NPA (Recovery Policy )

PERMAMENT – MASTER

To All Branches / Regional Offices/ Other Offices. NPA MANAGEMENT – NEW RECOVERY POLICY 2011-12 – MASTER CIRCULAR 1 PREAMBLE :

1.1 Our Bank’s Recovery Policy, which formed a part of the "Loan Policy

Document”, is being issued separately from the financial year 2004-05, in view of the paramount importance for NPA Recovery.

1.2 The Recovery policy was renewed every year and the policy was renewed last year vide circular Permanent MASTER / 55/ 2010-11 dated 21.07.2010 with instruction that it shall remain in force until further notification.

2. OPERATIONAL INSTRUCTIONS :

2.1 Our Board, has approved the New Recovery Policy for recovery of Non Performing Assets. The full text of the policy is furnished in the Annexure.

2.2 The Policy is implemented with immediate effect and will be in force upto 30.06.2012. The changes made in the new Policy are given separately also for easy reference.

2.3 The Notional Dues are to be calculated at the Bank’s Base Rate (Presently 10.25%) prevailing on the date of submitting the proposal / contractual rate / decreed rate of interest whichever is less and the Net Present Value of the Securities should be calculated @ 12% as per the new Recovery Policy till further notification.

3. CONCLUSION: Branches are advised to follow the Recovery Policy scrupulously and maximise the recovery. The New Recovery Policy is also made available in Bank’s Intranet “IOB ONLINE”. Our Recovery Policy may be furnished to RBI Inspectors & Statutory auditors whenever required.

(A.P.SINGH)

GENERAL MANAGER Index under: Recovery Policy Hindi Version follows

Indian Overseas Bank Ref No : MASTER / 12 /2011-12

Central Office Date : 26.07.2011 763, Anna Salai

Issuing Dept: Assets Reconstruction Department Chennai-600002

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INDEX S.No Particulars Page

No I Introduction 3

II Objective 3

III Measures to achieve the objective 3

IV Methods of Recovery 4

Debt Recovery Agents 5

V Compromise Settlements 7

Valuation of Securities 9

Release of Securities where OTS / OCS already sanctioned 10

Partial Release of Security / Guarantor not under OTS/OCS 10

Conditions to be incorporated in sanction proposal 11

Types of accounts 12

Relaxation from Norms 13

Staff Lapses 13

Willful Defaulter 13

General Managers’ Committee / External SAC 14

Non-Discretionary and Non-Discriminatory Treatment 14

Payment Terms 14

Extension of Time 15

Settlement Formula / Calculation of Sacrifice 16

Minimum Acceptable Amount - NPV 17

ECGC Refund Calculations 21

VI Accounting Procedure 22

VII Waiver of Legal Actions 23

VIII Write Off & Recovery in Written Off accounts 23

IX Issue of No Due Certificate / Delisting from Defaulter / Willful defaulter list 25

X Extension of Further loans to OTS/OCS settled borrowers 25

XI Guidelines for follow up of NPA accounts. 26

XII Modifications to the Policy 26

XIII Lexicon of Abbreviations used in the Recovery Policy 27

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III ... INTRODUCTION:

The synopsis of our Bank’s Recovery Policy, which is forming part of the “Loan policy document”, is brought out separately also in detail from the financial year 2004-05. We have brought out a detailed Recovery Policy last year also. In order to have a broad guideline over the entire area of NPA Management, certain required improvements are made, as applicable to the present situation, and the new Revised Comprehensive Recovery Policy has been brought out which will be in force upto 30.06.2012.

II. OBJECTIVES OF THE LOAN RECOVERY POLICY:

To ensure arresting slippages by initiating timely remedial action whenever the advance becomes irregular.

To ensure Considerable reduction in Non Performing Assets by way of Upgradation and Recovery.

III. MEASURES TO ACHIEVE THE OBJECTIVE OF THE POLICY:

1. The remedial action starts, even before the account is classified as NPA, by initiating necessary curative steps when irregularity in the account is identified.

2. To coordinate and assist Credit Monitoring Department, whenever required, in formulation of various strategies to prevent Borrowal accounts from slipping to NPA.

3. Any account should be classified as NPA ONLY after routing through ERI, Watch Category, and Special Watch Category statements. The steps initiated to classify the account, as NPA should be recorded.

4. The documents should be reviewed and the enforceability of all documents to be perfected before classifying the account as NPA.

5. The slippages should be contained well within the industry average and if any Region is showing more than the industry accepted level the specific reasons for such increase should be studied and remedial steps should be taken immediately.

6. Regions should ensure that the slippage cap fixed to them is not exceeded. If exceeded, it should be compensated by equal cash recovery towards NPA reduction / Upgradation.

7. The slippages are to be monitored on continuous basis and try for Upgradation by recovering the “overdue amount” or by restructuring / rescheduling as per the prescribed norms of RBI.

8. There should be overall reduction of 20% of opening NPA level. Accordingly required targets to be assigned to the Regions, taking into account the recoverability of the accounts involved, during that year.

9. To initiate timely actions, without loss of much time to ensure recovery towards reduction of NPA, through legal and other ethical measures.

10. Introduce schematic recovery campaigns for specific focused areas. 11. Implementation / Adherence to guidelines prescribed by the Bank / RBI /

Government from time to time (in respect of Management of NPAs / OTS / OCS schemes)

12. Minimize provision by improving recovery / security coverage or by deferring movement to next status as per the RBI norms.

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13. To augment recovery by opening Specialized Branches for NPA Recovery. 14. Elimination of Non-recoverable loans. 15. Maintaining a database of profile of NPA borrowers for dissemination

among the branches of the Bank. 16. Review of delegation of powers to various functionaries in the Bank with

regard to filing of suit / waiver of legal action / Sacrifice .. etc.,

IV. METHODS OF RECOVERY:

Adjusting the permitted Credits:

Eligible subsidy / margin money / liquid securities must be credited immediately on classification of NPA.

Persuasion / Personal contacts with the Borrower / guarantor:

Regional Offices to ensure that branches are contacting the borrowers / guarantors at frequent intervals and persuade them to upgrade / close the NPA account. The latest contact address / details and other particulars of the borrowers / guarantors / securities / condition of the units / business activities must be recorded so that the bank is not put to loss for want of details.

Recovering overdue amount to upgrade:

The following feasible steps should be adopted for Upgradation of NPA accounts:

• Recovering the overdue amounts. • Re-structuring / Re-phasing / Rehabilitating the NPA accounts

wherever possible as per extant guidelines. • Implementation of rehabilitation / restructuring package

permitted by BIFR / CDR and ensuring recovery as permitted. • Whenever an account is upgraded one layer above the

sanctioning authority should review the upgradation. Within 3 months of the account becoming NPA, the Credit Department concerned shall examine whether the account is viable for re-structuring or recovery action. Once a decision is taken for recovery, with due approval, the file may be transferred to Central Office / Regional Office Law Department as the case may be, for recovery action.

Use of ethical measures such as publication of photographs / classifying as willful defaulters etc.,:

• Publishing the photograph of the eligible defaulters as per the laid down norms.

• Identifying and classifying the willful defaulters for submission to RBI / Credit Information Bureau (India) Ltd (CIBIL) and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the Credit Information Companies (Regulation) Act, 2005 and of which our Bank is a member.

• The help of the Govt. bodies / officials should be utilized for recovery of all Govt. Sponsored Loans.

