case of assets belonging to a corporate borrower against which winding up order has been passed by the Company Court. 10.6.7 Immovable property in possession of tenants Sec. 13(4) of the Act empowers the Secured Creditor /Authorised Officer to take possession of the property either actually or constructively and transfer it by way of lease/assignment/sale and any such transfer of secured assets after taking possession shall vest in the transferee as if the transfer has been made by owner of the assets. However, such deeming power has been given to the secured creditors/Authorised Officers only for the limited purpose of releasing the securities to convey good marketable title to the buyer but property does not vest in the secured creditor/Authorised Officer, who shall not have any power to evict a tenant who is in lawful possession of such property. In such cases, the Authorised Officer can take constructive possession of the property after observing the necessary formalities as provisions of the Rules and as detailed in this Annexure. Such properties can be sold on as is where is basis i.e. subject to tenancy rights/encumbrance. The Authorised Officer can serve notice to the tenants under Section 13 (4) (d) of the Act for payment of the rent to the Bank and on receipt of rents the Authorised Officer can give the tenant a valid discharge by issuing receipts. However, where the tenant does not appear to be bonafide but tenancy appears to have been created in connivance with the borrower then the Authorised Officer should immediately bring facts to the knowledge of Regional Manager of the Region for guidance.


10.6.8 Constructive / Symbolic possession In this regard, the properties in possession of the tenants, taking symbolic possession of the properties, as a rule, may not be the appropriate mode and the same may not serve any purpose and there may be complications in cases involving unscrupulous borrowers/owners of the immovable properties. This is explained as under:- i. Possession is taken in order to hand over the same to the purchaser of the property on

confirmation of the sale. Symbolic possession will not ensure Actual possession of the property, which the intending purchaser will require. Apart from that, when the property is not in vacant possession of the Bank, the same may not attract fair value as it should because of the uncertainty and the apprehension in the minds of the intending purchaser about some litigation following the sale in order to thwart the delivery of possession. As such, Actual and vacant possession in the hands of the Bank shall always command highest price as compared to a situation where only symbolic possession is obtained by the Bank.

ii. In case symbolic/constructive possession is taken by delivering the copy of Possession Notice, then any unscrupulous owner of such property may try to part with the possession of the property and contend that he has already delivered possession of the property to the Bank against Possession Notice. This situation will be very complicated when the Bank will have to account for the same.

iii. Symbolic / constructive possession will have to be converted into Actual possession at the time or after the sale of the property, as vacant possession has to be given to the purchaser of the property unless the purchaser agrees to purchase without insisting for vacant possession. Hence, for aforesaid reasons, it is not advisable to postpone taking of Actual possession, as a rule. However, in specific cases involving special circumstances, symbolic possession may be taken after following formalities e.g. property in possession of tenants or where taking possession of the property will entail large expenses for maintaining and safe guarding the property and the owner of such property is cooperative enough to execute necessary declaration and undertaking in favour of the Bank stating that Bank has taken possession of the property and, at his request, the Bank has again put him in possession of the property as its agent and that he will hold the possession on behalf of the Bank as the agent, and shall be responsible for maintaining the same. Such a person will further undertake that he shall hand over vacant possession of the property back to the Authorised Officer of the Bank within a specific time frame (say within seven days) of being asked to do so, failing which, the Bank can move the Chief Metropolitan Magistrate/District Magistrate u/s 14 of the Act for regaining the possession. The draft of such undertaking may depend on facts and circumstance of each case and can be prepared in consultation with Panel Advocate of the Bank.

10.7 The forms as prescribed under Security Interest (Enforcement) Rules, 2002, should be used at the time of taking possession of secured assets. Specimens of the forms are given in the appendix to the said Rules. Some of such forms are provided as Annexure at the end of this chapter.


10.8 Appropriation of sale proceeds [Section 13 (7)] All costs, charges, expenses incurred by the secured creditor are recoverable first from

the proceeds of assets sold. Hence proper records / documents pertaining to service of notice, acknowledgement of notice, proof of service, publication of notices etc. and account relating to expenses incurred should be maintained.

After sale of secured assets the appropriation of sale proceeds realized is to be done as per the provisions of Section 13(7) in the following order:

Firstly towards costs charges and expenses incidental thereto, which are recoverable from the borrower. Costs incurred by the secured creditor for preservation and protection of securities, insurance premium and other expenses will be recoverable from the sale proceeds.

Secondly towards the dues of the secured creditor. If there is any residue it is to be paid to the person entitled thereto in accordance with

his rights and interests. The order of payment contained in this sub-Section gives recognition to the rights of secured creditors to realize their securities in preference to all other creditors and other preferential payments of the dues payable to Government, labour etc.

This provision and order of payment is subject to provisions of Sections 529 and 529A of the Companies Act in respect of companies under winding up. Subject to pari passu charge on the assets of the Company under winding up for workmen’s dues, or pari passu or first charge of any other creditor sub-Section (9) does not recognise priority of any other creditor or claimant over the claim of the secured creditors.

10.9. Recovery of short Fall Amounts If the sale proceeds realised in the enforcement Action are not sufficient to liquidate Bank’s dues then the Bank will have to file recovery suit / DRT application before Civil Court / DRT for enforcing the personal covenant against the borrower / guarantor. The issuing of notices under the Act does not extend the limitation period and on the date of filing Suit / DRT application for recovery of the dues, the documents must be alive. Hence the limitation period should be kept track of and it should be ensured to file recovery suit / application before Civil Court / DRT before expiry of limitation period for personal decree, notwithstanding issue of notice/ Action under the Act. 10.10.1 Application to DRT and Appeal to DRAT: Application to DRT by Aggrieved Persons:- If any person is aggrieved by any of the measures taken under Section 13 (4) of the Act by the Bank, he may file an application to DRT within 45 days from the date on which such measures have been taken under Section 17 of the SARFAESI Act alongwith such fee as may be prescribed. For filing of such application no deposit is required to be deposited by the borrower or such person. The DRT has been given power to consider whether Action taken by the Bank to enforce security is in accordance with the provisions of the Act and Rules. If the DRT comes to the conclusion that Action taken by the Bank is not in accordance with provisions of the Act and Rules then by an order it can declare the Action taken by the Bank as invalid and restore possession of the secured assets to the borrower and pass such orders as it may consider appropriate and necessary. The DRT has to pass the orders within 60 days time. However, the


said time can be extended by the DRT upto four months. If the DRT does not decide the application within four months time then any party may approach DRAT, for directing DRT for expeditious disposal of the application pending before the DRT. Appeal to DRAT:-

If any person aggrieved by any Order made by the DRT under Section 17 may prefer an appeal to the Debt Recovery Appellate Tribunal within thirty days from the date of receipt of the order of the DRT along with such fee as may be prescribed. No appeal shall be entertained unless the borrower deposits 50% of the amount of debt due from him or determined by the DRT whichever is less. The Appellate Tribunal may for reasons to be recorded in writing reduce the amount to not less than 25% of the debt. 10.10.2 SARFAESI Act and Civil Procedure Code- The properties specifically charged with debt recoverable under the Act are liable to be attached and sold (though the same are not liable to attachment or sale in execution of a decree as per sub-Section (1) of Section 60 of the Code of Civil Procedure, 1908) meaning thereby that the securities specifically charged to the Bank can be enforced. It may be noted that as per Section 60(1)(b) and (c) of CPC, the agricultural produce and the house/building belonging to an agriculturist is not attachable under a decree but the same can be enforceable under the SARFAESI Act if the same is charged to the Bank and not exempted vide Section-31 of the SARFAESI Act. 10.10.3 Other matters: a) Bankers to Act in good faith and reasonable and should not go over board in exercising

the power under the Act. b) No Civil Court can interfere in the lender’s right. The borrower / guarantor who own

the securities can file Appeal before the D.R.T., if aggrieved by the enforcement measures taken by the Bank under Section 13(4) of the Act.

c) All costs/ charges/ expenses incurred by the secured creditor are recoverable from the proceeds of assets sold.

d) Interest calculation for arriving at the contractual dues should be as per the agreement. However, as per judgement of Supreme Court, compounding/ capitalisation of penal interest is not permissible. It should be therefore, verified and compounding effect, if any, in respect of amount of penal interest should be excluded in the amount of claim stated in the notice.

e) The (borrower/guarantor) debtor can not alienate or meddle with the security charged once he receives the Notice under the Act except for repaying the dues of the secured creditor.


f) Right to compensation to borrower Section 19 of the Act provides that the DRT / DRAT can direct the secured creditor to return to the borrower the assets taken over and also make payment of compensation and costs to him incase DRT / DRAT finds that possession taken was wrongful. Hence adequate care must be taken to ensure that (i) security is valid and enforceable and (ii) the assets belong to borrower / guarantor.

g) Immunity granted to secured creditor and his officers. Section 32 of the Act provides immunity by laying down that no suit, prosecution or other legal proceedings will lie against any secured creditor or any of its officers or Managers exercising any rights of the secured creditor for any thing done or omitted to be done in good faith.

h) Money, which is due, can be recovered from third party who has acquired the secured assets of the (borrower/guarantor) debtor by giving notice to him in this regard.

i) The Act covers only the various SECURITIES ACTUALLY CHARGED TO THE BANK. j) Even if the guarantor’s assets are not charged to the Bank, a copy of the notice served

on the Principal Debtor should be endorsed to all such guarantors for invoking their guarantees.

10.11 Approval/Delegation of powers for deferment of action and handing over repossessed security to borrowers in respect of NPA accounts:- 10.11.1 In all notice issued accounts where no compromise has been approved/no recovery is forthcoming possession should be taken invariably without exception, after completion of mandatory 60 days notice period. 10.11.2 In case the branch wants to defer taking possession for some valid and cogent reason prior permission from authority not below the rank of General Manager be taken. Such requests for deferment of Action (in notice issued accounts) should be sent within a period of 30 days from the completion of the mandatory 60 days period. The Branch should ensure that the borrower’s request for deferment should be justified by payment of reasonable amount commensurate with the dues in the account. The request for deferment should be on merits and in only selected cases. 10.11.3 Even in accounts where compromise proposals are under negotiation/process possession of the secured assets should be taken. As and where the compromise is approved with necessary upfront payment the possession may be released with the condition that repossession will be taken in case of default of payment of compromise accounts as per stipulation/approval. 10.11.4 The approving authority for considering handing over the repossessed security to the borrowers will be from the General Manager and above under whose authority it falls as per chapter 10, of NPA Management Policy, provided the delegatee should not have sanctioned the advance. Repossessed security will be handed over by the authorized officer appointed by the Chairman subject to approval by competent authority as above.


10.12 NPA Accounts where Agricultural Land has been given as Security: Many of the NPA accounts are categorised as non-eligible accounts under the provisions of SARFAESI Act due to the only reason that the land mortgaged to the Bank is an Agricultural Land (AL) which is exempted from the provisions of the Act. However, it is observed that in many such cases commercial/industrial/allied Activities are carried out by the owners on such land without obtaining NA Permission (i.e. getting permission from the competent authority for converting the land from Agricultural use to Non-Agricultural use). Inspections of all such accounts should be conducted and it should be verified whether any commercial/industrial/allied Activity is carried on such agricultural land. If it transpires that the owner is carrying on such Activity then the Bank can always proceed to enforce such a security under the SARFAESI Act. To substantiate the Bank’s Action under the SARFAESI Act, it is necessary that the Bank is having some documentary evidence that the land in question is used for commercial/industrial/allied Activities. It is suggested that the branches approach the local Patwari/Tehsildar/Panchayat/Govt. Dept. and obtain from him a Certificate as regards the Activity carried out on such land as also take photographs to prove that commercial Activity is carried on. Even if the land is declared as Agricultural Land and if any commercial / industrial Activity is carried on or otherwise used for allied non-agricultural purposes, then also Action may be initiated under the SARFAESI Act. 10.13 Sale of Assets through private treaty Department of Financial services, Ministry of Finance has issued directions in respect of sale of secured assets through private treaty, reportedly due to certain instances of misuse of the provisions of private treaty by selling the immovable secured assets for amounts lower than the assessed value/reserve price. Ministry has advised that alternative of private treaty should be generally resorted to only after the other more transparent methods of obtaining quotations/inviting tenders or public auction etc. have not been successful. The following guidelines are also issued by Ministry for strict compliance by the Bank’s before resorting to sale by way of private treaty. a) Atleast one attempt for sale by obtaining quotations/inviting tenders or public auction

etc. should be taken when the value of the assets is upto Rs.1.00 crore b) Atleast 2 attempts for sale by obtaining quotations /inviting tenders or public auction

etc. should be taken when the value of assets is more than Rs. 1.00 crore c) Where dues of the Bank are not being fully recovered and the amount recoverable

through private treaty is less than the assessed value / reserve price, approval of one level above the authority competent to enter into private treaty should be invariably obtained. Though the authority of approving private treaty is not specifically mentioned in NPA Management Policy, Para 10.5.2 of the NPA Management policy states delegated authority who can permit initiation action under SARFAESI. Branch may follow the said delegation and obtain the approval of the authority one level above the delegated authority who had permitted taking SARFAESI action.

d) It is clarified by Ministry that the alternative of private treaty may be considered without resorting the methods as above , if all the dues of the bank in the account are being fully recovered.

Please note that the provisions of the SARFAESI Act/Rules including rules 8(8) that ‘Sale by any methods other than public auction or public tender , shall be on such terms as may be settled


in writing between the Parties’ (e.i. the Bank and borrower and Mortgagor) will be in addition to the Ministry guidelines. In case where the property is being sold below the reserve price , the consent of the borrower/mortgagor and the Bank is also required to obtained and as per Proviso to Rule 9(2) of the Security Interest (Enforcement) rules ,2002 Recent RBI guidelines Current restrictions of Government of (GOI) / Central Vigilance Commission (CVC) on bilateral sale of assets (by way of private treaty) would be taken up with the Government by suggesting controls as follows:- Price being not less than the Reserve Price fixed for the asset and after price discovery

through one auction. Public advertisements of sale in at least 2 leading newspapers inviting offers from

anyone who is willing to offer a higher amount. If the bilateral sale covers the entire dues to the bank and is with the consent of the

borrower, the auction process may be dispensed with.


AnnexureÌ’ From Bank To Borrower (To the Borrower who has created any security interest over his assets/properties. Copy of this notice to be endorsed to the guarantor(s) who has not created any security interest over his assets/properties) NOTICE U/S 13(2) OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002 1. At the request made by you, the Bank has granted to you various credit limits for an

aggregate amount of Rs.______________. We give hereunder details of various credit facilities granted by us and the amounts outstanding dues thereunder as on the date of notice :-

Nature of Facility Sanctioned Limit Outstanding dues Rs. Rs. a. b. 2. The aforesaid credit facilities granted by the Bank are secured by the following

assets/securities (particulars of properties/assets charged to Bank) :- a. b. 3. As you have defaulted in repayment of your dues to the Bank, we have classified your

account as Non-Performing Asset with effect from____________ in accordance with the directions/guidelines issued by the Reserve Bank of India.

4. For the reasons stated above, we hereby given you notice under Section 13(2) of the above noted Act and call upon you to discharge in full your liabilities by paying to the bank sum of Rs._____________ (contractual dues upto the date of notice) with interest @______%p.a. with _________rests within a period of 60 days from the date of this notice, failing which please note that we will entirely at your risks as to costs and consequences exercise the powers vested with the Bank under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, against the secured assets mentioned above.

5. The amounts realised from exercising the powers mentioned above, will firstly be applied in payment of all costs, charges and expenses which are incurred by us and/or any expenses incidental thereto, and secondly applied in discharge of the Bank’s dues as mentioned above with contractual interest from the date of this notice till the date of actual realisation and the residue of the money, if any, after the Bank’s entire dues are fully recovered, shall be paid to you.

6. If the said dues are not fully recovered with the proceeds realised in the course of exercise of the said powers against the secured assets, we reserve our right to proceed against you before Debts Recovery Tribunal/Courts for recovery of the balance amount due alongwith all costs etc. incidental thereto from you.


7. Please take note that as per Sub-section (13) of the aforesaid Act, after receipt of this notice, you are restrained from transferring by way of sale, lease or otherwise any of the secured assets referred in this notice.

8. The undersigned is a duly authorised officer of the Bank to issue this notice and exercise powers under Section 13 aforesaid.

9. Needless to mention that this notice is addressed to you without prejudice to any other remedy available to the Bank.

Yours faithfully, ______________________________

NAME: ________________________ DESIGNATION: _________________

AUTHORISED OFFICER Date : cc: (Copy of this notice to be endorsed to the guarantor(s) who has not created security interest over his assets/property to secure the dues) Sir/Madam, Re: 1. You are aware that Bank has granted various credit limits for an aggregate amount of

Rs._________, to Shri/Smt/M/s.__________________ (principal debtor), for which you stood as guarantor and executed letter of guarantees dated __________ guaranteeing the due repayment of the said amount by the Principal Debtor and all interest, cost, charges and expenses due and accruing thereon. The details of various credit facilities granted by the Bank and the amounts outstanding dues thereunder as on the date of notice are as under :

Nature of Facility Sanctioned Limit Outstanding dues Rs. Rs. a. b. 2. As the principal debtor has defaulted in repayment of his/her/theirs/its liabilities, we

have classified his/her/theirs/its dues as Non-Performing Asset on ___________in accordance with the directions or guidelines issued by the Reserve Bank of India.

3. As stated herein above, in view of the default committed by the principal debtor, you as the guarantor became liable jointly and severally for the said debt.

4. For the reasons stated above, we invoke your guarantee and hereby call upon you to discharge in full your liabilities by paying to the Bank Rs.______(contractual dues upto the date notice) with interest @________% p.a. with ________rests within 7 days of receipt of this notice failing which we will be filing appropriate legal proceedings against you before Debts Recovery Tribunal/Court for recovery of the said amount with said interest from the date of the notice till the date of actual realisation along with all costs etc. incidental thereto.

Yours faithfully, ___________________________

NAME:______________________

DESIGNATION___________________ AUTHORISED OFFICER

Date :


Annexure ‘II’ From Bank To Guarantor(s) (To guarantor/s who has created security interest over his assets/property) NOTICE U/S 13(2) OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002 1. You are aware that the Bank has granted various credit limits for an aggregate amount

of Rs._____________, to Shri/Smt/M/s._____________ (principal debtor), for which you stood as guarantor and executed letter of guarantees dated ______________ guaranteeing the due repayment of the said amount by the Principal Debtor and all interest, cost, charges and expenses due and accruing thereon. The details of various credit facilities granted by the Bank and the amounts outstanding dues thereunder as on the date of notice are as under:

Nature of Facility Sanctioned Limit Outstanding dues Rs. Rs. a. b. 2. You are aware that you have undertaken liability under the said letter of GUARANTEE

for repayment of the various limits granted by us to the said PRINCIPAL DEBTOR and you have secured the repayment of the said limits by creating charge in favour of the bank on the following securities / your properties:-

a. b. 3. As the principal debtor has defaulted in repayment of his/her/theirs/its liabilities, we

have classified his/her/theirs/its dues as Non-Performing Asset on _________in accordance with the directions or guidelines issued by the Reserve Bank of India.