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Timely action under SARFAESI ACT 2002:

• In the event of failure to upgrade the account the actions under SARFAESI Act 2002 should be initiated immediately for all eligible accounts and subsequent actions should be followed on due dates without fail till the recovery is made. Regions to ensure that 100% SARFAESI actions are initiated on all eligible accounts before completion of next quarter from the date of classification of NPA.

Following with Official liquidator / ECGC / CGFTSI:

• Submitting the timely notice to Guarantee Corporations as required and ensuring receipt of claim amount at the earliest.

• Follow-up with Official liquidators to ensure interim / full recovery of claim amount at the earliest.

Debt Recovery Agents

Our Bank has framed a Policy for Engagement of Recovery Agents. Regional offices are advised to engage the services of Recovery Agents as per the policy to maximize Recovery.

Sale of NPAs to ARCs / Banks / FIs / NBFCs:

RBI has framed separate guidelines for sale of NPAs by banks to ARCs / FIs / banks / NBFCs. To reduce the NPA level, our Bank has been selling NPAs to such companies on individual account / portfolio basis. The terms of Recovery Policy is applicable to sale of NPAs as well and the sale shall be as per RBI guidelines issued from time to time on the subject. Further in terms of RBI guidelines dt. 5.4.2011 it shall be ensured that accounts originated fraudulently or have been classified as on the date of sale as involving fraud are not sold. The offer can be cash / Security Receipts / both and the total of such offer shall not be less than the NPV of the securities. The decision for sale shall be taken by Central Office and in respect of individual accounts, the sanction shall be as per the extant delegated powers and in respect of portfolio of accounts, sanction shall be by the Management Committee of the Board. Whenever the proposal for sale of NPA accounts to ARCs and others is taken up, RO shall endeavour that they submit the required details and carry out the Nodal centre jobs required for due diligence.

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Legal Actions and filing of suits at appropriate forums:

Normally, legal action thro’ Court / DRT should be the last resort adopted for recovery of dues. Before initiating legal action, steps to be taken to ensure recovery by probabilities for compromise settlements, encashing liquid securities / disposal of charged securities / exercise right of setoff etc., After examining the pros and cons of filing suit the following measures to be initiated:

o Serving legal notices o Filing suit in civil court / DRT as per the case after obtaining permission from

appropriate layer of authority. o Invoking Revenue Recovery Acts wherever applicable. o Referring to Lok Adalats for settlement through conciliation. The forum of

Lok Adalats should be used frequently as it is cost and time effective to take it to decreed stage. In the event of failure to honour the Lok Adalat commitments EP proceedings should be initiated immediately.

o Filing ABJ and obtaining injunction order, seeking interim orders wherever applicable.

o Vigorous follow-up of suit filed cases should be made before due dates by contacting the lawyers and providing whatever materials / details required by them to avoid delay from our part.

o Liaison Officers to monitor the proceedings in DRT cases by ensuring attendance of lawyers / branch managers on hearing dates, carrying out orders etc.,

o Invoking provisions under section 138 of NI Act wherever applicable. o File appeal / review / revision petition wherever necessary within limitation

period. o Unnecessary adjournments should be objected or cost should be insisted

for every unreasonable adjournment.

Obtaining decree / RC expeditiously.

o Execute Decree / RC immediately, without waiting upto the Limitation period provided as per Law, to bring the securities for sale, attach and sell the assets of the judgment debtors, seek Garnishee orders, seek arrest of JD in the event of non payment of decreed amount.

o Filing Insolvency petitions wherever desirable. o Initiating criminal proceedings wherever necessary. o Purchase and sale of non-banking assets acquired in loan recovery

proceedings. o Time Frame Norms for initiating Legal Action for Recovery of NPAs vide our

Permanent circular Misc /125/ 2003-04 dt.03.11.2003 issued by law dept Central Office must be strictly adhered to.

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V. COMPROMISE SETTLEMENTS:

A. Compromise settlement is one of the most effective and cost & time saving process in recovery of NPAs.

The compromise Settlement policy aims at: 1. Deciding the mutually agreeable amount based on the present paying

capacity of the borrower / guarantor. 2. Simplify the procedure in calculations and provide clarity to the field level

functionaries. 3. Early recovery of Hard core NPAs, by considering the issues involved in such

accounts. 4. Considering the Worth of the borrower / guarantor and realizable time and

value of securities. 5. Considering the Net Present Value of the realizable worth of the securities at

a future date compared to the Compromise amount and payment terms agreeable.

B. Eligible Accounts:

1. All NPA accounts – both Suit filed and Non-Suit filed. 2. Written-Off Accounts. 3. Accounts under BIFR / AAIFR / CDR. 4. Accounts under Public Interest litigation (PIL) / External Agency’s

Investigation / willful defaulters / cases of malfeasance / Fraud etc., - However the permission of SAC at Central Office must be obtained for considering such accounts for compromise settlements by the appropriate layer of authority and after sanction it should be vetted by Management Committee of the Board as per RBI guidelines.

5. Any other accounts, which are covered by specific recovery campaign, launched, as per the terms of such campaign.

C. Ineligible accounts:

1. A loan account sanctioned earlier by the official, who is the competent authority presently to consider the compromise settlement of the same account has to be sanctioned only by the next higher layer of authority.

2. NPA Accounts sold / assigned to ARCs / Banks / FIs / NBFCs.

D. Negotiation Process: I) Grounds to entertain Compromise settlements:

1. The account should have been classified as NPA and the recovery of the dues to the Bank in the normal course is found difficult or would take unduly longer period depriving the Bank the immediate benefit of recycling of funds.

2. Efforts for Upgradation either by restructuring or rehabilitation have failed and / or may not yield desired results.

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3. The securities, income / worth of the borrower / guarantor are not sufficient to ensure full & early recovery of the dues.

4. Any other reason in which continuation of relationship with the borrower is considered not in the interest of the bank.

5. The recovery through legal measures will take longer time to result in recovery.

II) Compromises may be negotiated with:

1. Principal Borrower/s 2. Guarantor either for partial payment or for full payment 3. Parent Company 4. Other interested parties like drawees of bills, legal heirs etc.,

III) The following factors would also be considered while negotiating:

1. Time value of money and probable future recoveries compared with the offer amount – the NPV concept and procedure for arriving NPV explained in some other para below.

2. Realisable value of security evaluated on a distress sale basis. The difficulties in sale of the security, problems in title deeds etc.,

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

4. The proportionate amount repayable to ECGC / CGFTSI on settlement. 5. Any LC / LG outstanding – Any other account in the similar capacity 6. Total Undebited interest due. 7. Stage of recovery action where it stands and probable time to recover. 8. Cost of maintaining the suit, maintaining and safeguarding the security. 9. Impact of accepting the compromise proposal on P&L a/c (by way of write

back of provisions and recovery of Undebited interest) 10. Any other loans for which the borrower has extended Guarantee 11. Statutory Dues if any.

IV) In the process of negotiation, sacrifice of various components of the dues

as below in the order of desirability would be considered:

1. Penal Interest 2. Incidental expenses including inspection / insurance charges 3. ECGC / Any other Guarantee corporation guarantee fees 4. Legal expenses incurred and to be incurred 5. Undebited Interest 6. Write off should be avoided as far as possible and should be considered only

when it is unavoidable. 7. In cases where a person has obtained loan from the bank by making

fraudulent representation or otherwise committing any fraud as far as possible, efforts should be made to recover the entire dues.

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V) The negotiation should endeavour to maximize recoveries / compromise amounts taking into various facts as below:

1. Age of NPA 2. Strength and weakness of bank in respect of documentation, realization of

security etc., 3. Age and stage of suit proceedings 4. The possibility of deterioration and alienation of assets leading to threat to

security / recovery 5. Capacity for negotiation by the Bank and the borrower 6. Position of group accounts and present status of activity of borrowers 7. Source of payment to honour the commitment made by the negotiator. 8. The borrower should be advised of the contractual dues and the actual

benefit to the borrower should be explained to him

VALUATION OF THE SECURITIES FOR COMPROMISE SETTLEMENT / RELEASE OF SECURITY:

As per the valuation policy of our bank (Circular Misc/482 /2010-11 Dt: 9.4.2010) for all NPA accounts, irrespective of outstanding and limit, the valuation of property should be valued by approved panel valuer every 3 years. However, it should be ensured that whenever any OTS/OCS proposal is submitted, valuation of the securities should not be more than ONE year old as on the date of submission of compromise proposals. If the valuation by the approved panel valuer is more than one year, fresh valuation should be obtained from approved panel valuer for this purpose. In the case of partial release of security not under OTS/OCS, the valuation report should not be more than six months old. The Branch should obtain minimum two independent valuation reports from Approved Valuers for all properties valued at Rs. 5 Crores or above. If the variation in the two valuations is not more than 10%, the higher value of the two should only be accepted. If the variation is more than 10%, a third valuer will be engaged at the cost of borrower and of the three valuations, highest would be taken as value of the property. Valuation Report should be obtained from one valuer for all properties valued up to Rs. 5 Crores.

The valuer should send the valuation report to the Branch Head in a closed cover. The valuation of the property should be kept confidential.

The highest value of the following should be computed as realizable value of the securities: � Government guideline value to be certified by approved panel valuer. � Realisable value given by the approved panel valuer based on the specific location and other relevant factors.

In the proposal, value of securities should be given as of original sanction date, last review date and present position. If there is wide variation (especially for land / buildings etc.,) in value, the reason for such variation should be justified with proper reasons.

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The valuation of securities should be in line with market realities. The desk top value viz. the value as ascertained by the Branch Manager should also be taken on record. Branches may refer Permanent Circular Ref. No. Misc/ 174/ 2007-08 dated 17.11.2007 issued by Banking Operations Department, Central Office for the format of Desk Top valuation. The desk top valuation should be enclosed to the Branch OTS / OCS proposal. It should be ensured that all the securities are insured for their full value even after filing suit and insurance is in force till the account is fully settled. However for the purpose of calculations under compromise proposals ONLY THE FORCED SALE VALUE should be considered.

RELEASE OF SECURITIES WHERE OTS/OCS ALREADY SANCTIONED: The release of securities charged to the Bank, is to be considered on payment of OTS/OCS amount as per agreed terms, as mentioned below:

The sanctioning authority of the compromise settlement may authorize the release of security, after ensuring that there are no other direct or indirect liabilities connected to that account.

Part release of securities can be considered by the sanctioning authority of the compromise settlement taking into account the following points:

o Latest valuation of the securities released and those to be released. o Value of the balance securities held by the Bank thereafter is

sufficient to cover the remaining compromise amount. o The residual securities left with the Bank are good and marketable. o The sale proceeds of the securities proposed to be released are fully

credited to the account. o While releasing the securities, ensure that the cream of the securities

are not released first. PARTIAL RELEASE OF SECURITY / GUARANTOR NOT UNDER OTS/OCS: It should be made clear in the proposal whether it is a compromise settlement in full quit or only partial release of security / guarantor. If it is partial release, then the available security for the balance amount should be substantiated.

Partial release can be permitted if the offer for payment is not less than the Fair Market value of the property proposed to be released or the Forced Sale Value of the residual securities are sufficient to cover the balance outstanding. The valuation reports should not be more than six months old.

Such proposals, both in full quit or partial release may be considered by the respective layer of authority as per the discretionary powers based on sacrifice for compromise settlements under OTS / OCS for NPA account.

While arriving at the value of the remaining securities, Forced Sale Value of such securities shall be taken.

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Though the offer is not under OTS / OCS and only for partial release of security / guarantor, the dues / sacrifice shall be calculated notionally as in the case of OTS / OCS. For release of personal guarantee without release of property, the net worth of guarantor shall be considered. To arrive at the notional balance in case of partial release, the same is explained by way of example. Example: Notional Dues Rs.100.00 Fair Market Value of the property to be released / offer amount, if higher than FMV Rs.20.00 Forced Sale value of the remaining securities Rs.60.00 Rs. 80.00 Notional Balance Rs. 20.00 In Cases where total amount offered for the securities to be released and Forced Sale value of the remaining securities is more than the Notional Dues, the Notional sacrifice is to be treated as Nil. In such cases, the Regional Head is empowered to release the securities on payment of the Fair Market Value/offer amount. If such sum is less than the notional dues, the powers may be exercised as per the delegation of powers by the respective layer of authority for sacrifice. (The same principle will be applied for release of personal guarantee as well). CONDITIONS TO BE INCORPORATED IN THE SANCTION OF PROPOSALS:

Automatic cancellation of OTS/OCS sanctioned in the event of non-fulfillment of stipulated terms of sanctions.

Unconditional withdrawal of suits / counter claims etc., made by the borrowers / guarantors against the Bank, shall be a precondition before / while settling the dues of the bank under Compromise.

In the case of compromise settlement in the suit filed accounts, consent decree is to be obtained, as per RBI guidelines, before / while settling the dues, with default clause that in the event of default to make payment as per the agreed terms, the Bank is entitled to recover the entire dues as per the original terms of contract.

In respect of Non-suit filed accounts, documents should be kept alive by obtaining periodical renewal letters till full payment of settlement amount is received.

Endeavour may be made to obtain post dated cheques for the OTS / OCS amount / instalments.

Incase of compromise settlement reached, the settlement should contain a specific clause that such settlement will not have any bearing what so ever on the ongoing criminal cases proceedings pending in the court against the persons connected with the account.

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While recording the terms and conditions of the settlement in a consent order

to be obtained from Court or DRT, a specific clause should be incorporated stating that the settlement agreed between the parties shall not in any way affect or be construed as settlement of on going criminal cases / proceeding pending in the Court against borrowers.

TYPES OF ACCOUNTS: STAFF LOANS AND STAFF RELATED ACCOUNTS:

The occasions to consider compromise settlement in staff / staff related accounts will be very rare and should be judiciously decided based on the following guidelines: A. Compromise in accounts of third parties or close relatives of staff members,

where staff member is a guarantor, shall be approved by the respective layer of authority as per the discretionary powers ONLY after obtaining clearance from Vigilance and industrial Relations Dept Central office.

B. In respect of loans in the name of Ex-staff members who have deceased /

retired or no more in the service of the Bank compromise proposals may be considered on merits by the respective layer of authorities as per the discretionary powers.

C. Any other cases involving compromises in accounts of present staff members

shall be considered only at Central office by Executive Director, after obtaining clearance from Vigilance and industrial Relations Dept Central office.

GROUP ACCOUNTS: Normally, settlement should be considered in all the group accounts of the borrower simultaneously. The total sacrifice in all the group accounts should be computed to find out the authority to which the relevant proposal has to be referred. However, if the borrower offers to settle one or few accounts leaving other NPA accounts without any offer, prior administrative clearance should be obtained from CGM (ARD) to consider the proposal by the respective authority. CONSORTIUM: Incase of consortium advances, where our Bank is the leader, decision regarding entering into compromise etc., shall be taken by the bank at an appropriate level of authority and other banks should be persuaded to adopt our line of action in the spirit of consortium. However, in very exceptional cases, if some member banks differ with our views, our bank will go ahead independently with our decision in such matters. The same principle will be followed where some other Bank is the consortium leader.