4. We also inform you that inspite of our repeated demands/requests for repayment of the amounts due to Bank, the principal debtor/s has not so far paid the same. You, therefore, as guarantor became liable to pay the said dues.

5. For the reasons stated above, we hereby give you notice under Section 13(2) of the above noted Act and call upon you to discharge in full your liabilities to the Bank by paying to the Bank Rs._______(contractual dues upto the date of notice) with interest @______% p.a. with ________rests within a period of 60 days from the date of notice, failing which we will entirely at your risks as to costs and consequences exercise all or any of the powers under Section 13 of the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, against the secured assets mentioned above.


6. The amounts realised from exercising the powers mentioned above, will firstly be applied in payment of all costs, charges and expenses which are incurred by us and/or any expenses incidental thereto, and secondly applied in discharge of the Bank’s dues as mentioned above with contractual interest from the date of this notice till the date of actual realisation and the residue of the money, if any, after the Bank’s entire dues are fully recovered, shall be paid to you.

7. If the said dues are not fully recovered with the proceeds realised in the course of

exercise of the said powers against the secured assets, we reserve our right to proceed against you before Debts Recovery Tribunal/Courts for recovery of the balance amount due alongwith all costs etc. incidental thereto from you.

8. Please take note as per Sub Section (13) of the aforesaid Act after receipt of this notice, you are restrained from transferring by way of sale, lease or otherwise any of the secured assets referred to in this notice.

9. The undersigned is a duly authorised officer of the Bank to issue this notice and to exercise powers under Section 13 aforesaid.

10. Needless to mention that this notice is without prejudice to any other remedy available to the Bank.

Yours faithfully,

____________________________

NAME:____________________________

DESIGNATION_____________________

AUTHORISED OFFICER Date :


Annexure - III

[rule-4(1)] PANCHNAMA

WHERE AS; We________________________________________________________________________ Name of Panch Sr. No. and Address Age Occupation Father's/ Husband's Name ________________________________________________________________________________________________________________________________________________________ The above mentioned Panchs on being called by Shri_________________, the authorised officer of_______________ (name of the Institution), under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and in exercise of the powers under Section 13(4) of the said Act today entered the premises of Shri/M/s___________________at___________________ and demanded the payment of the dues mentioned in the demand notice dated___________________ in respect of Loan Account bearing No. and on its non-payment, taken over possession of movable properties as detailed in the inventory attached to this Panchnama between the hours___________________ M and ___________________ M in our presence. We also hereby state that during take over of possession___________________ (to be filled in case of occurrence of any incidence) Therefore, we declare that the facts of the Panchnama mentioned herein are true and correct to the best of our observations and knowledge. 1. Signature Date Time Name Address 2. – do - Drawn before me Authorised Officer


Annexure IV rule-4(2)]

INVENTORY

Inventory of movables taken possession in Loan Account bearing No.-------------------------Inventory of movable properties taken possession of at thepremises of Shri/M/s-----------Plot No.----------- /Gala No.---------------- H.no.----------------------, Street No.---------------of---------------under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Security Interest (Enforcement) Rules, 2002 made thereunder, on this ------------------- day of --------------------20--------------by Shri --------------------, authorised officer of-------------------------(name of the Institution) under the said Act, between the hours ---------------M. ____________________________________________________________________________ Sr. Description of article Estimated value Place where kept for safe custody No. (Name of the person if necessary)

____________________________________________________________________________ Panchas: ____________________________________________________________________________ SL. Name and Address of Panch Signatures No. ____________________________________________________________________________ ____________________________________________________________________________ Drawn by me today the------------20------------------at--------------M. Signature of Borrower/Representative Signature of Authorised Officer


Annexure V

[rule-7(2)]

CERTIFICATE OF SALE (for movable property)

Whereas The undersigned being the authorised officer of the ----------------------------- (name of the institution) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and in exercise of the powers conferred under Sub-section (12) of Section 13 read with rule 8 of the Security Interest (Enforcement) Rule, 2002 has in consideration of the payment of Rs.-------------------(Rupees --------------------------------) sold on behalf of the -----------------------------------(name of the secured creditor/institution in favour of-------------------- (purchaser), the following movable property secured in favour of the --------------------------- (name of the secured creditor) by------------------------------- (the names of the borrowers) towards the financial facility ------------------------- (description) offered by------------------------(secured creditor). The undersigned acknowledge the receipt of Rs.___________ (Rupees ____________________ only) in full and hand over the delivery and possession of the items listed below. Description of the movable property.

Sd/-

Authorised Officer Date: Place:


Annexure -VI

(To be published with in seven days from the date of taking possession)

[rule-8(1)]

POSSESSION NOTICE (for Immovable property)

Whereas The undersigned being the authorised officer of the -------------------------------------------- -------------------- (name of the Institution) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and in exercise of powers conferred under Section 13(12) read with rule 8 of the Security Interest(Enforcement) Rules, 2002 issued a demand notice dated ----------------------calling upon the borrower Shri ------------ ------------- /M/s------------------------------- to repay the amount mentioned in the notice being Rs.------------------------ (in words---------------------------) with in 60 days from-the date of receipt of the said notice. The borrower having failed to repay the amount, notice is hereby given to the borrower and the public in general that the undersigned has taken possession of the property described herein below in exercise of powers conferred on him/ her under Section 13(4) of the said Act read with rule 8 of the said rules on this ------------------------- day of-------------------------of the year------------------- The borrower in particular and the public in general is hereby cautioned not to deal with the property and any dealings with the property will be subject to the charge of the ------------------------ (name of the Institution) for an amount Rs.--------------------------------and interest thereon. ____________________________________________________________________________ Description of the Immovable Property

All that part and parcel of the property consisting of Flat No.--------/Plot No.--------In Survey No. --------/City or Town Survey No.-------- /Khasara no.-------------- Within the registration Sub district---------------- and District---------------- Bounded; On the North by On the South by On the East by On the West by _____________________________________________________________ Date : Time :


Annexure VII

[rule-9(6)]

SALE CERTIFICATE (for Immovable property)

Whereas The undersigned being the authorised officer of the ----------------------(name of the Institution) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and in exercise of the powers conferred under Section 13 read with rule 12 of the Security Interest(Enforcement) Rules, 2002 sold on behalf of the ------------------(name of the secured creditor/institution) in favour of-------------- (purchaser), the immovable property shown in the schedule below secured in favour of the ----------------(name of the secured creditor) by------------------ (the names of the borrowers) towards the financial facility ----------------------- (description) offered by ------------ ---------(secured creditor). The undersigned acknowledge the receipt of Rs._________ (Rupees _________________________ only) in full and handed over the delivery and possession of the scheduled property. The sale of the scheduled property was made free from all encumbrances known to the secured creditor listed below on deposit of the money demanded by the undersigned. ____________________________________________________________________________

DESCRIPTION OF THE IMMOVABLE PROPERTY ____________________________________________________________________________ All that part and parcel of the property consisting of Flat No.---------- /Plot No.--- In Survey No.----------- /City or Town Survey No. ------------/Khasara No.---------- Within the registration sub-district-------------------- and District-------------- Bounded; On the North by On the South by On the East by On the West by ______________________________________________________________ List of encumbrances 1. 2.

Sd/-

Authorised Officer (Name of the Institution)

Date: Place:


SRF-1

Memorandum proposing issue of notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Memo No. : Date :

Region: Branch : Account : -------------------------------------------------

Name of the Proprietor/partner/Director Worth (Rs.in lakh)

1.

2.

3.

Guarantor/s

1.

2.

Total

Details of Sanction :-

Facility Limit Authority & Date

Balance O/S (Rs. in lakh)

Ledger O/S UCI upto Amt. W/o Total

Total

Are we the sole Banker : Yes / No If yes, our Share :- If No, name the Banks/Institutions : (Rs.in lakh)

Name Balance due % share

Present Status of the account /s :

Classified as NPA on

Asset Code as on proposal date

Notice of recall issued, if any

Reference to BIFR, if any


Details of Security held / charged: (Rs. in lakh)

Nature Brief Description Value Date of valuation

Documents in the A/c valid till : Authority for approving proposal for issuing notice and taking Action under the SARFAESI Act: (as per para 10.5.2 of the Policy) Certificate : 1. The information furnished above is verified with the records maintained in the Branch. 2. The account/s is/are classified as NPA 3. No suit has been filed in the account / s. 4. The security charged / held is not in respect of any agriculture land. 5. The present outstanding is more than 20% of the principal amount disbursed plus

interest thereon. Hence, this qualifies for issue of Notice under the Act for recovery. Brief History of the Account:- Branch/Chief incumbent of LCB Recommendations:- Regional Manager Recommendations:- Head Office Recommendations:-


Chapter- 11

Recovery Agents / Enforcement Agents/Detective Agency

11.1. Recovery Agents/Detective Agency/OL Agency 11.1.1 Where recovery is not forthcoming, the Bank may explore the avenue of engaging the services of Recovery Agents. These include Government Agencies, NGOs, SHGs, Advocates on the Bank’s panel, reputed Corporate Bodies/Firms and individuals with proven track record. 11.1.2 Mostly in cases where there is no tangible security available to the Bank such as Personal Loan accounts, clean overdrafts etc. may be handed over to the Recovery Agents. Apart from the above, the services of Recovery Agents may also be availed of :- a) Where the execution proceedings have not yielded any results b) Where the bids have failed after putting up the suit properties and attached properties

for sale c) Where the Bank has to recover the balance amount of decree after sale of charged and

attached assets either through execution of decree or SARFAESI action 11.1.3 It may importantly be noted that all out recovery efforts should be made by the Branch staff. Only if ‘in house’ procedures by our own personnel fail to yield the desired results, then only ‘outsourcing’ by engaging the services of Recovery Agents should be resorted to. Moreover, it is advisable to use ‘outsourcing’ only when the account becomes ‘Doubtful’ or ‘Loss’ asset, and at initial stages when the account is in ‘Substandard’ category Branch machinery should be utilised for recovery purposes. In other words, only after completion of 12 months from the date of NPA, services of Recovery Agents are to be utilised. 11.1.4 At the time of appointing Recovery Agent, the Bank should enter into an Agreement cum Indemnity with the said Agent wherein the terms of recovery and charges are clearly mentioned. The Original Agreement cum Indemnity duly executed by the Recovery Agent shall be kept on the Bank’s record. Likewise, whilst entrusting the NPA account to the Enforcement Agent under the SARFAESI Act 2002, a letter should be issued to the Enforcement Agency listing out the terms and conditions of our Bank. The duplicate copy of the said letter duly signed by the Enforcement Agent in token of having agreed to the terms and conditions should be kept on the Bank’s records. This procedure shall help to avoid any disputes in future with the Recovery Agent. A specimen of the Agreement cum Indemnity is given in the Annexure – ‘A’. cThe Letter to be issued to the Enforcement Agency is given in Annexure – ‘B’. The draft letter to be issued to Enforcement Agency for availing of his/their services is given in Annexure ‘C’. 11.1.5 It is of paramount interest that the individuals / firms etc. appointed as Recovery / Enforcement Agents/detective agency are of clean image and good reputation and they do not violate any legal provisions and guidelines issued by RBI / Government.


11.1.6 The empanelment of Recovery Agents/Detective agency shall be recommended by Regional Office and shall be approved by the Chairman. 11.1.7 The following aspects should be looked into while approving the Recovery Agents – a) Past experience, capabilities, reliability should be given due consideration b) They should be offering their services to Nationalized Banks, preferably Bank of India,

Financial Institutions, State Financial Corporations / Agencies and are already engaged under State Financial Corporation Act, 1951 (SFC Act).

c) Lawyers, Legal firms can also be considered for appointment as Recovery Agents and Enforcement Agent.

d) Firms, persons connected with the borrowers/ guarantors (against whom decree is to be executed) should not be appointed

e) A reference may be obtained from other Banks, Financial Institutions, etc. for empanelling of Recovery Agents and Enforcement Agents. Regional Offices shall maintain all records and list of the panel of Recovery Agents and Enforcement Agents.

f) Please also refer to chapter 11 B for further details. g) Training for Recovery Agents:

In terms of guidelines on Managing Risks and Code of Conduct in outsourcing of financial services by banks, banks were advised by Reserve Bank of India that they should ensure that, among others, the recovery agents are properly trained to handle with care and sensitivity, their responsibilities, in particular aspects like hours of calling, privacy of customer information, etc.

Reserve Bank of India has requested the IBA to formulate, in consultation with Indian Institute of Banking and Finance (IIBF), a Certificate Course for Recovery Agents with minimum of 100 hours training. IIBF has already framed the course structure in this regard. The comprehensive guidelines issued by Reserve Bank of India for training of debt Recovery Agents and the details of Certificate Course can be viewed / downloaded from the website of Reserve Bank of India (www.rbi.org.in) and that of Indian Institute of Banking & Finance (IIBF), (www.iibf.org.in) (open IIBF site – go to IIBF offerings – open ‘Debt Recovery Agents Training’)

The above course has already been introduced by IIBF. Banks should ensure that before the deadline communicated by IBA from time to time all the Recovery Agents have undergone the above training and obtained the certificate from the accredited institute. Further, the service providers engaged by banks should also employ only such personnel who have undergone the above training and obtained the certificate.

It should be specifically ensured that in case the Recovery Agents and employees of such Recovery Agents are not completing the above course before the deadline communicated by IBA from time to time they are removed from the Panel. Further while considering fresh empanelment of Recovery Agents, please ensure that they have successfully completed the said Certificate Course.

http://www.rbi.org.in/

http://www.iibf.org.in/


Banks Management Development Institute at CBD Belapur (Navi Mumbai) and Staff Training College of Bank of India at Noida, Kolkata, Chennai and Bhopal are authorized to conduct the said Certificate Courses.

The empanelled Recovery Agents should be reviewed periodically once in a year by the Region. In case of any complaint against any recovery agent the procedure suggested in chapter 11 B shall be followed and if any Recovery Agent is found at fault then he shall be removed from the panel.

11.1.8 The authority for appointing Recovery Agents from the panel (approved by Head Office ) shall be with Regional Manager. 11.1.9 Commission payable to Recovery Agents- (A) Non-suit filed accounts – with security:

Age of NPA Commission payable

Upto 1 year 3% of amount recovered

More than 1 year 4% of amount recovered

(B) Non-suit filed accounts – without security:

Age of NPA Commission payable

Upto 1 year 5% of amount recovered


C) Suit filed & Pending – Court (Non-DRT) – with security:

Age of Suit Commission payable

Upto 2 years 3% of amount recovered


(D) Suit filed & Pending – Court (Non-DRT) – without security:

Age of suit Commission payable

Upto 3 years old 6 % of amount recovered

Above 3 years 8 % of amount recovered

(E) Suit Decreed – Court (Non-DRT) with security:

Age of Decree Commission payable


Above 5 years 4% of amount recovered

(F) Suit Decreed – Court (Non-DRT) without security:

Age of Decree Commission payable




(G) DRT – pending – with security:

Age of Recovery Commission payable

Application



(H) DRT – pending – without security:


Application



(I) DRT – Decreed – with security:


Certificate



(J) DRT – Decreed – without security:


Application



Note: above rates are subjected to change from time to time. Authority to change the rates rest with the Chairman. REMARKS: i. Regions/Branches are to negotiate for a lower rate on case to case basis, depending on

the nature/value/availability of security. The maximum amount of commission payable is as under- a) Accounts with security – Rs.5.00 lacs b) Accounts without security – Rs.8.00 lacs

ii. The Regional Managers are authorised to pay 10% more than the prescribed rates but within the prescribed cap on case to case basis depending on the necessity of such payment.

iii. Specific prior approval should be taken from GM-ARD in cases where Regional Manage desires payment of commission at higher rate of more than 10% and beyond the prescribed cap depending on the volume of recovery and nature/ value/availability of security.

iv. Service tax & KKC is payable on all amounts paid to the Recovery Agents. v. As regards payment of charges to Detective agencies, Regional Manager will decide on

case to case basis and will recommend to HO for final approval.


Basis/Justification for arriving revised rates of commission: 1. It is our experience that recovery is usually more in accounts with small/medium dues

say less than Ra. 1.00 lakh and recent slippages than the accounts with major dues and old NPAs. (chronic / hardcore)

2. Commission at lower rates are payable where security is available. 3. Higher commission is payable where no security is available. 4. Commission will go up along with the age of NPA/Decree/RC 5. Lower commission is payable in accounts with large dues as the outgo will be low. 6. The charges payable to Enforcement Agents for exercising the provisions of the

SARFAESI Act i.e. taking possession/arranging for sale, conducting sale has also been taken into account while prescribing the commission. (Max. Rs.10.00 lakhs for Enforcement Agents)

7. The highest commission payable is in cases of DRT-Decreed Accounts where no security is available as the chances of recovery are very bleak and for non-availability of the details of attachable assets, the R/C proceedings are closed, thereby there is no chance of recovery through DRT process.

11.2 Enforcement Agents appointed under the SARFAESI Act, 2002 11.2.1 Normally, the services of Enforcement Agents (EAs) are utilised when a decision is taken to invoke the provisions of the SARFAESI Act. The empanelment of Enforcement Agents for enforcement of security interest under SARFAESI Act shall be approved at Head Office once in a year upon recommendations of the Regional Manager. The Regional Managers are authorised to appoint Enforcement Agent in cases falling under their jurisdiction, from the approved panel (considering the merits of each case such as nature of asset, location etc.). 11.2.2 The appointment of Enforcement Agent shall be approved by a Committee of any three Chief Managers and General Managers at HO – upon recommendations of Regional Manager. The appointment of the Enforcement Agents will always be for the initial period of six months or earlier. In case it is required to extend their services, the Regional Manager may extend the said period upon his sole discretion. If any Enforcement Agent is not considered by the Regional Manager for such extension, then no fresh matters will be entrusted to such Enforcement Agents until Region is satisfied with their services and their empanelment is reviewed by the Regional Managers for further period. As such, it is suggested to maintain a separate panel of such Enforcement Agents whose services are not continued by the Region / Branch. Region should review the performance of the empanelled Enforcement Agents as of 30th of June every year and send the revised list to Head Office along with their recommendations for fresh empanelment, if any. The Bank would reserve the right to terminate the services of the Enforcement Agent/s at any stage after making payment upto the stage of the work done. The Letter to be issued to the Enforcement Agency (Agreement with Enforcement Agent) is given in Annexure – ‘B’. The draft letter to be issued to Enforcement Agency for availing of his/their services is given in Annexure ‘C’. Region may utilize the services of Enforcement Agents empanelled for other Regions after getting clearance from such other Region and thereafter to inform Head Office Asset Recovery Department, for record purpose. Thereafter, the Enforcement Agent will also be treated as


empanelled for the Region which intends to utilize the services of the Enforcement Agents of other Regions subject to other formalities like execution of necessary indemnity, etc. Thereafter, all the concerned Regions should individually decide in their review whether to extend/continue or not, the services of Enforcement Agents empanelled/treated as empanelled for the respective Regions. 11.2.3 While appointing E.A., the branch should give in writing (as part of the Appointment letter) specific time-bound programme for completing each stage of the activity (such as taking physical possession, publishing sale notice, actual sale etc.) and branch/ Region should review the progress at each stage. 11.2.4 Before appointing the E.A., branch and the Authorised Officer should conduct due diligence (including inspection of the assets) and submit a report on the position of the assets. The Authorised Officer should take constructive possession of the assets. If peaceful possession is possible, preferably, the Authorised Officer should endeavor to take physical possession of charged assets. In case it is not possible, and it is felt that the services of an E.A. should be engaged for taking physical possession and further proceedings, the branch/ Authorised Officer shall submit a report to the Regional Manager and specifically request for appointment of an E.A. Considering the merits of each case, Regional Manager shall approve appointment of E.A. on case to case basis. 11.2.5 The Bank will have the right not to avail of/discontinue the services of the Enforcement Agents from any stage of the proceeding or engage any other Enforcement Agent for any stage of the remaining activities. 11.2.6 Bank will not be bound to continue to avail of the services for all the functions / stages and will have the discretion to discontinue the arrangement at any stage depending upon the experience gained. 11.2.7 Charges payable to Enforcement Agents for various types of assistance task to be performed –

Type of assistance-Task to be Performed Indicative Charges

1 Pre-Possession Inspection and Preparation and Submission of Viability Report

Rs.5,000/- per property within the Metropolitan City/Town Rs.7,000/- per property other than the Metropolitan City/Town

2 Taking Symbolic Possession of Moveable Properties in the Metropolitan Cities and for preparing the Panchnama and Possession Notice, etc.

Rs.3,000/- in one place per attempt Rs.2,000/- per additional place / site per attempt Not more than two attempts are allowed to be charged

3 Taking Symbolic Possession of the Moveable Properties outside the Metropolitan Cities and for preparing the Panchnama, Inventory and Possession Notice, etc.

Rs.3,000/- in one place/site per attempt Rs.2,000/- per additional place / site per attempt Not more than two attempts are allowed to be charged

4 Taking Physical Possession of Moveable Properties in the Metropolitan Cities and

Rs.6,000/- in one place / site per attempt Rs.3,000/- per additional place / site per


for Preparing the Panchnama, Inventory and Possession Notice, etc.

Attempt Not more than two attempts are allowed to be charged

5.

Taking Physical Possession of Moveable Properties outside the Metropolitan Cities and for Preparing the Panchnama, Inventory and Possession Notice, etc.

Rs.6,000/- in one place / site per attempt Rs.3,000/- per additional place / site per attempt Not more than two attempts are allowed to be charged

6.

Taking Symbolic Possession of Immoveable Properties in the Metropolitan Cities and for Preparing the Panchnama, Inventory and Possession Notice, etc

Rs.4,000/- in one place / site Rs.2,000/- per additional place / site

7.

Taking Symbolic Possession of the Immoveable Properties outside the Metropolitan Cities and for Preparing the Panchnama, Inventory and Possession Notice, etc.


8.

Taking Physical Possession of Immoveable Properties in the Metropolitan Cities and for preparing the Panchnama, Inventory and Possession Notice, etc.


9.

Taking Physical Possession of Immoveable Properties outside the Metropolitan Cities and for preparing the Panchnama, Inventory and Possession Notice, etc.


10.

Making Application to the Chief Metropolitan Magistrate for obtaining Order for Possession and taking Possession.

Rs.20,000/- in one place/site Rs.20,000/- per additional place/site

11.

Making Application to District Magistrate for obtaining Order for Possession and taking possession.


12.

Making Additional Application to Chief Metropolitan Magistrate for breaking open of the lock for taking possession, pasting, etc.

Rs.2,500/-

13.

Making Additional Application to District Magistrate for breaking open of the lock for taking possession, pasting, etc.

Rs.2,500/-

14.

Giving inspection to potential buyers for sale in the Metropolitan Cities / Towns.

Rs.2,500/- per property Rs.2,000/- for additional property

15.

Giving inspection to potential buyers for sale in the Outside Metropolitan Cities/Towns.

Rs.3,000/- per property Rs.2,000/- for additional property

16.

For safe keeping in the warehouse/godown

Charges as prevalent i.e. as per actuals


17.

Safeguarding the secured assets by appointing security guards.

As per Government Schedule wherever applicable or prevailing rates based on requirements

18.

Commission on Sale of Secured Assets by Public Auction/Sale by Private Treaty

Upto Rs.1.00 crore - 3% Above Rs.1.00 crore- 2% Subject to a maximum of Rs.10.00 lacs

19.

Settlement through Compromise followed by Actual Recoveries before taking possession.

Upto Rs.1.00 crore- 3% Above Rs.1.00 crore- 2% Subject to a maximum of Rs.5.00 lacs

20.

Settlement through Compromise followed by Actual Recovery after taking Possession.

Upto Rs.1.00 crore- 3% Above Rs.1.00 crore - 2% Subject to a maximum of Rs.4.00 lacs

21.

Providing necessary assistance for Collection/Recovery from Borrower’s Debtors.

Upto Rs.1.00 crore - 3% Above Rs.1.00 crore - 2% Subject to a maximum of Rs.3.00 lacs

22.

Publication of Statutory Notices/Paper Publication etc. in Newspaper

Actual basis

23.

Taking Physical Possession of moveable and immoveable properties through Government Agencies, NGOs, SHGs, Advocates/Solicitors on the panel of the Bank and through Police help in Metropolitan Cities/Towns and outside Metropolitan Cities/Towns without taking assistance of Enforcement Agency in selective cases upon prior permission of Zonal Manager

Rs.20,000/- for each immoveable property at different site Rs.10,000/- for moveable property at different sit

Notes : (a) Statutory tax like service tax payable in addition to the above charges. (b) Regions/Branches are expected to avail of the services of local Enforcement Agents to

avoid incurring unnecessary traveling & boarding expenses. In case of non-availability of local Enforcement Agents, the services of Enforcement Agents who are available nearby to the place / Regions can be availed of after obtaining approval from the competent authority i.e. Regional Manager and pay them reasonable and travelling expenses.

Out of pocket expenses including Batta payable to police personnel shall have to be borne by the Bank on actual basis at first instance.

Reasonable transportation expenses for carrying the seizure team and the Authorised Officer, lodging and boarding expenses incurred for pre-possession inspection, preparation of viability report, taking over possession giving inspection of the secured assets may be allowed to be paid to the Enforcement Agents. disproportionate to the amount Such expenses should not be of dues/value of secured assets / recovery expected and it should be negotiated and kept as minimum as possible. While appointing Enforcement Agents, the Branch should give in writing (as part of the Appointment letter) specific time-bound programme for completing each stage of the activity (such as taking


physical possession, publishing sale notice, actual sale etc.) and Branch/ Region should review the progress at each stage.

© Delegated authorities will ensure payment of bare minimum charges within the cap. 11.2.8 Terms and conditions for payment of commission to Enforcement Agents who bring compromises/Recovery in notice issued accounts followed by cash recovery. i. Such charges will be paid only in accounts where notices have been issued under

SARFAESI Act and not in other NPA cases. ii. All efforts should be made by the branches to contact the borrowers and to recover

the dues. The compromise brought by EAs should be considered only as a last resort and the EAs will be requested to intervene only after the Branch is not able to recover.

iii. Maximum professional fee / incentive payable to any Enforcement Agent will not exceed Rs.10.00 lakh per account.

iv. As and when an Enforcement Agent is identified and allotted a particular account for forcing the provisions of SARFAESI Act the letter given by the branch should contain the terms and conditions of payment of commission etc.

v. The EA should be kept informed of the developments in the notice issued accounts after entrusting the case to the EA particularly in respect of recoveries effected and offers for compromise received, if any.

vi. Where the branch feels that the assistance of EA is not necessary or enforcement action can be kept in abeyance in view of the inclination of the borrower to come for compromise, the EA should be kept informed of the development. EA may be informed that if the compromise does not materialize enforcement action may be resumed. This step will avoid the EA claiming credit for the compromise and incentive therefor.

vii. In those cases where Bank’s efforts for compromise did not materialize EA may be asked to continue their efforts to take into possession the secured assets and arrange for sale. If the borrowers come forward to settle their dues at this juncture the role of EA is to be evaluated and he should be compensated as per extant guidelines.

viii. All such payments to EA on compromises, received through EA after their engagement will be approved by Regional Manager and above depending on the delegation of powers as per Para 7.4

ix. The charges payable to the EAs should be paid on actual recovery effected and not on the compromise amount.

x. The authority to determine and approve payment of charges as aforesaid to EA will be restricted to the Regional Manager/ only, who should satisfy himself that such recoveries / compromises are solely due to the efforts / persuasion of EA.

xi. Such charges to be paid to the EA should be clearly brought out in the compromise proposal. The charges will be paid out of the compromise amount settled i.e. the compromise amount will be reduced to that extent and sacrifice will go up correspondingly.

xii. Care should be taken that the entire exercise is kept transparent and above board so that no malafide act is attributable in the process.

xiii. The cases should be distributed to as many numbers of EAs as far as possible to avoid over dependence on a single EA leading to monopolizing such work by few EAs which may send wrong signals to the borrowers.


xiv. Further care should be taken to ensure that the EAs do not go beyond the scope of their allotted duties and their role would be over when the entire compromise is recovered and their charges are paid. No proposals for credit / loan brought by such EAs should be encouraged.

xv. It should be clearly noted that payment of such charges to EAs for compromise is one of the many options to maximise recovery and will not absolve the branch manager / other officers / field staff from following up the notice issued accounts to recover the dues on their own, without depending on EAs. Maximum recovery should be made by in house team of recovery squad and the cases handed to the EA should be kept minimum.

The Regional Managers / Branches should keep the following in mind while considering compromise proposals / Recovery brought through the assistance of the EA.

As the EA would be identified and entrusted with the job of enforcement only after the expiry of 60 days mandatory period after issue of notice, the question of charges on compromise generated during this 60 days period does not arise.

The enforcement agent should not negotiate any compromise amount on behalf of the Bank/borrower. All the negotiations will be done by the branch only. Similarly the EA should not be allowed to collect any remittance from the borrower after approval of the compromise. The borrowers should be informed that all the dealings will be done only at the branch and the Bank would not take any cognizance of the dealings with the EA outside the Bank.

It should be further ensured that generation of such compromise proposals in notice issued accounts should be time bound. The proposals should be generated and finalised within three months from the date of completion of 60 days mandatory period. In case no such compromise is generated and no recovery is forthcoming the branch should go ahead with the steps contemplated in the Act and Rules viz. taking of possession of secured assets, arranging for sale etc.

11.3 Assignment of Decree/Recovery Certificate 11.3.1 Bank can also consider assignment / sale of Decrees/ Recovery Certificates for a consideration. For the purpose of sale / assignment of Decree/Recovery Certificate, the value / amount of the same would be the amount decreed by the Court/DRT together with the future rate of interest awarded in the Decree/Recovery Certificate from the date of filing of suit till payment or realization

Available RVS Where RVS is above 50% of decretal dues

Where RVS is less than 50% of decretal dues

Age of the decree Discount on decretal dues allowablenot exceeding

Above 1 year upto 3 years 8% 15%

Above 3 years upto 6 years 12% 20%

Above 6 years upto 10 years 15% 40%

Above 10 years 20% 60%


The discount rates prescribed above are indicative. However, regard should be had to the realisable value of securities available in the decreed amount before deciding on the rate of discount. No other charges are payable. Amount of discount to be allowed on sale / assignment of decree will be treated as write off and for authorising such sale / assignment of decrees, respective delegatees can use the power given to them for write off in this policy document. Depending on the quantum of discount on sale / assignment of decree, the same should be referred to appropriate authority in whose power it falls, as mentioned below, for approval.

(Rs. in lakh)

Authority for approval of sale / Discount allowed on decretal dues

assignment of decree


Chairman 10.00

Board Full Power

11.3.2. Assignment / selling of decree should be done in consultation with the Advocate to ensure observance of legal procedures. 12. Engaging of ex-staff officers for recovery of Bank’s dues in NPA Besides the Recovery agents, Business correspondents& business facilitators, whose services are being engaged for recovery purpose, it has been decided to engage the services of our retired officers having knowledge & experience in area of credit & recovery as ‘Resolution Agents’

*****


Annexure-A (To be stamped as an Agreement / Indemnity as per stamp duty applicable in the State)

AGREEMENT-CUM-INDEMNITY FOR ENGAGING RECOVERY AGENTS This Agreement-cum-Indemnity made at ____________________ this _________, Two Thousand ________________ BETWEEN Vidharbha Konkan Gramin Bank, a body corporate constituted under the RRB Act, 1976 and having its Head Office at “Chandraprastha” 2nd & 3rd Floor, Plot No. 6, Deendayal Nagar, Ring Road, Nagpur-440022 and Regional Office amongst others at _______________________________ (Please mention address) herein after referred to as “the Bank” (which expression shall include its successors and assigns) of the One Part. AND MR. / MRS. M/s. _______________________, Indian Inhabitants, a Sole Proprietor / Sole Proprietress of a ________________ Firm carrying on business / residing at ___________________________________, hereinafter called “The Recovery Agent” (which expression shall unless it be repugnant to the context or meaning thereof mean and include his / her heirs, executors, and administrators) of the Other Part. OR _____________________________, a company incorporated under the Companies Act 1956, having its registered office at ________________________________________________), hereinafter called “the Recovery Agent” (which expression shall unless it be repugnant to the context be deemed to include their successors and assigns) of the Other Part. OR ________________ and ________________ and _______________Partners of M/s. __________________________registered Partnership Firm, carrying on business at __________________________________, hereinafter referred to as “the Recovery Agent” (which expression shall unless it be repugnant to the context or meaning thereof be deemed to mean and include their respective heirs, executors and administrators) of the Other Part. W H E R E A S: i. the Bank being a Banking Company within the meaning of Banking Regulation Act, 1949

is engaged in the business of banking and lends monies to its Borrowers with or without security.

ii. the Bank in the course of its business has from time to time granted Loans to various Borrowers with or without security.

iii. the borrowers to secure their liability under the various loans have executed various agreements / documents in favour of the Bank from time to time.

iv. the borrowers have defaulted in repaying the Loans as provided in the relevant agreements / documents.

v. the Bank is desirous of appointing a "Recovery Agent" for the purpose of making realization / recoveries from / out of the Loans / Securities and /or making realization / recoveries of the amount due from the Borrowers.


vi. the Bank is desirous of appointing an agent to effect recovery in all kinds of loans

whether Secured or Unsecured using available legal tools and whether or not suit / Recovery Application is pending before the Court of Law/Debt Recovery Tribunal.

vii. pursuant to negotiations between the Bank and the Recovery Agent it has been agreed to by and between the Bank and the Recovery Agent that the Recovery Agent shall be entrusted with the responsibility of such recovery and realization upon the terms and conditions hereinafter appearing.