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SUIT FILED / DECREED ACCOUNTS: Compromise / Negotiated settlement can be considered under the policy in respect of all NPA accounts irrespective of Asset Classification and whether suit filed or non-suit filed or decreed or recovery certificate obtained. BIFR ACCOUNTS: OTS / OCS in respect of Industrial units under the purview of BIFR, may be considered at the rates of interest as stipulated by the BIFR as part of Rehabilitation package. Where BIFR does not prescribe such interest / amount the guidelines under this policy is applicable. AGRICULTURAL ADVANCES: The policy is applicable for all Agricultural Advances except for those specific accounts which are covered under RBI / Bank’s norms and guidelines. RELAXATION FROM NORMS: Within the delegated powers, the sanctioning authorities at the level of Regional heads and above can consider relaxation from norms in compromise settlement cases (except those covered under RBI Policy), which might not conform to norms, with proper justification and to the satisfaction of the sanctioning authorities. STAFF LAPSES: All OTS proposals should have the status report on staff lapses as on the date of submission of proposal as per the Bank’s Staff Accountability Policy for Non Performing Credits vide circular No.EST/63/2010-11 dt.4.10.2010. Therefore, RO should note to incorporate the status report while recommending for OTS / OCS.

The staff accountability has to be fixed for all the NPA accounts as per our Bank’s Staff Accountability Policy for Non-Performing Credit.

WILFUL DEFAULTER: The identification and classification of “Willful Defaulter” should be done meticulously as per our Master circular / 11/2011-12 dt. 25.07.2011 to enable the “High Level Committee and Grievances Redressal Committee to complete their process for reporting to RBI / CIBIL and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the Credit Information Companies (Regulation Act, 2005 and of which our Bank is a member.

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Accounts under Public Interest litigation (PIL) / External Agency’s Investigation / willful defaulters / cases of malfeasance / Fraud etc can be considered for One Time settlement and the permission of SAC at Central Office must be obtained for considering such accounts for compromise settlements by the appropriate layer of authority and after sanction it should be vetted by Management Committee of the Board as per RBI guidelines. GENERAL MANAGERS’ COMMITTEE / EXTERNAL SETTLEMENT ADVISORY COMMITTEE: All compromise proposals beyond the powers of the Corporate General managers and where the approval of sacrifice falls within the delegated authority of Executive Director / Chairman & Managing Director / Management Committee of Board are to be routed with the recommendations of the “General Managers’ Committee for One Time Settlement” and “External Settlement Advisory Committee” at Central Office.

NON-DISCRETIONARY AND NON-DISCRIMINATORY TREATMENT: The branches should follow the above guidelines for compromise settlement of all NPAs covered under the revised scheme, without discrimination and a monthly report on the progress and details of settlements should be submitted by the concerned authority to the next higher authority. Review of compromise proposals sanctioned:

Sanctioned By Reviewed By Periodicity Branch Manager – in respect of Special Recovery Campaigns wherever Branch Managers are empowered to settle OTS / OCS

Regional Head Monthly

Compromise Settlements sanctioned by the officials of the Regional Office

Regional Head Monthly

Regional Head CGM Monthly CGMs ED Monthly ED / CMD MCB Monthly

PAYMENT TERMS:

Upfront payment: The borrower has to make an upfront payment of 10% of the offer under “No Lien” account when the proposal is submitted.

However, if the intention to make payment immediately on sanction is justified, the upfront payment need not be insisted upon to consider the proposal. Similarly if the OTS/OCS is to be paid only by sale of securities charged to the Bank, the upfront payment need not be insisted upon.

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Time limit for payment of OTS/OCS: The sanctioned OTS/OCS should be recovered, normally, within 3 months from the date of conveying the sanction without charging interest.

However, if the payment is to be made in installments and has to extend beyond 3 months, 25% of the OTS/OCS sanctioned amount is to be paid within 3 months of conveying the sanction and the balance 75% may be paid in monthly / quarterly installments not exceeding further 9 months together with interest at the prevailing Bank’s base rate on simple basis for the period beyond 3 months of conveying sanction.

Source of Funds:

Sanctioning authority should satisfy themselves as to the source of payment of the OTS/OCS, if sanctioned. The sources from where the borrower / guarantor intend to raise funds must be obtained from the borrower and in case of settlement in installments, the funds available from the source to meet the installment amount should be verified and recorded. Incase of proceeds by way of disposal of assets are not sufficient to meet the OTS/OCS amount, proper installments should be fixed depending upon other available sources.

EXTENSION OF TIME:

a. Whenever the extension of time for honoring the OTS / OCS sanctioned by RM / DGM or GM(Law) at Central Office is sought and if the request is genuine, the sanctioning authority themselves may extend the time with payment of simple interest @ 12% for the delayed period i.e. the period after the time originally stipulated for payment.

b. Whenever the extension of time for honoring the OTS/OCS sanctioned by

ED / CMD / MCB, is sought and if the request is genuine, GM(Law) at Central Office may extend the time with payment of simple interest @ 12% for the delayed period i.e. the period after the time originally stipulated for payment.

For the purpose of clarification, in respect of an OTS/OCS sanctioned on deferred payment, for payment of the 25% amount payable within 3 months, if there is any delay, interest will be charged at 12% simple for the period delayed beyond 3 months. In respect of the balance 75% amount payable in 9 months, simple interest will be charged at Bank’s base rate upto 9 months and for the period beyond 9 months, at 12%.

c. Wherever the proposals which have lapsed due to non-payment / part payment and or withdrawn and a period of 12 months have elapsed from the due date, in such cases, any request for revival of such proposals may be treated as fresh proposals only.

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SETTLEMENT FORMULA FOR COMPROMISE / CALCULATION OF SACRIFICE:

The authority for approval of compromise settlement proposals (OTS/OCS) shall be determined based on the “SACRIFICE” involved in the proposal. 1. Notional Dues Calculation: The notional dues should be calculated as below: (Rs)

a. Outstanding as on the date upto which interest was last debited b. ADD : Simple interest to be added from the date of last debit till

date of expected payment of compromise amount at the Bank’s base rate prevailing on the date of submitting the proposal / contract rate / decreed rate of interest which ever is less.

c. ADD: Debits such as Bills returned unpaid, DPGs invocation of Guarantees after the date mentioned in col.(a) above

d. Add: Interest on the (c ) above at the rate mentioned in col.(b)

e. ADD: Other Expenses viz. ECGC/DICGC premium, Godown rent, Insurance premium paid, charges paid to Security agencies/ Personnel etc., subsequent to the date of NPA.

f. ADD : Legal and Other Expenses incurred subsequent to date mentioned in col. (a) above

g. Sub Total =

h. LESS: Recoveries made after the date mentioned in col. (a) and Countervailing Interest.