NOW IT IS HEREBY AGREED BETWEEN THE PARTIES HERETO AS FOLLOWS: - 1. DEFINITION AND INTERPRETATION i. Appointment: - The Bank hereby appoints the Recovery Agent for recovering its amount from some of its Borrowers who commit default in making payment to the Bank on its due date despite repeated demand and follow up. ii. Amounts Due: - Aggregate of all amount due and all other monies whatsoever stipulated in or payable under the Financing – Loan documents by the Borrowers who commit default in making payment to the Bank including as per the Ledger – Books of Accounts maintained by the Bank together with interest, costs, charges, interest for delayed payment, damages and all other over dues payment. iii. Agreement: - Agreement means this agreement together with all amendments entered into in writing in respect thereof from time to time. iv. Applicable Law: - Applicable law means any applicable statute, law, regulation, ordinance, rule, judgement, rule of law, order, decree, clearance, approval, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision, or determination by, or any interpretation or administration of any of the foregoing by any statutory or regulatory authority whether in effect in India as on the date of this Agreement or thereafter and in each case as amended. v. Borrower: - “Borrower” means the person(s) who have availed of the Financial Assistance, and any other person(s) who has / have given any guarantee, to secure the repayment of any Financial Assistance.


vi. Financing Loan Documents: - Financing Loan Documents means all the agreements, deeds and/or documents, executed in favour of the Bank by the Borrowers and/or any third parties, inter alia setting out the terms and conditions on which the Bank has agreed to provide loans to such Borrowers. vii. Force Majeure Event:- "Force Majeure Event" means any event due to any cause beyond the reasonable control of the Party, including without limitation, fire, flood, explosion, acts of God, civil commotion, strikes, riots, insurrection, war or acts of Government. viii. Loan or Loans: - Loan or Loans means the loans, guarantees, and any other funded and non-funded financial assistance availed of by the Borrower(s) from the Bank together with interest, compound interest and all other monies whatsoever stipulated in, or payable by the Borrower to the Bank in respect thereof (Financial Assistance). ix. Recovery Agent: - Recovery Agent means acting as an Agent of the Bank for carrying out and / or exercising all powers for making realization / recoveries from / out of the loans including undertaking all legally permissible recovery strategy for the purpose of making realization / recoveries from / out of the loans / securities and / or realizing / recovering amounts due to Bank from the borrowers . x. Recovery: - “Recovery” means with respect to each Loan, the aggregated amount of realization / recoveries made in respect of the said Loan by the Recovery Agent. xi. Person: - Person means any individual, partnership, joint venture, firm, corporation, company, association, trust or other enterprise (whether incorporated or not) or Government (central, state or otherwise), sovereign, or any agency, department, authority or political sub-division thereof, international organisation, agency or authority (in each case, whether or not having separate legal personality) and shall include their respective successors and assigns and in case of an individual shall include his/her legal representatives, administrators, executors and heirs and in case of a trust shall include the trustee or the trustees for the time being. 2. APPOINTMENT OF THE RECOVERY AGENT 2.1 Appointment: - The Bank hereby appoints the Recovery Agent for recovering its amount from its Borrowers who commit default in making payment of the amounts to the Bank on its due date despite


repeated demand and follow up The Recovery Agent hereby accepts such appointment upon the terms and conditions contained in this Agreement and agrees that within the frame work of law and as per the covenant and warranties mentioned in this Agreement the Recovery Agent shall take all steps for the recovery of money due to the Bank from its Borrowers. 2.2 Best efforts by the Recovery Agent: -The Recovery Agent shall use its best efforts for recovering the dues of the Bank from the Borrowers who commit default in making payment to the Bank. 2.3 Best efforts by the Bank: - The Bank will provide to the Recovery Agent with all necessary and relevant information for recovering monies by the Recovery Agent from the Borrowers who commit default in making payment to the Bank. 2.4 Covenants by the Recovery Agent: - a) The Recovery Agent through out the term of this Agreement shall continuously interact

with the officers of the Bank, apprise the progress, provide such information and other data to the Bank on demand with regard to the details of the attachable assets of defaulting Borrowers including information on steps taken to achieve the objective of recovering all unpaid amounts and steps required to be taken for the effective and speedy recovery of amounts due to the Bank from such defaulting Borrowers.

b) The Recovery Agent agrees to take such steps to find out the whereabouts of the defaulting Borrowers and also their assets in order to facilitate effective and speedy recovery of monies due and payable to the Bank by the defaulting Borrowers.

c) The Recovery Agent agrees to take all steps for taking possession of the security/ies from the defaulting Borrowers and after taking possession of the securities hand over the same to the Bank provided the Bank expressly in writing instruct the Recovery Agent to take such further action in respect of the securities.

d) The Recovery Agent after taking possession of the security/ies shall prepare true and correct inventory of the security/ies in consultation with the Bank. The said inventory must to be attested by two independent witnesses.

e) The Recovery Agent agrees to keep the securities in good condition as a man of ordinary prudence would and safeguard it to the satisfaction of the Bank and indemnify the Bank from and against any losses, damage, destruction, pilferage etc. that may be caused to the said securities during the period they are kept in custody of the Recovery Agent.

f) The Recovery Agent shall arrange on behalf of the Bank for storage, maintenance and preservation arrangements as appropriate for the moveable / immoveable assets.

g) The Recovery Agent agrees to use its best endeavor to recover the amounts from the defaulting Borrowers and while doing such act the Recovery Agent must protect the interest of the Bank.

h) The Recovery Agent agrees to provide diligently and faithfully services to the Bank and further agrees not to do anything that affects the goodwill associated with the name and reputation of the Bank.


i) The Recovery Agent agrees not to accept any cash from the defaulting Borrowers. The Recovery Agent is authorized to receive money from such defaulting Borrowers by way of Demand Draft or Bankers Cheque drawn in the name of or to the Order of Bank.

The Recovery Agent with the approval and in consultation with the Bank shall issue a receipt to such Borrowers for the amount received by them on behalf of the Bank and immediately handover the Demand Draft / Banker's Cheque to the Bank.

The Recovery Agent shall not have any lien / right off / set off against Bank in respect of the amount realized / recovered under this Agreement.

All monies recovered / realized by the Recovery Agent under this Agreement shall be remitted to the Bank without any deduction whatsoever.

j) The Recovery Agent agrees not to negotiate with the defaulting Borrowers for discharge of any of his / her / their debt due to the Bank and / or for waiver of any of the debt or interest to the Bank without express written consent of the Bank.

k) The Recovery Agent agrees to immediately transmit to the Bank for consideration if any proposal for settlement received from any such defaulting Borrowers.

l) The Recovery Agent shall not have the right to bind the Bank for any negotiation for settlement, composition or waiver with the defaulting Borrowers.

The Bank shall have the right to refuse to accept any settlement, composition or waiver obtained and forwarded by the Recovery Agent from the defaulting Borrowers without giving a reason for refusal. The Recovery Agent agrees not to demand any commission in respect of any proposal for settlement, composition or waiver so refused by the Bank.

m) The Recovery Agent agrees to maintain highest professional and ethical code of conduct in its dealings and further agrees not to divulge any information gathered during the course of the assignment.

n) The Recovery Agent agrees to supply to the Bank a monthly status report giving complete details of dates, calls made, letters sent and follow up note of its activities with various defaulting Borrowers and its / his / their plan for recovering the outstanding amount and / or enforcement of the security/ies with the aforesaid defaulting Borrowers. Apart from the above monthly Report, if the Bank calls upon the Recovery Agent for any such report in respect of any defaulting Borrowers the same will be submitted by the Recovery Agent immediately.

o) The Recovery Agent agrees to pass on full information gathered in the course of handling any assignment and shall pass on to the Bank any documents / copies of documents obtained with regard to the activities, details of the assets of the defaulting Borrowers.

p) The Recovery Agent agrees to contact the defaulting Borrowers ordinarily at the place of business / occupation and if such Borrowers is / are unavailable at the place of business then at his/her/their residence.

q) The Recovery Agent / his employees / investigators shall carry an identity card and authority letter issued by the Bank when he contacts the defaulting Borrowers and produce the same before such defaulting Borrowers before making any demand for recovery or at the time of taking possession of the security from such defaulting Borrowers.

r) The Recovery Agent agrees to contact defaulting Borrowers between 0700 hours to 1900 hours, unless in some special circumstances of business of such defaulting Borrowers require, the Recovery Agent agrees to contact such defaulting Borrowers at different times.


s) The Recovery Agent agrees to avoid making calls / visits for recovery of the dues on inappropriate occasions such as bereavement in the family or such other calamitous occasions of the defaulting Borrowers.

t) The Recovery Agent agrees not to resort to intimidation or harassment of any kind either verbal or physical against the defaulting Borrowers at the time of their debt collection efforts including act intended to humiliate publicly or intrude the privacy of the Borrowers’ family members and friends, making threatening and anonymous calls or making false and misleading representations.

u) The Recovery Agent agrees to render assistances to the Recovery Officer and assist in the Recovery process, be it through the Debts Recovery Tribunal or any other Court of Law, or Tribunal or any other appropriate legal forum.

2.5 Commission: - The Recovery Agent shall be paid commission / charges as may be prescribed / negotiated by the Bank on case-to-case basis. Recovery charges shall be paid to the Recovery Agent on the actual recoveries made. In the event of the Recovery Agent not being successful in realizing the dues within a reasonable period say six months from the date of engagement as Recovery Agent for any particular account, the Recovery Agent is not eligible for any fee. The Bank at will, shall terminate the services of the Recovery Agent for the particular assignment. 3. BANK’S COVENANTS The Bank hereby agrees that as on the date of this Agreement with reference to the facts and circumstances presently existing: - i. It shall give to the Recovery Agent prior written notice of any recovery made on its own

efforts and accord, before initiating any legal proceeding in respect of any Loans granted by it to any defaulting Borrowers.

ii. The Bank reserves its right to withdraw any case of recovery at any time if it feels that there is no much progress made in any case and shall be entitled to handover the same to any other Agency without assigning any reason whatsoever;

iii. It shall, as soon as it is aware, inform the Recovery Agent of any breach of any of the representations or warranties contained in this Agreement.

4. VALIDITY This Agreement shall be valid upto six months from the date of this agreement and may be extended by mutual consent for such period and on such terms and conditions as may be agreed between the parties in writing.


5. THE RECOVERY AGENT’S REPRESENTATIONS AND WARRANTIES The Recovery Agent hereby represents and warrants to the Bank that, as on the date of this Agreement and with reference to the facts and circumstances presently existing: a) The Recovery Agent has full authority to enter into this Agreement and to take any

actions which may be required pursuant to this Agreement on behalf of the Bank. b) The Recovery Agent has adequate capacity, competence, knowledge, experience etc.

to undertake this assignment. c) The Recovery Agent shall discharge its duties and functions in accordance with all

applicable laws, rules, regulations and directives. Further, that it shall not undertake any activity which is unlawful, illegal and shall take utmost care to ensure that no damage is caused to the assets / securities and Bank is not exposed to any adverse publicity / claims from Borrowers for their not following the legally permissible means / procedures.

6. TERMINATION 6.1 Without prejudice to any remedy which the Bank may have against the Recovery Agent for any antecedent breach or non-performance of this Agreement and without prejudice to the right of either party to terminate this Agreement under the general law, the Bank may summarily terminate this agreement on giving written notice to the Recovery Agent, if: a) The Recovery Agent commits a breach of any of the terms or conditions of this

Agreement and is not remedied within 30 days of being notified to the Recovery Agent in writing by the Bank;

b) Bank reserves its right to terminate the agreement by issuing a one-month’s notice in writing without assigning any reason for termination. The service of the notice is sufficient if it is served by Registered Post with Acknowledgement / Due at the address of the Recovery Agent recorded with the Bank.

6.2 Either party may terminate this agreement summarily by notice in writing of 30 days to the other. 6.3 This Agreement shall terminate without notice in the event of the death of the Recovery Agent. 6.4 Upon termination or expiration of this Agreement for any reason, the Recovery Agent shall immediately cease using any documents delivered by the Bank and return all papers received from Bank along with its report to the Bank. 7. RELATIONSHIP AND INDEMNIFICATION 7.1 Relationship: With respect to all matters relating to this Agreement, the Recovery Agent shall be deemed to be independent and shall bear its own costs and expenses in connection with this Agreement and also for the purpose of recovery. The Recovery Agent shall not represent itself or its organization as having any relationship to the Bank other than that of an independent Agent for the limited purposes described in this Agreement. The Bank shall not be liable under any


circumstances for any damages, loss, etc. suffered or incurred by any person as a result of any act of commission or omission by the Recovery Agent under the Agreement or otherwise and the Recovery Agent shall be solely responsible and liable for the same. 7.2 Indemnification: 7.2.1 The Recovery Agent shall at all times be fully responsible to the Bank and shall

indemnify the Bank from and against any loss, damage, destruction, pilferage etc. that may be caused to the moveable, , immoveable securities / assets during the period they are kept in the custody of the Recovery Agent.

7.2.2 The Recovery Agent, its partners, employees, sub-agents and / or any affiliates shall be jointly and severally responsible and liable to the Bank for any loss arising out of any misappropriation / embezzlements / misuse or for any omission or for any act of negligence and the Recovery Agent shall indemnify the Bank for the same.

7.2.3 The Recovery Agent hereby indemnifies the Bank including all its employees, officers, Directors, representatives, assignees harmless against any costs expenses liability for any claims arising out of the performance by the Recovery Agent or its Sub-Agents of its or their duties or the exercise of its or their rights pursuant to this Agreement and pursuant to any Agreement with any Sub-Agent of the Recovery Agent. For the purpose of indemnification “claims” means and includes all obligations. This indemnity shall continue in effect even after, and notwithstanding this Agreement’s expiration or termination.

7.2.4 The Recovery Agent shall indemnify and save harmless the Bank against any and all losses damages, liabilities, suits, claims, counterclaims, actions, penalties, expenses, the Bank shall suffer as a result of: i. Any breach of Recovery Agent’s warranties, representation, covenants,

undertakings or agreement contained herein; ii. Any failure on the part of the Recovery Agent to observe or perform in any

respect, any covenant or obligation or undertaking under this Agreement; iii. Any claim made by the Borrower pursuant to which a Court has passed an order

and /or decree against the Bank on account of any action or omission of the Recovery Agent in relation to the loans secured assets

8. NOTICES Any notice or other written communication required or permitted to be given by this Agreement shall be deemed to be given when personally delivered or three (3) days after it has been sent by Registered Post or under Certificate of posting or sent by fax or by e-mail to the recipient Party at the relevant address shown in this Agreement or such other address as has been notified. 9. CONFIDENTIALITY During the period of this Agreement and after its termination the Recovery Agent must not disclose any confidential information made available to him by the Bank, with regard to Borrowers Account, securities or any other matter, unless such information has reached the public domain.


If the Recovery Agent commits breach of the aforesaid Agreement and leak any confidential information than the Bank is entitled to claim damages with all costs, charges and expenses incurred by Bank from the Recovery Agent. 10. ARBITRATION: In the event of any dispute regarding the liability of any one party hereto arising out of this Agreement, the same shall be referred to the Arbitration of the Regional Manager of the Bank or the person nominated by him and his decision shall be final and binding on the parties. The provisions of the Arbitration and Conciliation Act, 1996 shall apply to such Arbitration. 11. MISCELLANEOUS a) No variation of this Agreement shall be of any effect unless made in writing and signed

by the Bank. b) The Recovery Agent without express written consent of the Bank in writing should not

assign any job for recovery from the defaulting Borrowers to any of its sub-agent; c) The Recovery Agent agrees that the Bank would have access to all books, records and

information relevant to the Recovery Activity and can conduct audit of their Books of Account and other relevant documents through its internal or external auditor or by appointing any Agent.

d) The Bank would have the right to monitor and assess the services provided by the Recovery Agent so that any correction measure can be taken immediately.

e) Reserve Bank of India or person authorized by it have right to access the Bank Financing – Loan documents, record of transaction and other necessary information with regard to the defaulting Borrowers.

f) Reserve Bank of India or person authorized by it have right to access the Books of Accounts of the Recovery Agent, record of transaction and other necessary information with regard to the assignment of the Bank.

g) Both the parties shall not be liable for any failure to perform any of its obligations under this Agreement if the performance is prevented, hindered or delayed by a Force Majeure Event. Each party shall promptly inform the other of the existence of a Force Majeure Event and shall consult together to find a mutually acceptable solution.

h) In this Agreement unless the context clearly indicates another intention: i. reference to one gender includes all other genders; ii. reference to the singular includes the plural and vice versa; iii. obligations undertaken by more than a single person or company are joint and

several obligations; iv. Reference to a statutory provision is a reference to that provision as modified

or re-enacted or both from time to time and to any subordinate legislation made under the statutory provision;

v. Reference to a document is a reference to that documents as from time to time supplemented or varied;

vi Reference to writing includes fax, e-mail and similar means of communication.


IN WITNESS WHEREOF THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON THE DAY AND YEAR FIRST HEREINABOVE WRITTEN. SIGNED AND DELIVERED by the within ) named Vidharbha Konkan Gramin Bank by its authorized representative Mr. _____________ ) ______________________ And Mr. ) ______________________ for and on ) behalf Vidharbha Konkan Gramin Bank in the presence of ) 1. Mr. _________________(Name) ______________ (Designation) ) ) 2. Mr. _________________(Name) ______________ (Designation) ) )

SIGNED AND DELIVERED by the within ) named “______________________”, “the ) Recovery Agent” in the presence of ) ) 1. ) ) 2. )


Annexure-B (To be stamped as an Agreement / Indemnity as per stamp duty applicable in the State)

AGREEMENT WITH ENFORCEMENT AGENT This Agreement made at ____________________ this _________, Two Thousand ________________ BETWEEN Vidharbha Konkan Gramin Bank, a body corporate constituted under the RRB Act, 1976 and having its Head Office at “Chandraprastha” 2nd & 3rd Floor, Plot No. 6, Deendayal Nagar, Ring Road, Nagpur - 440 022 and Regional Office amongst others at _______________________________________ (Please mention address) herein after referred to as “the Bank” (which expression shall include its successors and assigns) of the One Part. AND MR. / MRS. _____________, Indian Inhabitants, a Sole Proprietor / Sole Proprietress of a _______________ Firm carrying on business / residing at_____________________________, hereinafter called “Enforcement Agent” (which expression shall unless it be repugnant to the context or meaning thereof mean and include his / her heirs, executors, and administrators) of the Other Part. OR _____________________________, a Company incorporated under the Companies Act 1956, having its Registered Office at ____________________________________________), hereinafter called “Enforcement Agent” (which expression shall unless it be repugnant to the context be deemed to include their successors and assigns) of the Other Part. OR M/s. __________________________________________________ registered Partnership Firm, carrying on business at ________________________________________, hereinafter referred to as “Enforcement Agent” (which expression shall unless it be repugnant to the context or meaning thereof be deemed to mean and include their respective heirs, executors and administrators) of the Other Part. W H E R E A S: a) the Bank being a Banking Company within the meaning of Banking Regulation Act, 1949

is engaged in the business of banking and lends monies to its Borrowers with or without security/ies;

b) the Bank in the course of its business has from time to time granted Loans to various Borrowers with or without security;

c) the Borrowers to secure their liability under the various loans have executed various agreements / documents in favour of the Bank from time to time.


d) In certain cases any Borrowers of the Bank commits default in making payment of secured debt (any principal debt or interest thereon or any other amount payable) to the Bank and the account is classified as Non-Performing Asset, then the Bank may by Notice in writing require the Borrowers to discharge in full his / her / their liability within a period of sixty (60) days from the date of Notice failing which the Bank shall be entitled to exercise its rights under and / or in accordance with the provisions of The Securitization and Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act, 2002”) which was amended by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 and the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “the Rules”) for taking possession and sale of the secured assets of the defaulted Borrowers, making realization and / or recovery of the amount due from the defaulted Borrowers out of the security/ies and other functions .

e) for the aforesaid purpose of effective and speedy realization and recovery from the secured assets, the Bank is desirous of appointing the Enforcement Agent / Agency for doing or cause to be done the acts, matters, deeds and things on the following terms and conditions.

NOW IT IS HEREBY AGREED BETWEEN THE PARTIES HERETO AS FOLLOWS: - 1. DEFINITION AND INTERPRETATION: i. Appointment: - The Bank hereby appoints Enforcement Agent for taking possession and sale of the secured Assets and realization and / or recovery from the secured Assets of the defaulted Borrowers who failed to discharge in full his / her / their liability to the Bank within a period of sixty (60) days from the Notice issued by the Bank under and / or in accordance with the SARFAESI Act, 2002 which was amended by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 and the Security Interest (Enforcement) Rules, 2002. ii. Amounts Due: - Principal Debt or Interest thereon or any other amount payable by the Borrowers as per Ledger – Books of Accounts maintained by the Bank together with interest, costs, charges, interest for delayed payment, damages and all other over dues payment, and the amounts mentioned in the Notice issued under the SARFAESI Act, 2002. iii. Applicable Law: - Applicable law means any applicable statute, law, regulation, ordinance, rule, judgement, rule of law, order, decree, clearance, approval, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision, or determination by, or any interpretation or administration of any of the foregoing by any statutory or regulatory authority whether in effect in India as on the date of this Agreement or thereafter and in each case as amended.


iv. Authorised Officer: - “Authorised Officer” means an officer specified / appointed by the Board of Directors or any other higher officers of the Bank but not less than a Chief Manager, to exercise the rights under the SARFAESI Act, 2002. v. Borrowers: - Borrowers means any person who has been granted financial assistance by the Bank and any other person who has created security interest and / or given any Guarantee to secure the repayment of any financial assistance granted by the Bank, or any other funded or non-funded financial assistance availed of, or any security/ies created in favour of Bank by way of mortgage / hypothecation / pledge . vi. Consent: - Consent means any consent, license, approval, registration, permit or other authorization of any nature, which is required to be granted by any Statutory Authorities:

a) for incorporation of the Bank or Enforcement Agent ; b) for enforcement of this Agreement;

vii. Default: - Default means non-payment of any principal debt or interest thereon or any other amount payable by the Borrowers to the Bank consequent upon which the Accounts of such Borrowers is classified as Non-performing Assets in the Books of Accounts of the Bank in accordance with the direction or guidelines issued by the Reserve Bank of India. viii. Enforcement of Secured Assets: - To take possession of the secured Assets of the Borrowers for realizing the amounts due to the Bank; ix. Force Majeure Event:- “Force Majeure Event” means any event due to any cause beyond the reasonable control of the Party, including without limitation, fire, flood, explosion, acts of God, civil commotion, strikes, riots, insurrection, war or acts of Government. x. Person: - Person means any individual, partnership, joint venture, firm, corporation, company, association, trust or other enterprise (whether incorporated or not) or Government (central, state or otherwise), sovereign, or any agency, department, authority or political sub-division thereof, international organisation, agency or authority (in each case, whether or not having separate legal personality) and shall include their respective successors and assigns and in case of an individual shall include his/her legal representatives, administrators, executors and heirs and in case of a trust shall include the trustee or the trustees for the time being.


xi. Secured Assets, Security Interest:- Secured Assets, Security Interest have the meaning assigned to the said terms under SARFAESI Act mutatis mutandis for the provisions of this Agreement also. xii. Secured Debt: - Secured Debt means a debt which is secured by any secured assets. 2. APPOINTMENT OF ENFORCEMENT AGENT 2.1 Appointment: - The Bank appoints the Enforcement Agent for assisting the Authorized Officer of the Bank to realize and recover the loans in the various NPA accounts in various branches of the Bank in accordance with the provisions of the SARFAESI Act, 2002. The Enforcement Agent accept such appointment upon the terms and conditions contained in this Agreement and agree that within the frame work of law and as per the covenant and warranties mentioned in this Agreement the Enforcement Agent shall take all steps for enforcing the provisions of SARFAESI Act,2002 and Security Interest (Enforcement) Rules. 2002. 2.2 Best efforts by Enforcement Agent: - Enforcement Agent shall use its best efforts as per the provisions of the SARFAESI Act, 2002 to assist the Authorized Officer in enforcing the provisions of the Act including taking possession of the secured assets of the Borrowers and / or sell and realize the same, the possession of which has been taken over by the Bank. 2.3 Covenants by Enforcement Agent: - 2.4 a) Enforcement Agent through out the term of this Agreement continuously interact with

the Officers of the Bank, apprise the progress, provide such information and other data to the Bank on demand with regard to the secured assets of the Borrowers.

b) Enforcement Agent agrees to assist the Authorized Officer in taking the following steps. 1. Advise the Authorised Officer / Bank in relation to the steps that may require to

be taken against the Borrowers and also advise on such follow up measures that may require to be initiated prior to taking possession of the secured assets of the concerned borrower.

2. Advise the Authorised Officer / Bank based on commercial due diligence prior to taking possession of the secured assets of the borrower concerned and also submit pre-possession report.

3. Arranging for obtaining the Order of the District or the Chief Metropolitan Magistrate as and when required so as to enable the Bank to obtain quick and smooth possession of the secured assets of the concerned borrower.


4. Assisting the Authorised Officer in taking possession of the secured assets in full compliance with the procedures laid down under the Security Interest (Enforcement) Rules in the preparation of the panchnama and inventory of the secured assets property concerned to be signed by the Authorised Officer.

5. Advising the Authorised Officer as regards obtaining of insurance policies in relation to the secured assets possession of which is taken by the Bank.

6. To arrange on behalf of the Authorised Officer, for storage / security, maintenance, preservation and locking arrangements as appropriate, of the secured assets so taken over by the Bank by appointing storage keepers and warehouse keepers, security providers who will provide the required services and also preparation of agreement to be entered into with such service providers.

7. Advise and arrange for such other action that may be required to ensure safety and / or preservation of the concerned secured assets.

8. Advise the Authorised Officer concerned as to the most suitable mode of sale of the concerned secured assets that could be initiated under the circumstances having regard to the kind, quality, size and value of the assets and any potential liabilities or dangers that may be faced with regard to adopting a particular line of action.

9. Assistance and advice to the Authorised Officer in giving due discharge certificates and issuance of receipts for the sale proceeds, issue of Sale Certificates, and all other necessary formalities that may in the opinion of Bank deem fit including preparation of related documents, public notices, letters to prospective buyers, auction notice, sale notice etc.

10. Assist the Authorized Officer in making inventory of the moveable secured assets after taking possession of the same. The said inventory must to be attested by two independent witnesses and copy of such inventory be handed over to Borrowers or to any person entitled to receive on behalf of the Borrowers.

11. To arrange on behalf of the Authorised Officer for the storage / preservation of the moveable secured assets with storage keepers / warehouse keepers who shall take as much care of the moveable secured assets in their custody. If such moveable secured assets is subject to speedy or natural decay, or the expenses of keeping such moveable secured assets in custody is likely to exceed its value than the same may be sold immediately with the written approval and in consultation with the Bank.

12. To Assist the Authorised Officer in taking steps for preservation and protection of moveable secured assets and insure them with the written approval of the Bank, if necessary, till they are sold or otherwise disposed of

13. To assist the Authorized Officer to obtain the estimated value of moveable secured assets and thereafter if considered necessary fix in consultation with the Authorised Officer, the reserve price of the assets to be sold in realization of the dues of the Bank.

14. To assist the Authorised Officer in taking possession of the secured asset which is an immoveable property by delivering a Possession Notice to the Borrowers and / or by affixing Possession Notice on the outer door or at such conspicuous place of the property.


The aforesaid Possession Notice shall also be published in two leading newspapers one in vernacular language having sufficient circulation in that locality by Enforcement Agent with the prior written approval of the Bank.

15. To arrange on behalf of the Authorised Officer for the security and preservation of the immoveable secured assets by appointing security guards with the prior written approval of the Bank.

16. To diligently and faithfully provide services to the Bank and not to do anything that effect the goodwill associated with the name and reputation of the Bank.

17. To maintain highest professional and ethical code of conduct in its dealings and not to divulge any information gathered in the course of handling any assignment.

18. To submit a Monthly Status Report giving complete details of dates, calls made, and follow up note of its activities during that period in various cases of the Borrowers and its / his / their plan for taking steps for enforcement of the secured assets.

19. To pass on full information gathered in the course of handling any assignment to the Bank including any documents / copies of documents obtained with regard to the activities, assets of the Borrowers

20. To contact the Borrowers ordinarily at the place of business / occupation and if such Borrowers / is / are unavailable at the place of business then at his/her/their residence.

21. To carry identity card and authority letters issued by the Bank when he contacts the Borrowers and produce the same before such Borrowers before making any demand for possession of the secured assets.

22. To contact Borrowers for possession of the secured assets between 0700 hours to 1900 hours, unless in some special circumstances of business of such Borrowers / require, Enforcement Agent / agrees to contact such Borrowers at different times.

23. To avoid making calls / visits for taking possession of the secured assets on inappropriate occasions such as bereavement in the family or such other calamitous occasions of the Borrowers.

24. Not to resort to intimidation or harassment of any kind either verbal or physical against Borrowers at the time of taking possession of secured assets including act intended to humiliate publicly or intrude the privacy of the debtors’ family members and friends, making threatening and anonymous calls or making false and misleading representations.

Charges: - Enforcement Agent shall be paid charges and expenses as may be prescribed / negotiated by the Bank on case-to-case basis. 3.BANKS REPRESENTATION AND WARRANTY: - 3.1 The Bank hereby represents and warrants to Enforcement Agent that, as on the date of this Agreement and with reference to the facts and circumstances presently existing: -


a) the Bank has full corporate power and authority to enter into this Agreement, and to take any action under the security documents against any of the Borrowers,

b) neither the execution and delivery of the Security Documents, nor the fulfillment of or compliance of the Demand Notice issued under the SARFAESI Act, 2002 to the Borrowers conflict with or result in a breach of or a default under any of the terms, conditions or provisions of any legal restriction (including, without limitation, any judgement, order, injunction, decree or ruling of any Court or Statutory Authority, or any Applicable Law) or any covenant or agreement or instrument to which the Bank is now a party. The Security Documents have been adequately stamped and registered, in accordance with Applicable Law;

c) the ledger extracts setting out the details of the Loans, including the Amounts Due under the respective facilities mentioned in the Demand Notice issued under the SARFAESI Act, 2002 to the Borrowers which have been handed over by the Bank and receipt of the same acknowledged by Enforcement Agent, are true and correct in all respects and have been prepared in accordance with Applicable Law;

d) all information set forth in the Demand Notice issued under the SARFAESI Act, 2002 pertaining to the amounts and description of the secured assets of the Borrowers is, to the best of the knowledge and belief of the Bank, and pertaining to the Bank is, true and correct in all respects, and all names, addresses, amounts, dates, signatures and other statements and facts contained in the Security Documents and pertaining to the Borrowers are, to the best of the knowledge and belief of the Bank, and pertaining to the Bank are, genuine, true and correct in all respects;

e) the Bank has not rescheduled, amended, or granted any relief to any Borrowers in making payment after issuance of Demand Notice under the SARFAESI Act, 2002;

f) none of the rights, title and interest of the Bank in the Security Documents, and/or any underlying Security Interest, pledge or guarantee has been sold, assigned or pledged to any Person/s and the Bank has, good and marketable title free and clear of any encumbrance and the Bank is the sole legal and full beneficial owner thereof and has full and absolute right to recover the same;

4. ENFORCEMENT AGENT REPRESENTATIONS AND WARRANTIES: - Enforcement Agent hereby represents and warrant to the Bank that, as on the date of this Agreement and with reference to the facts and circumstances presently existing: a) Enforcement Agent has full authority to enter into this Agreement and to take any

actions, which may be required pursuant to this Agreement on behalf of the Bank. No Consent, approval, order, registration or qualification of, or with, any court or Statutory Authority having jurisdiction would adversely affect the legal and valid execution, delivery and performance by Enforcement Agent of this Agreement.

b) Enforcement Agent has adequate capacity, knowledge, experience etc. to undertake these assignments.


5. TERMINATION: - 5.1 Without prejudice to any remedy which the Bank may have against Enforcement Agent

for any antecedent breach or non-performance of this Agreement and without prejudice to the right of either party to terminate this Agreement under the general law, the Bank may summarily terminate this agreement on giving written notice to Enforcement Agent, if:

a) Enforcement Agent commits a breach of any of the terms or conditions of this

Agreement and is not remedied within 30 day of being notified to the Enforcement Agent in writing by the Bank;

b) Enforcement Agent commits an act of bankruptcy, dissolution, insolvency, failure in depositing recovered amount with the Bank, conducting – proceeding to realize the secured assets against the interest of the Bank or filing of any Petition in Bankruptcy or for relief under the provisions of the Bankruptcy – Insolvency laws;

c) Enforcement Agent is prevented by infirmity or ill health from performing its functions under this Agreement;

d) The Agreement shall be terminated at the option of the Bank without assigning any reason to Enforcement Agent.

5.2 Either party may terminate this agreement summarily by notice in writing of 30 days to

the other. 5.3 This Agreement shall terminate without notice in the event of the death of

Enforcement Agent. 5.4 Upon termination or expiration of this Agreement for any reason, Enforcement Agent

shall immediately cease using any documents delivered by the Bank and return all the Financing – Loan Documents along with its report to the Bank.

6. RELATIONSHIP AND INDEMNIFICATION: - 6.1 Relationship: With respect to all matters relating to this Agreement, Enforcement Agent shall be deemed to be independent and shall bear its own expenses in connection with this Agreement. Enforcement Agent shall not represent itself or its organization as having any relationship to the Bank other than that of an independent Agent for the limited purposes described in this Agreement. The Bank shall not be liable under any circumstances for any damages, loss, etc. suffered or incurred by any person as a result of any act of commission or omission by Enforcement Agent under the Agreement or otherwise Enforcement Agent shall be solely liable for the same. 6.2 Indemnification: Enforcement Agent shall indemnify and hold Bank, its officers, Directors, representatives assignees harmless against any liability for any claims arising out of the performance by Enforcement Agent of its or their duties or the exercise of its or their rights pursuant to this Agreement. For the purposes of indemnification “claims” means and includes all obligations. This indemnity shall continue in effect even after, and notwithstanding this Agreement’s expiration or termination.


7. NOTICES: - Any notice or other written communication required or permitted to be given by this Agreement shall be deemed to be given when personally delivered or three (3) days after it has been sent by Registered Post or under Certificate of posting or sent by fax or by e-mail to the recipient Party at the relevant address shown in this Agreement or such other address as has been notified. 8. CONFIDENTIALITY: - During the period of this Agreement and after its termination, Enforcement Agent must not disclose any confidential information made available to him by the Bank, with regard to Borrowers Account, securities or any other matter, unless such information has reached the public domain. If Enforcement Agent commits breach of the aforesaid Agreement and leak any confidential information than the Bank is entitled to claim damages from Enforcement Agent. 9. ARBITRATION: - In the event of any dispute regarding the liability of any one party hereto arising out of this Agreement, the same shall be referred to the Arbitration of the Regional Manager of the Bank or the person nominated by him and his decision shall be final and binding on the parties. The provisions of the Arbitration and Conciliation Act, 1996 shall apply to such Arbitration 10. MISCELLANEOUS: - a) No variation of this Agreement shall be of any effect unless made in writing and signed

by the Bank and Enforcement Agent. b) Enforcement Agent without express written consent of the Bank may not assign any

job for enforcement of securities of the Borrowers to any sub-Agent; c) Enforcement Agent agrees that the Bank can conduct audit of their Books of Account

and other relevant documents through its internal or external Auditor or by appointing any Agent.

d) Reserve Bank of India or person/s authorized by it have right to access the Bank Security documents, record of transaction and other necessary information with regard to the Borrowers.

e) Reserve Bank of India or persons authorized by it have right to access the Bank’s documents, records of transactions and other necessary information given to, stored and processed by the Enforcement Agent within a reasonable time.

f) Although there may be a difference between the book value of the secured assets or the value perceived by the Bank and the realizable value of the secured assets on disposal, the fees of the Enforcement Agent / Agency shall be payable on the basis of net realization.

g) In case of compromise without effecting sale of the secured assets, the fees payable to the Enforcement Agent shall be upto the particular stage.


h) Enforcement Agent’s assistance for any stage can be dispensed by the Bank at its discretion and no further payment beyond that stage will be made to the Enforcement Agent. The payments / fees made to the Enforcement Agent will be as prescribed / negotiated by the Bank on case-to-case basis.

i) The Bank will have the right not to avail of the services from any stage of the proceeding and engage any other Agent for any stage for the remaining activities.

j) Both the parties shall not be liable for any failure to perform any of its obligations under this Agreement if the performance is prevented, hindered or delayed by a Force Majeure Event. Each party shall promptly inform the other of the existence of a Force Majeure Event and shall consult together to find a mutually acceptable solution.

k) In this Agreement unless the context clearly indicates another intention: i. reference to one gender includes all other genders; ii. reference to the singular includes the plural and vice versa; iii. obligations undertaken by more than a single person or company are joint and

several obligations; iv. Reference to a statutory provision is a reference to that provision as modified

or re-enacted or both from time to time and to any subordinate legislation made under the statutory provision;

v. Reference to a document is a reference to that documents as from time to time supplemented or varied;

vi. Reference to writing includes fax, e-mail and similar means of communication; IN WITNESS WHEREOF THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON THE DAY AND YEAR FIRST HEREINABOVE WRITTEN. SIGNED AND DELIVERED by the within ) named Vidharbha Konkan Gramin Bank by its authorized ) representative Mr. ) ______________________ for and on behalf ) Vidharbha Konkan Gramin Bank in the presence of ) 1. Mr. _________________(Name) ) ______________ (Designation) ) 2. Mr. _________________(Name) ) ______________ (Designation) ) SIGNED AND DELIVERED by the within ) Named “______________________”, ) “Enforcement Agent ” in the presence of ) ) 1. ) ) 2.


Annexure-C

DRAFT LETTER TO BE ISSUED TO THE ENFORCEMENT AGENCY. M/s. _________________________ ____________________________ _____________________________ Dear Sirs, Re. : Takeover of secured assets of

A/c. : _______________________________

under the provisions of SARFAESI Act 2002. -------------------------------------------------------

This has reference to the above mentioned subject and our subsequent discussions with you in this regard.

In this connection, we are pleased to inform you that we wish to avail of your services as Enforcement Agent to assist the Authorised Officer of our Bank in its asset recovery initiatives of the secured interest created in the above noted account with our_______________________ Branch in accordance with The Securities and Reconstruction of the Financial Assets and Enforcement of Security Interest Act 2002, hereafter referred to as the SARFAESI Act 2002, which was amended by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 and the Security Interest (Enforcement) Rules 2002 ( hereafter referred to as the Rules), which relate to the procedure to be adopted for taking possession and sale of the distressed/impaired assets by the Secured Creditor. Terms of Reference : - In this regard we state that the terms of reference of the said services is as under: Scope of Services :

While acting as an External Agency on behalf of the Authorised Officer (AO) the scope of services to be provided by you would be as follows : - 1. Advise the AO/Bank in relation to the steps that may require to be taken against the

borrowers and guarantors and also advise on such follow up measures that may require to be initiated prior to taking possession of the movable and immovable properties of the concerned borrower/guarantors.

2. Advise the AO/Bank based on commercial due diligence prior to taking possession of the movable and immovable properties of the borrower/guarantor concerned and also submit pre-possession report.

3. Arranging for obtaining the order of the District or the Chief Metropolitan Magistrate as and when required so as to enable the Bank to obtain quick and smooth possession


of the concerned movable or immovable properties of the concerned borrower/guarantor.