Date Amount C.V. Interest Total x

i. LESS: CV Interest on ECGC / CGFTSI claim received amount. C.V. Interest y

j. Sub-total = x+y k. NOTIONAL AMOUNT DUE FROM THE PARTY

Waiver = Undebited interest (interest not charged to the account as per the notional dues calculation)

Write-Off = Reversal off book outstanding portion after full receipt of compromise amount. * SACRIFICE under OTS/OCS is always the difference between NOTIONAL DUES and OTS/OCS OFFER. Notional Dues (minus) OTS/OCS Offer = SACRIFICE. (Sacrifice is the basis for deciding the sanctioning authority)

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As per the existing accounting policy of our Bank, all recoveries other than the case of suit filed accounts and OTS / OCS shall be appropriated first towards interest / uncharged interest. In the process, any payment made before the OTS / OCS proposal was submitted would have been taken to interest account in which event, there would not have been reduction / there would have been nominal reduction in the book outstanding. However, when the OTS / OCS proposal is considered, the amount already remitted subsequent to NPA date and taken to interest account may be notionally treated as recovery towards principal and the sacrifice may be arrived at. Example:

Book outstanding on date of NPA: Rs.100

Subsequent payments taken towards interest: Rs. 20 Notional dues: Rs.110 Offer amount including Rs.20 already paid(i.e.Rs.70+Rs.20) Rs. 90 Sacrifice: Rs. 20 Write off: Rs. 30 As this sacrifice is falling under CRM’s powers, he can consider sanction and pass orders for writing off (though the write off amount of Rs.30 lacs falls beyond his powers). MINIMUM ACCEPTABLE AMOUNT / BENCH MARK AMOUNT:

For Secured Advances: In all cases where the advance is secured by tangible assets, the minimum acceptable amount should be arrived by using Net Present Value Method which will be the Minimum Acceptable Amount.

NET PRESENT VALUE MEANS - THE PRESENT VALUE OF THE PRESENT MONEY compared to the PRESENT VALUE (Discounted Value) OF FUTURE MONEY. The present value of the recovery made today should be greater than the present value (discounted value) of the recovery that may be made at a later date. To arrive at the future recoverable value, the value of the securities (Forced Sale Value) and other enforceable assets (net of expenses) should be taken into account along with the approximate time for realizing those securities. The formula for arriving the present value (discounted value) of an amount receivable at a future date ……… present value in reciprocal of compound interest factor i.e.. 1 x P -------- {1+ (R/100)} n

Where R = Rate of interest (¼ of Annual rate of interest) N = Number of Quarters P = Principal (Amount recoverable on a future date)

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For the purpose of easy calculation the discounting factor for finding out the present value of future amount is given below. The discounting factor at 12% to be applied for the purpose of NPV calculation:

Period RATE OF INTEREST COMPOUNDED QUARTERLY

10% 11% 12% 13% 14% 15% 16%

1 Year 1.10 1.11 1.13 1.14 1.15 1.16 1.17

2 years 1.22 1.24 1.27 1.29 1.32 1.34 1.37

3 years 1.34 1.38 1.43 1.47 1.51 1.56 1.60

4 years 1.48 1.54 1.60 1.67 1.73 1.80 1.87

5 years 1.64 1.72 1.81 1.90 1.99 2.09 2.19

6 years 1.81 1.92 2.03 2.15 2.28 2.42 2.56

7 years 2.00 2.14 2.29 2.45 2.62 2.80 3.00

8 years 2.20 2.38 2.58 2.78 3.01 3.25 3.51

9 years 2.43 2.66 2.90 3.18 3.45 3.76 4.10

10 years 2.69 2.96 3.26 3.59 3.96 4.36 4.80 Example for arriving factor for One year @ 12%: First step - R = ¼ of 12% = 3 Second step – R/100 = 3/100=0.03 Third step – {1+ (R/100)} = 1+0.03 = 1.03 Fourth step - finding number of quarters – for one year 4 quarters. Fifth step (finding the factor) - {1+ (R/100)} n = 1.03 x 1.03 x 1.03 x 1.03 = 1.13 To get the present value divide the future money by relative factor e.g. 100/1.13 = 88.49 Example: An NPA account with an outstanding of Rs.100 lacs is secured with security worth Rs.80 lacs. The borrower has offered OTS of Rs.60 lacs immediately. It will take 4 years to realize the security and the realizable amount is Rs.80 lacs. The Discounting factor at 12% to be applied. The NPV is: 8000000/1.60 (factor for 4 years @ 12%) = Rs.50.00 lacs The Minimum Acceptable amount is Rs.50.00 lacs. The present value of Rs.80 lacs realizable after 4 years is Rs.50.00 lacs, which is much less than Rs.60 lacs offered today. This is acceptable. Suppose this Rs.60 lacs is payable in 4 annual installments Then the NPV of Rs.60 lacs is: 1st year = 1000000 = 10.00 2nd year = 1000000 / 1.13 = 8.85 3rd year = 2000000 / 1.27 = 15.76 4th year = 2000000 / 1.43 = 13.99 --------- NPV of Rs.60 lacs = 48.60 lacs ---------

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The NPV of security realizable after 4 years is Rs.50.00 lacs The net present value of Rs.60 lacs payable in 4 annual installments is lower (48.60 lacs) than the present value of security realizable after 4 years (50.00 lacs ). This proposal is not acceptable. If we have to recover only by installments we may have to re-fix the installments in such a way that the NPV of the OTS offer is more than the NPV of the realizable value of security. In the same example given above we may re-fix the installments as below: 1st year = 1000000 = 10.00 2000000= 20.00 2nd year = 2000000 / 1.13 = 17.70 2000000= 17.70 3d year = 2000000 / 1.27 = 15.75 (Or) 2000000= 15.75 4th year = 1000000 1.43 = 6.99 --------- --------- NPV of Rs.60 lacs = 50.44 53.45 --------- --------- The NPV of security realizable after 4 years is Rs.50.00 lacs. The NPV of the refixed installments is more than the NPV of the realisable security and it may be accepted subject to confirmation of source of funds available as per the refixed installments. While calculating the NPV of the security the following points should be taken into consideration:

The realisable value of security should be taken at Forced Sale value net of expenses.

While valuing the securities the following points should be considered: The time taken for realisation of securities should generally be arrived not

exceeding the time limit given below: SARFAESI cases - Maximum of 4 years DRT cases - Maximum of 6 years CIVIL Suits - Maximum of 10 years

Hypothecated Stocks:- Should be considered after discounting 50% of the

Value ascertained.

The nature of stocks – perishable / non-perishable Quality of stocks Age of stocks held Saleability and Realisable value Condition of stock i.e. Raw Material, Semi finished or finished

MACHINERY: (Value as per Approved Engineer's report of not more than one

year old)

Type Age Utility Value – Outdated or not Market Value Marketability

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BOOK DEBTS: - Should be considered after discounting 60% of the Value of the Book debts of not older than 6 months.

The Book debts are not static and their realisable value should be

calculated based on average of book debts considering the age and drawer. Valuation of Book debts should be obtained taking these factors into consideration

The value of Jewellery and Shares declared are to be considered as NIL The worth of the Borrower / Guarantor should be ascertained by taking all

the assets and investments into account after deducting other liabilities. Separate NPV should be calculated for each category / type of security

i.e. Stocks, movable and Immovable properties and added together to arrive the total NPV of the securities available as the years for discounting the realisation will vary from account to account based on nature of account and security.

The time and realisation of security value is always directly proportionate to the number of securities available.