4. Assisting the Authorised Officer in taking possession of the movable and immovable properties in full compliance with the procedures laid down under the Rules in the preparation of the panchnama and inventory of the property concerned to be signed by the Authorised Officer.

5. Advising the Authorised Officer as regards obtaining of insurance policies in relation to the movable and immovable assets possessed by the Bank from the date of possession in view of the fact that the title in the goods would have passed over to the Bank after possession.

6. To arrange on behalf of the Authorised Officer, for storage/security,maintenance, preservation and locking arrangements as appropriate, of the movable/fixed/immovable assets so taken over by the Bank by appointing storage keepers and warehouse keepers, security providers who will provide the required services and also preparation of agreement to be entered into with such service providers.

7. Advise and arrange for such other action that may be required to ensure safety and/or preservation of the concerned assets.

8. Advise the Authorised Officer concerned as to the most suitable mode of sale of the concerned assets that could be initiated under the circumstances having regard to the kind, quality, size and value of the assets and any potential liabilities or dangers that may be faced with regard to adopting a particular line of action.

9. Assistance and advice to the Authorised Officer in giving due discharge certificates and issuance of receipts for the sale proceeds, issue of sale certificate, issue of necessary title deeds in favour of the new buyer and all other necessary formalities that may in our opinion deem fit including preparation of related documents, public notices, letters to prospective buyers, auction notice, sale notice etc.

Other terms:

o It is also agreed that:- o Although there may be a difference between the book value of the concerned assets

or the value perceived by the Bank and their realizable value on disposal, your fees shall be payable based on the net realization after providing for all expenses incurred.

o Costs incurred for the valuation of the assets by Bank’s valuers shall be payable by the Bank.

o Any legal due diligence or legal advice may be sought from your contact of legal experts as and when required without payment of any additional fees.

o Fees payable for engaging lawyers for the proceedings under Section 14 shall be limited to Rs. 10,000/- per case per property. Bank can engage its own panel Advocates for this purpose at its own discretion.

o Any fees payable to you shall exclude costs incurred towards any legal or charge payable to Court/Authority and for filing caveats in various Court which shall be borne by the Bank.

o Any fees payable to you shall exclude any insurance premium payable to cover risks involved in taking possession and maintenance of the assets thereafter.

o


o Any decision taken on behalf of the Bank by you or your representatives during the course of the assignments shall be with the prior written concurrence of the Bank.

o Authorised Officer of the Bank shall be available for discharging their statutory obligation.

o The actual time frame and tasks involved with regard to carrying out any specific assignment shall be spelt out by you to the Bank well in advance, as far as possible, to ensure smooth implementation of decisions.

o All fees and expenses will be subject to deduction of tax at source as may be prescribed. o In case of compromise without effecting sale of the secured assets, the fee payable to

you upto the particular stage will only be payable. o Your assistance for any stage can be dispensed with by the Bank at its discretion and

no further payment beyond that stage will be made to you. Such payment, will be as per chart appended hereunder.

o The Bank will have the right not to avail of the services from any stage of the proceeding and engage any other agency for any stage for the remaining activities.

Type of assistance Indicative Charges

Pre inspection & Preparation of Viability Report

Assistance in taking physical possession of the secured assets both movable and immovable and for preparing the Panchnama, Inventory and Possession Notice etc.

For taking Police assistance for taking physical possession or for obtaining orders from the CMM/District Magistrate and to assist A.O. for taking physical possession.

Safeguarding the secured assets by appointing security guards

For safe keeping in the warehouse/go-down

Commission on sale of secured assets/Sale by Private Treaty/

Settlement through compromise followed by actual recoveries/Recovery after taking possession.

Providing necessary assistance for collection/recovery from borrower’s debtors

Publication of Statutory Notices/Paper publication etc. in Newspapers.

Indicative Time Schedule ( total period should not exceed 6 months) :

a) To take physical possession/inventory/panchnama - Before ( …… ) (give specific dates) b) Appointment of security services ( if required) Before ( ……. ) c) Publication of Possession Notice Before ( ……..) d) Publication of Sale Notice Before ( ……..) e) Conducting sale/auction Before ( ……..)


Note : You may be allowed to claim 25 % of the stage wise amount payable OR Rs. 5000/-as advance whichever is lower. Conclusion: We look forward to working with you and your colleagues on this important assignment. You should get in touch with our Shri ________________________ at_________________ Branch, being the Authorised Officer for further action in the matter. We shall be grateful if you would confirm the terms of the engagement on the terms and conditions of this letter by signing and returning the attached copy of this letter. This assignment is valid upto ________________ (this date should not exceed 6 months from the date of assignment)

For & on behalf of

Vidharbha Konkan Gramin Bank

(______________)

Region Manager _____________Region

I/We agree to the above terms and conditions. For M/s. _________________________________ Director/Partner/Proprietor


Chapter 11 A Model Code on Collection of Dues and Repossession of Security

(Revised guidelines as per BCSBI Letter No.211/03/01/001/2009-10 dtd.10.09.2009) Contents: 1. Introduction 2. Collection of Dues Policy 3. General guidelines 4. Security Repossession Policy 1. Introduction Our Bank is committed to:-

Following fair practices especially with regard to collection of dues and repossession of security

Fostering customer confidence and long term relationship 2. Collection of Dues Policy

Borrowers will be advised the repayment process by way of amount, tenure and periodicity of repayment. However, if they do not adhere to repayment schedule, a defined process in accordance with the laws of the land will be followed for recovery of dues by our Bank as under:-

a) Details of the recovery agency firms / companies engaged by our Bank will be posted on our website.

b) Details of the recovery agency firms / companies will also be made available to borrowers on request at our Branches.

c) Bank staff or any person authorized by Bank in collection of dues or / and security repossession will identify himself / herself and display the authority letter issued by us and upon request display(ing) to you his/her identity card issued by the Bank or under authority of the Bank.

d) Borrowers will be provided with all the information regarding dues and sufficient notice will be given for payment of dues.

e) Bank will have a system of checks before passing on a default case to collection agencies so that the borrowers are not harassed on account of lapses on the part of Bank.

f) Borrowers will be advised before initiating recovery proceedings against them. 3. General guidelines : All the members of the staff or any person authorized to represent Bank in collection or / and security repossession would follow the guidelines set out below:- i. Borrowers would be contacted ordinarily at the place of their choice and in the absence

of any specified place at the place of their residence and if unavailable at their residence, at the place of business / occupation.


ii. Identify and authority to represent would be made known to borrowers. iii. Borrowers’ privacy would be respected. iv. Interaction with borrowers would be in civil manner. v. Normally Bank’s representatives will contact borrowers between 0700 hrs and 1900

hrs, unless the special circumstances of their business or occupation require otherwise. vi. Borrowers requests to avoid calls at a particular time or at a particular place would be

honoured as far as possible. vii. Time and number of calls and contents of conversation would be documented. viii. All assistance would be given to resolve disputes or differences regarding dues in a

mutually acceptable and in an orderly manner. ix. During visits to borrowers place for dues collection, decency and decorum would be

maintained. x. Inappropriate occasions such as bereavement in the family or such other calamitous

occasions would be avoided by Bank officials for making calls/visits to collect dues. xi. Any complaint received from borrowers about unfair practices by collecting agents will

be investigated by Bank. 4. Security Repossession Policy:- a) Repossession of Security:- Repossession of security is aimed at recovery of dues and

not to deprive the borrower of the property. The recovery process through repossession of security will involve repossession, valuation of security and realization of security through appropriate means. All these would be carried out in a fair and transparent manner. Due process of law will be followed while taking repossession of the property. The Bank will take all reasonable care for ensuring the safety and security of the property after taking custody, in the ordinary course of the business.

b) Giving notice to borrwers:- While written communications, telephonic reminders or visits by the Bank’s representatives to the borrowers place or residence will be used as loan follow up measures, the Bank will not initiate any legal or other recovery measures including repossession of the security without giving the notice in writing.

c) Valuation and sale of property:-Valuation and sale of property repossessed by the Bank will be carried out as per law and in a fair and transparent manner. The Bank will have right to recover from the borrower the balance due if any, after sale of property. Excess amount if any, obtained on sale of property will be returned to the borrower after meeting all the related expenses provided the Bank is not having any other claims against the customer.

d) Opportunity for the borrower to take back the security:- The Bank will resort to repossession of security only for the purpose of realization of its dues as the latest resort and not with intention of depriving the borrower of the property. Accordingly, the Bank will be willing to consider handing over possession of property to the borrower any time after repossession and before concluding sale transaction of the property, provided the Bank dues are cleared in full. If satisfied with the genuineness of borrower’s inability to pay the loan installment as per the schedule which resulted in the repossession of security, the Bank may consider handing over the property after receiving the instalments in arrears. However, this would be subject to the Bank being convinced of the arrangements made by the borrower to ensure timely repayment of remaining instalments in future.


Chapter - 11 B

Engagement of Recovery Agents

(RBI Circular vide RBI/2007-2008/296 DBOD.NO.Leg.BC.75/09.07.005/2007-08 dated 24.04.2008 – adapted by Bank) Banks are advised to take into account the following specific considerations while engaging recovery agents: i. ‘Agent’ in these guidelines would include agencies engaged by the bank and the agents/

employees of the concerned agencies. ii. Banks should have a due diligence process in place for engagement of recovery agents,

which should be so structured to cover, among others, individuals involved in the recovery process. The due diligence process should generally conform to the guidelines issued by RBI on outsourcing of financial services vide circular DBOD.No.BP.40/ 21.04.158/ 2006-07 dated November 3, 2006. Further, banks should ensure that the agents engaged by them in the recovery process carry out verification of the antecedents of their employees, which may include pre-employment police verification, as a matter of abundant caution. Banks may decide the periodicity at which re-verification of antecedents should be resorted to.

iii. To ensure due notice and appropriate authorization, banks should inform the borrower

the details of recovery agency firms / companies while forwarding default cases to the recovery agency. Further, since in some of the cases, the borrower might not have received the details about the recovery agency due to refusal / non-availability / avoidance and to ensure identification, it would be appropriate if the agent also carries a copy of the notice and the authorization letter from the bank along with the identity card issued to him by the bank or the agency firm / company. Further, where the recovery agency is changed by the bank during the recovery process, in addition to the bank notifying the borrower of the change, the new agent should carry the notice and the authorization letter along with his identity card.

iv. The notice and the authorization letter should, among other details, also include the

telephone numbers of the relevant recovery agency. Banks should ensure that there is a tape recording of the content / text of the calls made by recovery agents to the customers, and vice-versa. Banks may take reasonable precaution such as intimating the customer that the conversation is being recorded, etc.

v. The up to date details of the recovery agency firms / companies engaged by banks may

also be posted on the bank’s website. vi. Where a grievance/ complaint has been lodged, banks should not forward cases to

recovery agencies till they have finally disposed of any grievance /complaint lodged by the concerned borrower. However, where the bank is convinced, with appropriate


proof, that the borrower is continuously making frivolous / vexatious complaints, it may continue with the recovery

proceedings through the Recovery Agents even if a grievance / complaint is pending with them. In cases where the subject matter of the borrower’s dues might be sub judice, banks should exercise utmost caution, as appropriate, in referring the matter to the recovery agencies, depending on the circumstances.

vii. Each bank should have a mechanism whereby the borrowers' grievances with regard

to the recovery process can be addressed. The details of the mechanism should also be furnished to the borrower while advising the details of the recovery agency as at item (iii) above.

Incentives to Recovery Agents viii. It is understood that some banks set very stiff recovery targets or offer high incentives

to recovery agents. These have, in turn, induced the recovery agents to use intimidatory and questionable methods for recovery of dues. Banks are, therefore, advised to ensure that the contracts with the recovery agents do not induce adoption of uncivilized, unlawful and questionable behaviour or recovery process.

Methods followed by Recovery Agents ix. A reference is invited to (a) Circular DBOD.Leg.No.BC.104/ 09.07.007 /2002-03 dated

May 5, 2003 regarding Guidelines on Fair Practices Code for Lenders (b) Circular DBOD.No.BP. 40/ 21.04.158/ 2006-07 dated November 3, 2006 regarding outsourcing of financial services and (c) Master Circular DBOD.FSD.BC.17/ 24.01.011/2007-08 dated July 2, 2007 on Credit Card Operations. Further, a reference is also invited to paragraph 6 of the 'Code of Bank's Commitment to Customers' (BCSBI Code) pertaining to collection of dues. Banks are advised to strictly adhere to the guidelines / code mentioned above during the loan recovery process.

Training for Recovery Agents x. In terms of Para 5.7.1 of our Circular DBOD.NO.BP. 40/ 21.04.158/ 2006-07 dated

November 3, 2006 on guidelines on managing risks and code of conduct in outsourcing of financial services by banks, banks were advised that they should ensure that, among others, the recovery agents are properly trained to handle with care and sensitivity, their responsibilities, in particular aspects like hours of calling, privacy of customer information etc.

xi. Reserve Bank has requested the Indian Banks’ Association to formulate, in consultation

with Indian Institute of Banking and Finance (IIBF), a certificate course for Direct Recovery Agents with minimum 100 hours of training. Once the above course is introduced by IIBF, banks should ensure that over a period of one year all their Recovery Agents undergo the above training and obtain the certificate from the above


institute. Further, the service providers engaged by banks should also employ only such personnel who have undergone the above training and obtained the certificate from the IIBF. Keeping in view the fact that a large number of agents throughout the country may have to be trained, other institutes/ bank’s own training colleges may provide the training to the recovery agents by having a tie-up arrangement with Indian Institute of Banking and Finance so that there is uniformity in the standards of training. However, every agent will have to pass the examination conducted by IIBF all over India.

Taking possession of property mortgaged / hypothecated to banks xii. In a recent case which came up before the Honourable Supreme Court, the Honourable

Court observed that we are governed by rule of law in the country and the recovery of loans or seizure of vehicles could be done only through legal means. In this connection it may be mentioned that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002 framed thereunder have laid down well defined procedures not only for enforcing security interest but also for auctioning the movable and immovable property after enforcing the security interest. It is, therefore, desirable that banks rely only on legal remedies available under the relevant statutes while enforcing security interest without intervention of the Courts.

xiii. Where banks have incorporated a re-possession clause in the contract with the

borrower and rely on such re-possession clause for enforcing their rights, they should ensure that the re-possession clause is legally valid, complies with the provisions of the Indian Contract Act in letter and spirit, and ensure that such repossession clause is clearly brought to the notice of the borrower at the time of execution of the contract. The terms and conditions of the contract should be strictly in terms of the Recovery Policy and should contain provisions regarding (a) notice period before taking possession (b) circumstances under which the notice period can be waived (c) the procedure for taking possession of the security (d) a provision regarding final chance to be given to the borrower for repayment of loan before the sale / auction of the property (e) the procedure for giving repossession to the borrower and (f) the procedure for sale / auction of the property.

Use of forum of Lok Adalats xiv. The Honourable Supreme Court also observed that loans, personal loans, credit card

loans and housing loans with less than Rs.10 lakh can be referred to Lok Adalats. In this connection, banks' attention is invited to Circular DBOD.No.Leg.BC.21/09.06.002/2004-05 dated August 3, 2004 wherein they were advised to use the forum of Lok Adalats organized by Civil Courts for recovery of loans. Banks are encouraged to use the forum of Lok Adalats for recovery of personal loans, credit card loans or housing loans with less than Rs.10 lakh as suggested by the Honourable Supreme Court.


Utilisation of credit counselors xv. Banks are encouraged to have in place an appropriate mechanism to utilise the services

of the credit counsellors for providing suitable counselling to the borrowers where it becomes aware that the case of a particular borrower deserves sympathetic consideration.

Complaints against the bank / its recovery agents

Banks, as principals, are responsible for the actions of their agents. Hence, they should ensure that their agents engaged for recovery of their dues should strictly adhere to the above guidelines and instructions, including the BCSBI Code, while engaged in the process of recovery of dues.

Complaints received by Reserve Bank regarding violation of the above guidelines and adoption of abusive practices followed by banks’ recovery agents would be viewed seriously. Reserve Bank may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of above guidelines, Reserve Bank may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its Directors/ Officers/ agents with regard to policy, practice and procedure related to the recovery process.

It is expected that banks would, in the normal course ensure that their employees also adhere to the above guidelines during the loan recovery process. Periodical Review Banks engaging recovery agents are advised to undertake a periodical review of the mechanism to learn from experience, to effect improvements, and to bring to the notice of the Reserve Bank of India suggestions for improvement in the guidelines.


Chapter - 11 C Publication of names & other details of the defaulters alongwith photograph in the newspaper Keeping in view repeated requests/references received from the various Regions seeking permission in the above matter, which would serve as an effective tool to expedite the recovery proceedings in the non-legal terms. Other PSU banks are also using this non-legal term for recovery purpose. A legal opinion was sought by our sponsor Bank - Bank of India in the year 2008 in the matter from M/s. Little & Company, Advocates & Solicitors. They opined in the matter as under: Publication of photographs of the borrowers/guarantors cannot be said to be impermissible mode. However, natural justice would meet if a further notice is given to the borrowers demanding the payment within a particular period as a last opportunity and mentioning therein that for any default, the Bank would be constrained to publish their photographs alongwith their details like name, address, phone numbers etc. in the newspapers. Alongwith the aforesaid demand notice, the Bank should also forward the draft of the proposed public notice alongwith photographs to the borrowers/guarantors indicating that in the event of default for non-payment of the amount demanded and mentioned in the Notice within the stipulated period, the Bank will be constrained much against its wishes to publish their names and other details alongwith the photographs in the newspapers. The Branches would issue Demand Notice to the defaulters (Borrowers/Guarantors) who are having means to pay either fully or partially but are deliberately avoiding payment of legitimate dues of the Bank followed by publication of photographs in the newspapers in default of payment, subject to – a) The decision of issuing such demand notices and publication of photographs in the

newspapers of the defaulting borrowers in the deserving cases is taken by the General Managers. in case to case basis where dues are more than Rs.1.00 lakh in accounts, where no legal action is at all initiated i.e. no Suit, Certificate Case, Revenue Recovery Case, Execution Case etc. are pending;

b) In accounts where SARFAESI action has been initiated, 60 days notice period should have been expired before issuing notice of publication of photographs in the newspaper and after giving further Demand Notice, the Regional Managers Branches may decide on case to case basis;

c) Any objection/adverse reporting in the newspapers, media and claim, demand, litigation, if any, has to be promptly advised to Head Office for guidance and taking remedial measures by the General Manager.

(A specimen of the Demand Notice to be issued and the advertisement to be effected are annexed herewith and respectively marked as ‘A’ and ‘B’).


Annexure – ‘A’ (ON THE BANK’S LETTERHEAD) Sub. : Demand Notice : 1. We refer to our letter bearing No. _________ dated ________ whereby we had called

upon you to pay the outstanding amount of Rs. _______ as on _________ together with further interest within period of ______________ days.

2. We regret to inform you that inspite of our repeated requests and reminders oral and written, you have till date failed and neglected to make payment of the aforesaid outstanding monies.

3. You are aware that, at your request, we had sanctioned the following facilities – (a) (b) (c)

4. In consideration of the aforesaid facilities agreed to be granted/granted to you, you had executed the following security documents in our favour to secure the monies advanced as provided therein :- (a) (b) (c) We observe that the credit facilities availed of by you have become irregular.

5. There is no doubt that you have failed and neglected to pay the outstanding monies due to us. 6. However, to give you one more and the last opportunity, we once again call upon you

to make payment of the aforesaid outstanding amount togetherwith further interest @____ % on the said amount within the stipulated days mentioned below, failing which, we shall be constrained to exercise all our rights including publication of your name, outstanding dues and photograph and other details as mentioned in the attached draft advertisement in the interest of the Bank and also in general public interest.

7. Please note that this notice is given to you without prejudice to our other rights to proceed further in the matter and for enforcement of securities mortgaged, hypothecated and charged to us.

8. You will surely appreciate that the Bank’s funds are public funds and the Bank is not only legally obliged but it has also a moral duty to recover its dues without fail. We hope you will no longer disappoint us and regularize/repay the outstanding on or before ______ to avoid publishing you name, outstanding dues and photographs and other details in the newspapers.

9. In case we do not receive your above outstanding dues with interest, costs, charges and expenses within ________ days from the date hereof, we shall not be reluctant to publish your photograph alongwith your other details in the widely circulated newspapers.

Yours faithfully,

Encl : As above.


Annexure – ‘ B ‘ ADVERTISEMENT The following person has availed ______________ loan from the, __________ Branch on __________ and have defaulted in the payment. Name of Borrower _____________________________________ S/o ____________________ Residence : Job : Office address : Loan account No. : Principal Amount : Outstanding amount with Contractual interest upto __________ : Photograph

-------------------------------------------------------------------------------------------------------------

खालील व्यक्तीन ेआमच्या...............शाखकेडून...............साठी कर्ज घेतलेल ेअसून

या कर्ाजची परतफेड केलेली नाही.

कर्जदाराचे नाव-

पत्ता:-............................................ ...................................................... ......................................................

नोकरी-.................................... नोकरी/ व्यवसायाचा

पत्ता...........................................

व्यवसाय-................................. ............................................ ............................................

कर्ज खाते क्रमाांक-

कर्ज रक्कम-

दद. .................पयंतच्या व्यार्ासह कर्जबाकी.

कर्जदाराचे छायाचचत्र


Chapter- 12

Write off Policy

Write off is resorted to in the borrowal accounts when the Bank has exhausted all possible avenues of recovery and there are no more chances for effecting the recovery.

Write off is of two kinds – Prudential Write off and Regular Write off. The basic difference between prudential and regular write off is that in Prudential write off there is possibility of recovery at a distant future even after write off while in Regular write off there is no/ little possibility of recovery.

It is open to the Bank to resort to partial write off also. Partial write off would be in the accounts classified as doubtful assets, to the extent of provision held on the outstanding and not covered by any security.

12.1 Regular Write off 12.1.1 General conditions:

A Regular write off will be considered on the happening of (i) and (ii) and any of the (iii) to (vii) below:-

i. Account is classified as Loss Asset. ii. 100% provision is held in such loss assets as at the end of previous quarter. iii. Prior approval for waiver of legal action including where account is already time

barred/termination of suit proceedings/waiver of appeal etc. should be obtained before considering regular write off. Termination of suit proceedings shall mean that pending legal action shall be taken to the logical conclusion.

iv. All efforts for recovery have been taken to their conclusion, by means of action under SARFAESI Act, legal action, execution of decree, etc. and there is absolutely no prospect for any further recovery

v. In exceptional cases, where the borrower (and guarantor, wherever applicable) has or have expired, or their whereabouts cannot be traced in spite of all efforts, and there is no security which can be realised

vi. Cases where all efforts of recovery have been adopted and the remaining balance and circumstances are such that any further effort is considered cost-ineffective

vii. As a result of a negotiated settlement in any account, where any portion of the outstanding balance, unrealised interest and/or uncharged interest / charges is agreed to be written off or waived, this write off shall be effected after receipt of full compromise amount plus interest if any, as per terms of OTS approved. No specific approval is required for this since the write off is part of compromise settlement duly approved by competent authority


12.1.2. The Authority for approval of sacrifice in a write off proposal will be as under :

Sr The following

delegation is

subject to

satisfaction of both

the criteria which

are not mutually

exclusive

RO

Committee*

GM

Committee**

Chairman

Committee***

Board

1 Regular write off –

sacrifice in ledger

outstanding

Rs.3.00 lakh Rs.5.00 lakh Rs.10.00 lakh Full power

2 Regular write off –

Total sacrifice

including UCI

Rs.5.00 lakh Rs.10.00 lakh Rs.20.00 lakh Full power

*( RO committee – RM / Manager,ARD /Manager,Credit/Manager Audit )

**( GM committee – GM / Chief Manager,ARD/ Chief Manager,Credit/Chief Manager , Audit

***( Chairamn committee – Chairman/ Two General Manager/ Chief Manager, ARD/

Chief Manager, Credit/Chief Manager , Audit) , [ Minimum three member including

Chairman of committee.]

12.1.2(a) Staff Related Matters: Occasions to consider Write off in staff related matters will be very rare and shall be considered only by General Manager and above very judiciously. In case of loans in the name of ex-staff members (retired/ceased from service/deceased more than 2 years from the date of the memo) or loans guaranteed by them, or loans in the names of their close relatives, the write off proposal shall be considered by the General Manager and above only. In case of existing staff or those members in whose case 2 years period has not lapsed from the date of retirement/ceasing of service/death, the authority to consider write off memo (in case of loan in the name of staff, loan guaranteed by the staff, loans in the names of close relatives of the staff) shall be Chairman and above. The monetary ceiling in both the cases shall remain same as per the chart given above.

12.1.3 Other conditions: i. Write off will be permitted by the delegated authority in the Bank, on its being satisfied

that the conditions prescribed have been fulfilled. ii. No Sanctioning authority will approve write off in an account, which was sanctioned by

itself. Such cases will be referred to the next higher authority. iii. In case of any deviation, the proposal for write off will be sent to the next higher

authority for consideration. iv. In an account where there is alleged fraud and / or an investigation by any investigative

agency is in progress till its conclusion, the powers shall be exercised only by Chairman and above as per delegation pertaining to sacrifice in para 12.1.2

v. Normally, the staff accountability aspect in the account would have been examined at the time the account became Non-performing. If this has not been done, this aspect should be dealt with at the time the write off is considered. The position in this regard will be reviewed at the time the write-off is considered.


vi. In a regular write off where there are possibilities of recovery, it should not be lost sight of and follow up for recovery should continue. The accounts will continue to be monitored and followed up as in the case of other accounts.

v. In accounts where there are some chances of recovery in future on account of likely sale of principal/collateral security/other unencumbered assets owned by the borrowers/guarantors and/or in cases of pending legal/criminal/CBI proceedings, etc. minimum balance of Rs.100/- to be maintained for the purpose of follow-up for recovery.

12.1.4 Submission of memorandum for approval: For accounts selected for regular write off, the memoranda in the prescribed format should be submitted to the sanctioning authority for the decision.

For loss assets with book outstanding upto Rs.1.00 lakh, the memorandum in the statement format in lieu of individual proposals incorporating the salient features of the account can be used. Delegation will be exercised as per sacrifice on contractual dues.

12.1.5 Follow up, contra entry and reporting System for Regular Write off A Memorandum Register will be maintained at branches in respect of all accounts written-off. Periodical balancing should be carried out on quarterly basis. i. The system would automatically populate the System URI while entering in the WOFF

Menu. However, this field is modifiable and the Branches can modify the URI amount (for URI maintained manually) Based on the amount entered in the system it would pass vouchers automatically.

ii. The system would automatically pass the liability vouchers (At Branch Level),

iii. Upon recovery of amount in Written Off account the system would automatically reverse the Liability voucher (RWOFF Menu). A statement of all write off effected by any authority would be put up to the next higher authority on a Quarterly basis. Zonal Office/ Chief Incumbent of LCB would consolidate and report to NBG/RD, H.O. on quarterly basis - March, June, September and December every year.

12.2 Prudential Write Off (PWO) Prudential write off should be effected without impacting the accounts at the branch level. In other words, the whole exercise of prudential write-off has to be restricted to selective NPA accounts and as such to be reflected in accounts only at H.O.

12.2.1 General conditions:

Prudential write-off of accounts partially or fully will be adopted in the case of doubtful and loss assets where the following conditions are satisfied:

a) NPA accounts classified under Doubtful –III (Asset code -33) and Loss Category (Asset Code-40) accounts where 100% provision is available as at the end of previous quarter.

b) Suitable recovery proceeding initiated in these accounts.


12.2.2 Authority:

Authority to approve prudential write-off vests with Chairman subject to reporting to Board.

12.2.3 Other conditions:

i. Prudential write off will be done on the provision held in all Doubtful-III & Loss assets as on previous quarter.

ii. The data for prudential write off will be generated by Data Center and same will be taken for passing necessary vouchers by Head office ARD.

iii. The accounts will continue to be monitored and followed up effectively as required in any NPA.

12.2.4 Procedural aspects at Branch Level

i. The account with full balance will continue to be kept alive and operational at branch as if no prudential write off has taken place. No voucher for prudential write off is required to be passed at the Branch level.

ii. For the purpose of provisioning the accounts will go through the normal procedure. In provisioning exercise, gross provision held vis-a-vis the outstanding and the securities held will be taken into account. When accounts are discussed with the Auditors for adequacy of provisions, the same will be on the basis of working for Gross Provisions held at the Branch without reckoning the PRUDENTIAL write off.

12.2.5 Maintenance of Records through system at HO

12.2.6 At Planning Dept. and Asset Recovery Departments:

i. As prudential write off will be done at Head office,i.e. Planning and ARD will maintain relevant particulars of the accounts, details of provisions held in the account as per amount written off from the provision held, Net provision available and Net Balance outstanding to facilitate reporting to various authorities and also for statistical purposes.

ii. As regards recovery in the prudentially written off accounts, the data will be generated by Data Center at the end of the quarter and on that basis necessary vouchers for recovery /reversal of prudential write off will be passed in the respective of quarter itself at Head office level.

iii. A separate head of account titled “Accounts Prudentially Written Off” will be opened in General Letter and all amounts written off shall be reflected in the said account.

iv. When a decision to prudentially write off any account, partly or fully is taken (subject to availability of provision), provision held against specific account will be checked. If the provision is adequate, the following accounting entry will be passed:- Debit: Provision for Bad & Doubtful Debts

Credit: Accounts Prudentially Written off (with name of the account)


v. Planning and ARD, Head office will maintain the ledger accounts of prudentially written off accounts which will show credit balances plus the balance held in Provision for Bad and Doubtful account thereby ensuring that the outstanding advances reflected in the balance sheet is shown net of these amounts.

vi. If on a future date, the reduced balance in the specific account at the branch necessitates revision in the amount held as provision plus the amount prudentially written off, then the excess amount so held will be released and accordingly accounted for.

vii. ARD would ensure periodical balancing of credit balance maintained in prudentially written off accounts with the aggregate amount maintained.

viii. ‘There is no need to make any additional provision for NPA mainly for the reason that the Bank had resorted to technical write off so long as the amount of provision (including that held in memorandum or such other account, representing technical write off) meets the prudential requirements as computed on the gross value of the asset’.

12.3 Treatment of prudentially written off amount upon conversion as Regular write off

Net advances appearing in the Balance sheet will be after netting of credit balance in accounts prudentially written off is kept at Planning Dept., H.O. If at any stage, a decision is taken to treat (convert) a partly or fully provided Prudentially written off as a regular write off, the following accounting entries will be passed after the proposal to this effect is approved by Competent Authority Regional Offices shall send specific Memo for Head Office consideration for conversion of PWO to RWO)

Debit: Accounts Prudentially Written Off (to the extent of write off affected) Debit: Provision for Bad & Doubtful Debts. Credit: Branch Account: Name of the customer.

12.4 Other Aspects

12.4.1 Reporting:

With a view to bring in more transparency, bank would require to disclose full details of write offs including separate details about technical write offs.

12.4.2 Audit

The sanction, follow-up and reporting system will be under the purview of concurrent Audit/Internal Inspection and Audit.

12.4.3 Exceptions

Proposals for write off which do not fall within this policy, will be considered only at the level of the Board.

********


WO-1

Proposal for Write off REGULAR Ref.No.:

Date: Region: Branch : I.Particulars of borrowers and guarantors : 1.Name of the account : 2.Asset Classification : 2a) Date Of NPA

3.Sector : Priority/Non-Priority 3 a)Category : AFD / SSI / OPS / M&L Ind. / Trade / Others Constitution : 5. Group/Principal: person

6. Name of Borrower Firm/Company Worth (Rs.in lakh)

At the time of At Basis of

original sanction present* assessment

like CBD 23/

Audited

B/S,etc. with

Date

Net Worth of the Borrower Firm/Company

Proprietor/ /Partners/ Directors /Guarantors

1.

2.

3.

Guarantors:

1.

2.

Total

(* If the present worth is not available, efforts made to ascertain the worth should be given). If there are substantial variations in the figures (original & present) - suitable explanation should be given. 7. Date of establishment : 8. Credit facilities since : 9. a) Activity : b) Present position : c) Reasons for closure, if not functioning : d)Reasons for a/c turning NPA:


10. Information about the borrower/guarantors, their assets and present market/ realisable value, in brief ,which are not charged to the Bank.:

II Details of the accounts and security:

a)Particulars of existing liabilities (should include suspense debit o/s.) as on ____________ (previous month end) (Rs.in lakh)

Facility Book

Balance

Of (2) unrealised int inS.Cr

Net o/s. (2-3)

Provis-ion

held as on

last quarter

Prudential/

Regular Write offproposed

Date of Interest Ceased

Unchar- ged

Int. till date

Write off done

earlier

(1) (2) (3) (4) (5) (6) (7) (8) (9)

TOTAL

a) Original Sanctioning Authority and date : b) Validity of security documents.

a) Security details: (Rs.in lakh )

Nature

Original Value

Present realisable

value

Basis of Assessment Comments

1) Principal

Facility-wise

2) Collateral

charge if any.

If there is substantial variation in present value and original value, proper explanation should

be given. III) a) Position of suit, if filed: (Rs.in lakh)

Date of suit

Suit Amount

Date of decree

Amount of decree

Decreed rate of interest

Date

of EP

Present position of suit/decree/ EP

b) Position of Action under SARFAESI Act 2002 : (Rs.in lakh)

Date of issue of notice

Possession date(whether symbolic/physical)

Auction date/s

Result of action

Remarks

c) Legal expenses incurred : Rs.


d) Whether legal expenses have been fully absorbed in P&L : Yes/No

e) If not, amount yet to be charged to P&L A/c. : Rs. (If suit is not filed, please specify whether waiver of legal action was obtained, date and authority of approval.)

IV) ECGC claim position : (Rs.in lakh)

Date of Claim

Amount of Claim

Date of settlement

Amount Settled

Bal.Claim available in Sundry Credit

Reasons for not filing/ rejection

V) SAR status : Staff Accountability Report (SAR) to be dealt with prior to submitting the proposal for OTS/Write Off. Authority and date of closure to be given. (How SAR is dealt with is to be given like any deficiencies observed, negligence, malafide, fraud and cheating observed, disciplinary/ vigilance action is taken, etc. If no malafide/lapse observed on the part of any of the staff member in handling/follow-up of the account, then specific mention should be made accordingly. If SAR was closed more than 2 years prior to this proposal, specific comments /certification must be given by the recommending authority as to whether any lapses were noticed during the intervening period.)

CERTIFICATE:

It is certified that no investigation/fraud has been reported in this account and no investigation by Police/CBI/Economic Offence Wing (EOW)/ and/or by any Investigating Agency is pending/initiated/contemplated by the Bank against borrowers/guarantors /company /partners/directors either of this account or any other group account. We hereby certify that there is no alleged fraud and/or other investigation by any investigative agency such as CBI/Police etc. in progress in the account.

VII) Last inspection date and remarks :

VIII) Group liabilities, if any : (Rs. In lakh)

Sr No.

Account Limit sanctioned Outstanding

Asset Code Remarks FBL *

NFBL ** FBL NFBL

* Fund Based Limit ** Non Fund Based Limit


IX)Financial Implications - Rs. In lakh)

1. For prudential write off :

Position as on date of proposal

Ledger outstanding (including debit balance kept in any Suspense debit

(a) URI as on ______ Rs.___ for the period

from_____ to _____

Provision held as on last Quarter (b)

Prudential w/o now proposed. (c) UCI as on ______ Rs.____ for the period from _____ to_____

Amount of ECGC/DICGC claim in Sundry Credit now appropriated

(d)

Expected outstanding on last quarter after the

proposed PWO/adjustment of ECGC/DICGC claim

(a-c-d)

2. (a) For regular write off including impact on P&L A/c.

Position as on date of proposal

Ledger outstanding (including debit balances kept in any suspense a/c.)

(i) URI as on______ Rs.____for the period

from______ to_____

Add: i) UCI

(ii)

ii) Legal and charges not booked to P&L

A/c.

(iii) UCI as on______Rs.____for the period from _____to_____

Total sacrifice (i + ii + iii) ....A

b) Recommended as under for adjustment

Amount of prudential write off already done (wherever (i)

applicable)

Appropriation of ECGC/DICGC claim (if available) (ii)

Reversal of URI (iii)

Waiver of UCI (iv)

Amount of provision held being written off (v)

Residual amount if any recommended for write off to the debit of (vi)

P&L Account

Total (i + ii + iii + iv + v + vi) ...B

A and B should tally


CERTIFICATE : We hereby certify that - i. we are satisfied that all conditions for write off are satisfied

ii. the account has not been sanctioned by the undersigned. iii. there is no alleged fraud and/or other investigation by any investigative agency such as

CBI, etc. in progress in the account. iv. A/c is classified as Loss Asset and 100% provision is made as on last quarter ended-----

-. v. All efforts for recovery are exhausted/chances of further recovery is remote. vi. Certificate as per format regarding SAR is enclosed (Branches may use the same format

as given in annexure to Chapter 7 on compromise).