After discounting the hypothecated stocks & book debts as above and obtaining the value of the machinery from the valuer, the NPV shall be arrived as per formula already explained. The NPV of Plant & Machinery and other property such as vacant land, factory land etc; should be separately given in the OTS / OCS proposal. The minimum acceptable amount shall be the NPV of the securities available as on the date of NPA. Therefore, repayments made by the party after classifying the account as NPA shall also be taken into account while arriving at the NPV. However, the amount remitted by sale or release of securities shall not be reckoned while arriving at the minimum acceptable amount and NPV should be arrived for the remaining securities. Example: (1)Amount paid for release of security after date of NPA: Rs.30 (2)Amount realized by sale of security by Bank through SARFAESI/DRT after date of NPA Rs.25 (3)NPV of the remaining securities at the time of offer: Rs. 100 (4)Repayments made after classifying account as NPA: Rs. 40 (5)Minimum amount acceptable will be (Rs.100 minus Rs.40) : Rs. 60 (The recovery under (1) & (2) shall not be reckoned while arriving at the minimum acceptable amount).

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Though the minimum acceptable amount shall not be less than the NPV of the securities, it is possible that there may be cases where the NPV is more than the notional dues / contractual dues. If the OTS / OCS offer is to pay the Notional dues / contractual dues , the acceptance of the borrower’s offer should be restricted to the contractual dues only and in the case of offer to pay notional dues, the offer should be placed to the Management Committee of the Board, for approval on a case to case basis. FOR UNSECURED LOANS, though the endeavor shall be to recover the Book outstanding as on the date of proposal to avoid write off, decision may be taken on the basis of the tangible net worth of the borrower / guarantor. Under unavoidable circumstances write off may be permitted after recording proper justification for the same. Note: Unsecured loans include credit card dues. Guidelines for recovery of Credit Card NPAs through OTS/OCS have been issued by Credit Card Division, Central Office vide Comlet No.8/2010-11 dated 07.09.2010. 2. ECGC REFUND CALCULATIONS: CALCULATION OF AMOUNT REFUNDABLE TO ECGC: The amount refundable to ECGC is calculated as follows: Compromise Amount (Net of expenses such as insurance, charges for security, legal expenses etc., incurred after the *relevant date)

X Amount Settled by ECGC

Total Dues under all the facilities on the relevant date *Relevant date means;

end of the month in which 1st recall notice is issued OR default is reported to ECGC OR claim is settled by ECGC whichever is earlier.

ILLUSTRATION: Compromise Amount = Rs.70 lacs Amount settled by ECGC = Rs.20 lacs Total dues on the relevant date = Rs.120 lacs Amount refundable to ECGC = Rs.70 lacs x Rs.20 lacs = Rs.12 lacs Rs.120 lacs

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CALCULATION OF WRITE OFF WHEN REFUND TO ECGC IS INVOLVED: Based on the amount refundable to ECGC, the write off amount will vary. In some borrowal accounts, the amount settled by ECGC would have been credited to the borrowal account whereas in some borrowal accounts, the same would have been kept under separate GL Head. Calculation of write off amount in the above two circumstances are illustrated below:

Compromise Amount = Rs.70 lacs Amount settled by ECGC = Rs.20 lacs Book outstanding before receipt of Rs.20 lacs from ECGC

= Rs.100 lacs

I.WHEN AMOUNT SETTLED BY ECGC HAD BEEN CREDITED TO BORROWAL ACCOUNT:

Book outstanding before receipt of Rs.20 lacs from ECGC

Rs.100 lacs

LESS: Amount settled by ECGC Rs.20 lacs Present Book outstanding at the time of entering into compromise

Rs.80 lacs

LESS: Net Compromise Amount* Rs.58 lacs WRITE OFF AMOUNT Rs.22 lacs *Net Compromise Amount = Actual Compromise Amount Minus Amount refundable to ECGC i.e. Rs.70 lacs minus Rs.12 lacs II.WHEN AMOUNT SETTLED BY ECGC HAD BEEN KEPT IN SEPARATE GL HEAD: Present Book outstanding at the time of entering into Compromise

Rs.100 lacs

LESS: Actual Compromise Amount Rs.70 lacs LESS: Surplus available in GL Head** Rs.8 lacs WRITE OFF AMOUNT Rs.22 lacs **Surplus available in GL Head = Amount settled by ECGC Minus Amount refundable to ECGC i.e.Rs.20 lacs minus Rs.12 lacs

VI. ACCOUNTING PROCEDURES:

The appropriation of recovery should be done as per the Significant accounting policies of our Bank:

• In the case of recovery in the Non-Suit filed accounts the recovery should first be appropriated towards income and the balance left, if any, will be credited to the book Outstanding.

• In the case of recovery through compromise settlement recovery should first be appropriated to Book outstanding and after adjusting the Balance only, will be taken to income.

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• In the case of suit filed accounts, recovery under both normal and compromise settlement recovery should first be appropriated towards Book outstanding and after adjusting the Balance only, will be taken to income.

• In the event of accounts involving write off after full recovery of OTS/OCS amount, any recovery of delayed period interest should be adjusted towards Book outstanding only and the balance alone should be claimed for write off from Accounts dept.

• Recovery from Written Off Accounts (written off at branch level) should be credited to P&L code no: 8805 "Recovery from written-off loans.

VII. WAIVER OF LEGAL ACTIONS:

Every endeavor shall be made to recover the dues in the ordinary course. However, where securities are not available to realize our dues or borrowers are not having any assets or means to repay the dues or chances of recovery in the normal course / by compromise are remote and initiating legal action for recovery is not prudent, in such exceptional cases, Bank may consider waiver of legal action as a last resort.

As the waiver of legal action would be a step towards writing off the dues,

sufficient care shall be taken by the branches before recommending waiver of legal action. Branches shall submit the proposal for waiver of legal action to the appropriate authorities sufficiently in advance before the date of limitation sets in. the power of waiver of legal action can be exercised by all the functionaries upto the limit of write off powers delegated to them.

By waiving legal action, Bank loses only its right of recovery through legal

process. However, it does not vitiate its right of appropriation of the amount received in the ordinary course of business or other recovery measures. Hence, recovery steps in the normal course should be continued even after waiver of legal action.

VIII. WRITE OFF AND RECOVERY IN WRITTEN OFF ACCOUNTS:

Continuation of NPA accounts where the chances of Recovery is bleak either by legal process / persuasion may only affect the performance results of the Bank. Further the cost and valuable manpower in maintaining these accounts can be better utilized for the improvement of the Bank. Hence after exhausting all avenues of recovery, Bank may consider writing off such accounts after proper sanction from the appropriate authorities. The write off exercise shall be used only as a last resort when:

• The account is classified as doubtful or loss asset • Full provision is made in these accounts • There are no securities available or there is NIL / Nominal salvage value of

securities • Net worth of the Borrower / Guarantor is Nil or Nominal • The Borrower / Guarantor are not traceable after reasonable enquiries • The Borrower / Guarantor has no source of income

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• In case of suit filed accounts no use of continuing the suit except adding to the cost and even if decreed, the decreed amount cannot be recovered

• All avenues of recovery have been exhausted.

The authority vested with the powers for write off can exercise such powers in respect of all NPAs requiring write-off after satisfying the above norms. Sanctioning authorities at the time of permitting write off shall stipulate a condition in the sanction letters that recovery efforts should be pursued in the written-off accounts on an ongoing basis as writing off such accounts does not vitiate the legal rights of the Bank for recovery of its dues from the borrowers. Any recovery in the written off accounts will directly add to the profit of the Bank.

Write Off is an internal mechanism of the Bank to clear the Non Performing Assets from the Balance Sheet. As a matter of general policy, no fresh finance is being granted to the borrowers whose liabilities are written off. Hence to prevent such defaulted borrowers from seeking / availing fresh finance, it is necessary to maintain a Register of Written-Off accounts at every branch as per the extant guidelines.