XI) JUSTIFICATION AND RECOMMENDATIONS FOR PRUDENTIAL/REGULAR

WRITE OFF

Branch Recommendations:-

Regional Manager Recommendations:-

Head Office Recommendations:-


WO-2

STATEMENT IN LIEU OF PROPOSAL FOR WRITE OFF FOR A/Cs WITH LEDGER OUTSTANDING UPTO RS. 1,00,000/-.

(Amt. in thousand)

S r. N o.

Name of Acco unt

Name of Borrower/ Guarantor

Wort h

Secto R

ASH Code NPA since Int. cease d from

Sancti on & Author ity of Original Review

Book O/S Less URI

Uncharged Interest Upto last month

Legal & other expenses

Total dues to the Bank (8+9+10)

Date & Auth. For Legal action waived/ Date of suit filed/ Decreed

Security Principal & Collateral Nature Value & Date

of Valuation 1 2 3 4 5 6 7 8 9 10 11 12 13

(Amt. in thousand)

We hereby certify

that :- I) We are satisfiled that all conditions for write off are satisfied. ii) The account has not been sanctioned by the undersigned. there is no alleged fraud

and / or other investigation by any investigative agency is in progress in the account. iii) A/c is classified as Loss Asset and 100% provision is made on (Date_____________). v) All efforts for recovery are exhausted / chances of further recovery are remote. SAR

dealt with / to be dealt with in 30 days (Findings / Punishment awarded if any on SAR is to be mentioned in

vi) Remark Colum. vii) Suit filed in the account is to continue to its logical conclusion.

Recommended

Manager/Senior Manager/Chief Manager

(To be submitted to H.O. by Regional Offices on quarterly basis)

DICGC /ECGC Claim Received /appropriated if any with Date

Provision held and date

Amount to be written off

Uncharged interest to be waived

URI REVERSED

Legal expenses Already absorbed to P&L A/c

Total Sacrifice (16+17+ 18+19)

Staff Account Ability

Remarks

14 15 16 17 18 19 20 21 22


WO-4

Vidharbha Konkan Gramin Bank Statement of Regular write off approved during the quarter ended

Rs`000’ omitted (Sector-wise should be prepared - Agricultural/SSI/OPS/C&IC - Strike whichever is not applicable)

Sr. NO.

Branch Account Date NPA

Ledger O/s.

Unrealised int. as on

Uncharged int. upto

Realisable value of Security

ECGC/ DICGC claim in Sundry a/c.

1 2 3 4 5 6 7 8 9

Tangible net worth Status Provision held as on

Shortfall In security

Amt.written Off

SAR position Reason for write off/ Other remarks Borrower Guarantor

10 11 12 13 14 15 16 17

BIRF (date____) Suit (date____)

Certificate :

I hereby certify that this statement includes all write off approved during the quarter ended

____________ and

In the case of all accounts listed above

i. I am satisfied that all conditions for write off are satisfied. ii. None of the accounts was sanctioned by undersigned.

iii. There is no alleged fraud and/or other investigation by any investigative agency in progress in any of the accounts listed above/investigations in respect of all accounts where there was a fraud or other investigation has been completed, and suitable action is being/has already been taken.

iv. All efforts for recovery has been adopted and there is absolutely no prospect for further recovery, OR the borrower(s) and guarantor(s) has/have expired, or their whereabouts cannot be ascertained inspite of all efforts, and there is absolutely no security which can be realised OR all efforts have been adopted for recovery and the remaining balance and position in the accounts is such that any further effort is considered cost-ineffective.

v. The write off is the result of a negotiated settlement in the accounts concerned.

Name:

Designation :

Date


Chapter – 13

Bid Policy (Participation by Bank in the bid/auction orders issued by the Court/DRT)

Many a times, in spite of Bank successfully obtaining an auction order from court/ DRT, the actual implementation and achieving the benefits thereby are eluding, mainly due to the following reasons:

i. Many a times due to influence exerted by the defendants, no bid offers are received by the Court/ DRTs leading to postponement of the scheduled auction more than once.

ii. Recent instances reveal that in the absence of bidders to the suit properties, Court/ DRTs have indicated to the Bank that such execution petitions would be disposed off as unfructified. This would mean that our recourse for recovery is affected adversely.

iii. The defendants form a cartel of prospective buyers with intention to ensure that the properties fetch much lower price than their market value and thus succeed in scuttling Bank’s interest.

iv. Bid Policy empowers the Bank to enter the auction as a prospective bidder/ purchaser.

13.1 Scope

In all cases where bid/ auction orders have been issued by the Court/ DRTs etc. and no bid offer is received till the time of auction/ bid, Bank may participate in the bid for purchase of the suit property/ies subject to obtention of approval at the appropriate level.

13.2 Delegation 13.2.1 The authority to approve such cases shall be as under :-

Authority Amount (Bid amount and statutory dues/ arrears, if any)

Board Full powers

13.2.2 The delegatee should take into account various aspects/ merits of each case including the arrears of statutory dues like Municipal taxes, electricity/ water charges payable, chances of disposal of the property at no loss basis in immediate future; amount recoverable by such bid, benefits to the Bank, impact on Bank’s Profit & Loss A/c. etc. while approving the cases. Additionally, in case the properties are likely to be put to Bank’s use, its utility as well as impact on Bank’s capital budget also should be considered.

13.3 Accounting Procedure:

13.3.1 At the time of participating in bid, Bank shall be required to pay an initial deposit/ bid money to the auctioning authority. Similarly, upon successful bid, the balance amount of bid shall become payable. Both the above payments should be effected to the debit of Branch General Ledger account “Suspense Debits Account Expenditure incurred for bid/ acquisition of property through bid”. In the same manner, expenses towards arrears of taxes, statutory dues


as well as subsequent expenses towards the same shall be paid by debiting the same account.

13.3.2 In the event of Bank being not successful in the bid refund of the deposit paid shall be obtained at the earliest and the Suspense account debit entry shall be squared off.

13.3.3 If the bid is successful and payment is effected to the Court/ DRT, etc. Branch should immediately initiate steps to obtain the bid amount from the Court/ DRTs, etc. as the case may be (as a lender) and credit the respective advance accounts of the borrowers. The Suspense account debit shall continue to exist till the property is disposed off and sale proceeds received.

13.3.4 In case any property so acquired by bid is proposed to be retained for Bank’s use, Branch should through the Regional Office refer the matter to the . A&S Dept., Head Office, and follow their instructions / guidelines in the matter.

13.3.5 Upon successful bid, Branch should ensure that the title deeds, documents etc. pertaining to the bid property are received in order from the Court/ DRTs and kept under proper safe custody at the Head office. Regional Office should ensure that the title deeds, documents etc. are in order. Fresh search report from Panel Advocate of Bank of India is to be obtain and certified copies of the same are to be lodged with the Head Office.

13.4 Other terms and conditions for Participation

i. Bank shall participate in the bid only if there are no other bidders

ii. Bank should obtain prior permission of the Court/ DRT/ Auctioning authority for participating in the bid

iii. In cases where the bidders quote a price which in Bank’s opinion is below the minimum market value of the properties and indications are available that the defendants and interested bidders have attempted to form a cartel to thwart the bid, Bank shall participate in the bid so as to kindle interest for genuine parties to participate and make the auction truly competitive.

iv. Where the Bank is participating in the bid, its bid offer should normally match the reserve upset price fixed by the Court/ DRT.

v. There may be instances where Reserve Price is not fixed by the Court/ DRT. In such cases, the delegatees based on ground rule price fixed by Registrar of Properties, merits of the case and appropriate justification being given , shall permit participation in the bid upto a specified price. Services of Bank’s advocate handling the suit can be availed of in such cases

vi. It should be ensured that in case of successful bid, vacant possession of the property should be received by the bank immediately upon payment of the bid price.

vii. The property under reference should not normally be a tenanted premises. viii. Bank should endeavour to obtain properties with nil arrears of statutory dues.

However, in case of such dues are in arrears and not possible to recover the same from the owners/ defendants, the delegatees shall consider payment of such dues within his overall delegated authority.


ix. As properties acquired in this manner cannot be termed as fixed assets purchased for Bank’s use, they shall be disposed off at the earliest and in any case within a maximum period of 12 months from the date of actual acquisition. The sale price should commensurate with the market price and other expenditure incurred by the Bank for acquiring and maintaining such properties. In the event of Branch encountering difficulties/ problems in disposal of the property within the stipulated 12 months period, the matter should be referred to the Head Office authority upon expiry of 9 months period from the date of acquisition detailing the circumstances/ reasons for delay in disposing off the property and also giving suggestive course of action. The next higher authority may depending upon the merits of the case, grant an extension upto a maximum period of 3 months i.e. upto 15 months within which period the property should be disposed off.

x. Proper assessment should be made to ensure that Bank does not suffer any loss in the transaction.

xi. Regional Offices should ensure that all legal requirements in the entire exercise are meticulously complied with the assistance of Legal Dept. of local / nearest Zonal Office of Bank of India/Panelled advocate of bank of india.

xii. Wherever Capital Gains Tax is applicable/ payable upon disposal of the property, the statutory requirements regarding the same should be meticulously complied with. Regional authorities should do the needful in consultation with the Taxation Department at Head Office.

xiii. Upon acquisition of the property, till its disposal Branch should ensure that taxes, insurance, other statutory payments, etc. are made in time. For incurring such expenses, the guidelines of the existing delegation of powers should be observed.

13.5 Deviation

Any deviation in the guidelines mentioned in Para 13.4 of the policy shall need approval of Chairman.

*****


Chapter - 13A

Bid Policy (Acquisition of assets by bank under SARFAESI ACT)

With the recent amendments in SARFAESI Act 2002 where sale of an immovable property for which a reserve price has been specified, has been postponed for want of an amount not les than such reserve price, authorized officer can bid for immovable property on behalf of bank at any subsequent sale. Hence now onwards, Bank will be eligible for participating in Bids for purchase of the immovable properties acquired under the Act. The above amendment is subject to Section 9 of Banking Regulation Act 1949 which reads as No Banking Company shall hold any immovable property howsoever acquired except such as is required for its own use, for any period exceeding seven years from acquisition thereof from the commencement of this Act., whichever is later or any extension of such period in this section provided, and such property shall be disposed of within such period of extended period as the case may be.

13A.1 Guidelines for participating in public auction for purchase of Property/assets through bidding:-

a) In the cases where sale of an immovable property for which a reserve price has been specified and has been postponed for want of an amount not less than such reserve price, and/or no bid offer is received till the time of auction /bid, Bank may participate in the bid for purchase the charged property/ies in subsequent sale/auction subject to obtention of approval at the appropriate level.

b) In case the Bank decides to participate in the Bid for purchase of the property under SARFAESI Act, the delegatee should take into account the various aspects / merits of each case including the arrears of statutory dues etc.

c) Two valuation reports from two independent valuers on the Bank’s approved panel in cases where original value of the immovable property is Rs.50.00 lakh and above to be obtained as per the NPA Management Policy.

d) An evaluation committee, in line with one applicable to real estate Committee formed for purchase of properties for own use , should examine the merit of each and every case and participation in the Bid, should be based on recommendation of the committee. The committee will consist of Five chief Managers with quorum of minimum three members and a representative at a senior level. (preferably retired person) from Public Sector Undertaking like PWD,CPWD,LIC, other financial institution, Professional like valuer, engineer, architect etc. (as External Member)

e) A Senior Officer having Power of Attorney, other than the authorized Officer appointed by Bank for the purpose of sale of charged assets under SARFAESI Act, would participate on behalf of Bank, in the bidding to acquire the assets in Bank’s name.


f) Where the Bank is participating in the Bid, its bid offer should match the reserve upset price fixed by the Bank.

g) Bank can acquire the property with the consent of the borrower/guarantor(owner of the property) without undergoing process of conducting auction.

h) Bank should endeavor to obtain properties with Nil arrears of statutory dues. However, in case such dues are in arrears and not possible to recover the same from the owners / defendants, the delegatee shall consider payment of such dues within his overall delegated authority.

13A.2 ACCOUNTING PROCEDURE:-

a) At the time of participating in bid, Bank shall be required to pay initial deposit/bid money. Similarly, upon successful bid, the balance amount of bid shall become payable. Both the above payments should be effected to the debit of Branch General Ledger account:- Dr. - Suspense Debits account-“Expenditure incurred for bid/acquisition of property through bid.” (By issuing of banker’s cheque/Demand draft)

b) In case of successful bid, Branch will pass the necessary entries as under :-Cr. - The respective advance account of the borrowers. Dr. - Suspense Debits account “Expenditure incurred for bid/acquisition of property through bid.”

This account shall continue till the A & S Department will pass the necessary entries at their end.

c) Thereafter on completion of acquisition of the assets Premises Department in consultation with Planning Department will pass the Contra entry to capitalize the above in the Bank books:- Dr-G/L A/c Bank’s Assets

Cr- Suspense Debit a/c Expenditure incurred for Bid/acquisition of property through bid.

13A.3 DISPOSAL:-

a) The immovable property so acquired be earmarked specifically as “Banking or Non Banking Use” in the system / fixed asset register and title deeds and other related papers should be stored centrally at H.O A & S Department, Head Office for acquisition / disposal of the asset acquired under SARFAESI Act for timely disposal of such assets.

b) Immovable properties be classified as “for banking use” from “non banking use” only with the approval from BOARD after clearance approval of A & S committee.

c) All the “non banking” list of properties purchased / sold / eligible to be sold (i.e for properties in the seventh year of purchase) during the year be reported annually to the Head Office and should be audited / inspected at least annually.


d) The Bank may not sell such assets back to the earlier owner on bilateral basis (borrower/guarantor) from whom it was acquired or seller’s relative/associate company etc.

e) The sale price should commensurate with the two valuation reports to be obtained afresh at the relevant time and other expenditures incurred by the Bank for acquiring maintenance of such properties/assets.

f) In case the Bank is unable to sell off the property due to non availability of buyers / improvement in market, the Bank will submit an application to RBI seeking extension of time period after seven years from the date of purchase upto a period of additional five years.

g) Wherever Capital Gains Tax is applicable/ payable upon disposal of the properties/assets, the statutory requirements regarding the same should be meticulously complied with. Taxation Department at Head Office will co-ordinate the same

h) The Bank will furnish all relevant reports to RBI, CIBIL etc in respect of the Non-Performing financial assets purchased by it.

i) Regional Office in consultation with their panelled advocate to ensure that all legal requirements in the entire exercise are meticulously complied with.

j) A & S Department, Head Office will keep the records and will maintain details of these Non- Banking assets acquired till disposal from the date of acquisition. Asset recovery Department at Head Office will co-ordinate the same.

13A.4 Delegation :- Authority to approve such cases shall be as under: (Rs. in Lakh )

Authority

Amt. (Bid Amt. including Statutory dues/arrears if any)

HO committee (Chairman , General Manager Chief Manager ARD Chief Manager Credit) Full Powers

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Chapter - 14

Conclusion

14.1 These guidelines are only indicative and not exhaustive. This NPA Management Policy

is meant for only private circulation to our branches, and Regional Offices. Modifications/ introduction of new schemes may be done from time to time with the approval of the Board to suit the changing requirements and such amendments shall be advised to branches / Regions / verticals by Branch Circulars. A full-fledged review of the NPA Management Policy shall be done by the Board on annual basis.

14.2 The formats for submission of memoranda, monitoring and reporting, etc. to meet the requirements of may be approved by General Manager, H.O. RD

14.3 As far as possible, there should not be any material deviation from the general principles of compromise / write off / waiver of legal action/ appeal/ withdrawal of suits in progress etc. and the decisions thereon should be judicious and in the best interest of the Bank. There could, however be situations and cases where it is expedient in the interest of the Bank to deviate from the specific provisions of this policy. The appropriate authority to approve the deviations from the specific provisions of this policy shall be the Board or such authority as mentioned in the earlier chapters. While putting up proposals with deviations to the delegatee for approval, specific mention of such deviation/s should be made along with justification for the same. The approvals accorded by General Manager, H.O. ARD, and Chairman shall be reported to the Board on quarterly basis.

14.4 The entire recovery policy of the Bank is formulated with the aim of effective NPA Management so as to bring the gross NPA %, Net NPA %, provisioning requirement, provision coverage ratio etc. to the nationally acceptable level. The policy has outlined various measures for effectively reducing the NPAs from our books which are causing severe strain on the bottom line of our Bank’s financial indicators. A thorough understanding of the problem of NPA, its causes and remedy is a vital part of present day banking. The menace of NPA in a financial sector, such as banking can not be simply eradicated, but all our efforts should be aimed at containing the same within manageable level and these policy guidelines are aimed for achieving this goal.

14.5 RD – A Profit Centre

If our advances become NPA and does not generate any yield (interest income) it becomes a severe strain on the whole functioning of the Bank vis a vis profitability. Ever since the prudential norms of Income Recognition and Asset Classification (IRAC) norms were originally introduced by the Central Monetary Authority (RBI) in 1992-93, Banks have started to feel the pinch of NPA. Over a period of time, the RBI had been tightening the IRAC norms by progressively reducing the delinquency norms (presently 90 days), shortening of parking period in initial stages of NPA (presently 12 months in substandard category) and progressively increasing the provisioning requirement. With the present guidelines, an account reaches doubtful 3 category in 48 months from the


date of first becoming NPA and the provision requirement at this stage is 100% of the outstanding dues irrespective of the value of security. Thus an NPA in Doubtful 3 category needs 100% provision (which is a drain on Bank’s P & L) without contributing any receipts to Bank’s P & L (in NPA accounts interest charging is ceased) apart from incurring additional carrying cost. The cost of carrying these NPAs in the books of the Bank over a period of time, increases many folds, thus making a severe dent in the profitability of the Bank. Thus prevention of NPA, by taking remedial measures before the account slips to NPA category, is the best way of keeping up the profitability of each Branch at a micro level and the Bank as a whole at the macro level. If an account has become NPA (due to various factors), it is of paramount interest that we try to bring back the account to performing asset at the earliest (by restructuring) or effect recovery by compromise / legal action or SARFAESI Action so that the resulting NPA is wiped out from the Bank’s books and the loss due to carrying cost of provision can be averted. It should be noted that every recovery in an NPA account results in a release of provision already held or obviates the need for additional provision due to aging, which is a direct contribution to the Bank’s profitability. Hence the concept to develop RD as a profit centre. Maximum efforts have to be made to recover amount in written off accounts / URI / UCI which directly add to Bank’s bottom line.

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Resolve- Recover-Recycle

Ghar Ghar Dastak

“MINIMISE NPA MAXIMISE PROFIT”