Notwithstanding writing off of the dues (other than the accounts settled and recovered under OTS/OCS), branches should continue their efforts to recover their dues either by persuasion or initiating legal action wherever legal remedies are in force, if they come to know that the party has got resources now to repay. In this connection the Register of Written-Off accounts should be made use of and updated with details of contacts and recoveries made.

Writing-Off at Central Office Level:

The RBI guidelines provide Writing-Off of NPA accounts at Central Office level even though the relative advances are still outstanding in the branch books provided necessary provision is made as per the classification accorded to the respective accounts. In tune with the above guidelines and to avail the tax benefits, Bank may carry out the Write-Off exercise at Central office level in consultation with Accounts dept Central office, as and when required, and such accounts shall be maintained at Central office to ensure that such accounts are taken to logical conclusion. The Executive Director / Chairman & Managing Director can consider write off in all cases, irrespective of whether full provision is available or not. The powers for write-off at Central Office can be for full or partial write off and irrespective of availability of any guarantee corporation cover.

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IX. ISSUE OF “NO DUE CERTIFICATE”/ DELISTING FROM DEFAULTER / WILLFUL DEFAULTER LIST IN RESPECT OF ACCOUNTS SETTLED UNDER OTS/OCS: Wherever the borrower repays the entire contractual dues, Bank shall, at the request of the borrower issue ‘No due certificate’ Wherever the borrower settles dues with the bank as per “OTS/OCS scheme of RBI” or “Compromise settlement policy of the Bank” by availing concessions, in such case also bank, at the request of the borrower may issue ‘No Due Certificate’. However, such certificate should contain a clause indicating that the borrower has settled the dues under One Time Settlement Scheme of RBI / Bank as the case may be. In respect of written off account, ‘No Due certificate’ should not be issued unless the dues are paid / settled subsequently. For accounts with balance of Rs.1 crore and above, whenever the entire dues as per the compromise settlement sanctioned is paid, Regional Offices should inform ARD Central Office for non-suit filed accounts and Law Dept Central Office for suit filed accounts for delisting those borrowers from the defaulters list submitted to RBI / CIBIL and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the Credit Information Companies (Regulation) Act, 2005 and of which our Bank is a member. For accounts with balance of Rs.25 lacs and above, and classified as “Willful Defaulter”, Whenever the entire dues as per the compromise settlement sanctioned is paid, Regional Offices should inform respective credit departments at central Office for non-suit filed accounts and Law Dept Central Office for suit filed accounts for putting up to the High level Committee and Grievances Redressal committee for delisting those borrowers from the Willful defaulters list submitted to RBI / CIBIL and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the Credit Information Companies (Regulation) Act, 2005 and of which our Bank is a member.

X. Extension of Further Loans to Borrowers already settled accounts under Compromise settlements:

In this regard the provisions of the Loan policy will prevail.

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XI. GUIDELINES FOR FOLLOW UP OF NPA ACCOUNTS Guidelines for follow up of NPA accounts. As soon as an account slips to Sub-standard category, Branch should examine the account in detail, the reasons for accounts becoming NPA and assess the possibility of upgradation / rehabilitation. In fact the strength of the accounts before slippage to substandard category, would have already been known to the branch / RO as the accounts are passed / classified through Watch / Special Watch category. It should be ensured that all accounts slipped into NPA are passed / classified through Watch / Special Watch category and reported to RO / CO. If rehabilitation / upgradation is found to be not possible steps to be taken for recovery immediately. Time frame for initiating legal action for recovery of NPA as enumerated in Law Dept Misc. Circular 125/2003-04 to be followed. RO shall review all NPA accounts every month and identify potential accounts to bring under compromise settlement. Guidelines to be followed after sanction of OTS/OCS:

RO, shall also review the following monthly :

Compromise proposals pending sanction / follow up done Recovery made on sanctioned proposals

Branches to diarize the due dates / date of post dated cheques obtained and ensure recovery as per terms of sanction of OTS/OCS.

Any communication to the borrowers / guarantors / mortgagors in respect of suit filed accounts, shall be superscribed “WITHOUT PREJUDICE TO THE ……….”

Consent decree to be obtained at the earliest whenever compromise settlement is sanctioned by filing a joint memo in suit filed accounts as per RBI guidelines.

Satisfaction memo to be filed seeking permission of the court to withdraw the suit / EP filed, after compromise amount recovered in full.

XII. MODIFICATIONS TO THE POLICY:

Chairman & Managing Director / Executive Director / General Manager (Law & Recovery) are permitted to modify the policy, relating to the compliance of guidelines issued by regulatory authorities, from time to time.

Conclusion:

It should be kept in mind to recover the maximum amount with minimum sacrifice through effective negotiation. This will supersede all our earlier NPA Recovery Policy and Compromise settlement policy.

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XIII. LEXICON OF ABBREVIATIONS USED IN THE RECOVERY POLICY AAIFR Appellate Authority for Industrial & Financial Reconstruction ABJ Attachment Before Judgment ARC Asset Reconstruction Company ARD Assets Reconstruction Department BIFR Board for Industrial & Financial Reconstruction BR Base Rate CDR Corporate Debt Restructuring CGFTSI Credit Guarantee Fund Trust For Micro And Small Enterprises CGM Corporate General Manager CIBIL Credit Information Bureau Of India Ltd DRA Debt Recovery Agent DRT Debt Recovery Tribunal ECGC Export Credit Guarantee Corporation EP Execution Petition FI Financial Institutions FSV Forced Sale Value NBFC Non Banking Finance Companies NI ACT Negotiable Instruments Act NPA Non Performing Asset NPV Net Present Value OCS Out Of Court Settlement OTS One Time Settlement RBI Reserve Bank Of India RC Recovery Certificate RM Regional Manager RO Regional Office SA SARFAESI Agent SAC Settlement Advisory Committee

SARFAESI The Securitisation & Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002

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FROM

INDIAN OVERSEAS BANK

REGIONAL OFFICE, ______________

Date:

TO


---------------- Department

Central Office Chennai

Name of account :

Branch : Regional Offices to ensure submission of the followings along with the proposal submitted by them to Central Office. CERTIFICATE OF REGIONAL OFFICE 1. The General Manager / Chief / Senior Regional Manager certifies that the present value of the prime and collateral security (as valued by the valuer) furnished in the OTS / OCS proposal is correct and justifiable. 2. The proposed compromise settlement is in conformity with RBI guidelines / our Bank’s Recovery Policy.

Date: General Manager Chief / Senior Regional Manager Indian Overseas Bank Regional Office

(In case of proposals sanctioned by RO, RO should record in their note that the proposed compromise settlement is in conformity with RBI guidelines / our Bank’s Recovery Policy after ensuring the same).

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REGIONAL OFFICE RECOMMENDATIONS: I. Whether the borrower has been

a. Identified / Recommended by RO as a willful defaulter b. Listed as willful defaulter by RBI c. Whether any proceedings pending with CBI / Enforcement Directorate

against the borrower / guarantor II. RO Comments on Staff Lapses : (RO should examine this aspect and state clearly whether lapse was observed, findings and decision taken, etc., be given. If matter already taken up with central office, please give reference. If there are no staff lapses, RO should specifically mention “There are no staff lapses” and forward report in RBI format. It should not be reported as "nil" or "----") III. Justification / Recommendation for OTS/OCS: RO recommend for acceptance and sanction of this OTS / OCS for the following reasons: General Manager , Chief / Senior Regional Manager

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FROM


BRANCH

Date:

TO


REGIONAL OFFICE

………………………………..

OTS / OCS PROPOSAL

1. Name of account 2. Constitution

3. Names of proprietor / partner / Director etc. & their respective worth

S.No. Name Worth at the time of sanction Rs. lacs

Present Worth Rs.lacs

1 2 3

4. (a) Nature of activity

(b) Category of advance MLI / SME / SSI / TCD / OPS / INDL / PCD / OTHERS

(c) Whether the unit is functioning or closed Functioning / Closed

5. Names of guarantors and their respective worth:

S.No. Name of Guarantor Worth at the time of sanction Rs. lacs

Present worth Rs. lacs

6. Facilities Granted

Sanctioned by

Date Nature of facility

Limit (Rs. in lacs)

Date of DPN Rate of Interest

The details of all credit limits initially sanctioned and subsequent enhancement / reductions / adhoc sanctions with date of sanction upto the latest renewal / sanction should be given. The date of DPN and rate of interest should be given only for the limits against which amount is outstanding in the books of the branch.

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7. Detailed description of Securities and their value:

A. Prime Security

S.No. Nature of security

Value at the time of sanction

Present Value

Whether disposed off or available *

amount and date on which the proceeds were credited to the account

If disposed without consent, state the particulars of criminal action, if any, initiated

B. Prime / Collateral Security - for agricultural lands / house / farms for land / house / factory building etc.

Situated at Town/ City (Mention full address of the property)

Land extent Building constructed area

Market Value at the time of sanction

Valuation by a. Approved

valuer b. Branch

Manager (DTV)

Present Fair Market Value & Forced Sale value By Approved Valuer

Date Amount Rs.lacs Date Amount

Rs.lacs

FMV: FSV:

FMV: FSV:

Desk Top valuation by Branch Manager: Rs. DTV should be enclosed along with the Branch proposal

8. Asset Classification Date Amount (O/s) Rs. NPA – SS

D 1 D 2 D 3 LOSS

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9. Present Book Outstanding Rs. S.No Facilities Outstanding ADD Amount Refundable to ECGC TOTAL

(Furnish exact book o/s for each facility. Enclose statement of account for each facility from the date when interest was last debited to till date)

10. Position of DICGC / ECGC Claim (in Rupees)

Date of claim made Date of Claim received Amount Credited to the a/c or

kept in separate GL Head

(Specify whether cover available, if not reason thereof. Whether claim lodged, date and amount of claim lodged, present position. If rejected reason thereof. If claim amount received date and amount received. Whether credited to account or held in separate account. In case of recovery of compromise amount, amount to be refunded, already refunded, balance available for adjustment to account, etc.) 11. (a) Whether notice under SARFAESI Act : issued or not

(b) If issued developments thereon : (c) If not issued, reasons there for :

12. (a) Date when Recovery application filed at DRT : (b) Recovery Application number and its Claim amount: (c) Present position of the Application before DRT : (d) Date of DRT Order for Recovery Certificate : (e) Date and Amount of Recovery Certificate : (f) Name of the Lawyer : (i) Amount of fees paid so far : (ii) Amount of fees to be paid :

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13. a) Dues when interest compounded at : Contractual rate (Balance on NPA date + compound interest @ DPN rate + cost) b) Dues as on date calculated as per : Recovery Certificate

(Application amount + int. from application date @ simple rest as claimed in the application till the end of the current month + cost & misc. exp. If RC issued, amount due as per Recovery Certificate) 14.BRIEF HISTORY OF THE ACCOUNT: (Comprehensive history of the account such as date of starting of the unit, date of availment of facilities, purpose, development that took place in the running of the unit/ business, reason for irregularities, details of dishonoured accepted bills incase of Bills outstanding, efforts taken to recover, rehabilitation steps if any taken, reason for filing Recovery Application at DRT, steps taken in enforcing the securities during pendency of Recovery Application / Recovery Certificate, present position of legal proceedings, etc., be furnished. Enclose additional sheet, if necessary)

15. Details of previous OTS / OCS sanctioned but not honoured by the party, if any:

16. TASK FORCE MEETING AND OTS / OCS OFFER OF THE PARTY

Date

Name of person who attended the Task Force Meeting

Name of Bank Executive who presided over the Task Force Meeting

OTS / OCS Offer and terms of payment

17. CALCULATION OF NOTIONAL DUES: (in Rupees)

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a. Outstanding as on the date upto which interest was last debited

Date of Interest Last debited: b. ADD : Simple interest to be added from the date of last

debit till date of expected payment of compromise amount at the Bank’s base rate prevailing on the date of submitting the proposal / contract rate / decreed rate of interest which ever is less.

c. ADD: Debits such as Bills returned unpaid, DPGs invocation of Guarantees after the date mentioned in col.(a) above

d. Add: Interest on the (c ) above at the rate mentioned in col.(b)

e. ADD: Other Expenses viz. ECGC/DICGC premium, Godown rent, Insurance premium paid, charges paid to Security agencies/ Personnel etc., subsequent to the date of NPA.

f. ADD : Legal and Other Expenses incurred subsequent to date mentioned in col. (a) above

g. Sub Total = h. LESS: Recoveries made after the date mentioned in col. (a)

and Countervailing Interest.

Date Amount C.V. Interest Total x

i. LESS: CV Interest on ECGC / CGFTSI claim received amount. C.V. Interest y

j. Sub-total = x+y k. NOTIONAL AMOUNT DUE FROM THE PARTY 18.CALCULATION NET PRESENT VALUE (MINIMUM ACCEPTABLE AMOUNT): (Rs. In lacs)

S.No Security Details

Realizable value net of expenses

Realizable period NPV Factor Net present

Value TOTAL NPV The NPV of the Plant & Machinery and other property such as vacant land, factory land etc: should be separately given in the OTS / OCS proposal. Reasons for the expected delay in realization of the securities:

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19. OTS / OCS OFFER AMOUNT: (in Rupees) BOOK OUTSTANDING OTS / OCS OFFER NOTIONAL DUES SACRIFCE (if any) WRITE OFF WAIVER OF UNDEBITED INTEREST TOTAL PROVISION HELD 20. SOURCE OF PAYMENT & TERMS OF PAYMENT: (Any upfront payment made should also be mentioned. If not the reasons for relaxing the same should be recorded). 21. REPORT ON STAFF LAPSES: (Branch should examine this aspect and state clearly whether lapse was observed, findings and decision taken, etc., be given. If matter already taken up with central office, please give reference. If there are no staff lapses, Branch should specifically mention, “There are no staff lapses” and forward Report in RBI format. It should not be reported as "nil" or "----"). 22. BRANCH RECOMMENDATIONS

BRANCH MANAGER

INDIAN OVERSEAS BANK ……………………………. BRANCH

36

A/C:……………………………………….

STAFF LAPSES REPORT IN RBI FORMAT We confirm having complied with the following conditions stipulated by RBI, vide Central Office Circular No.Adv/146/93-94 dated 15.11.93: 1. The sanctioning authority in the case of Advances had exercised his powers

judiciously and adhered to the guidelines issued by the Bank in the matter of grant of advances and that normal terms and conditions were stipulated.

2. There was no laxity in the conduct and post disbursement supervision of the advances.

3. There was no act of Commission or Omission on the part of the staff leading to the debt proving irrecoverable.

4. All possible steps to recover the dues have been taken and there are no further prospects of recovering the debt and that writing off is in the larger interest of the Bank.

Date AGM/CHIEF/SENIOR MANAGER Branch: NOTE:

1. Please take care to fill up all columns with relevant particulars 2. The amount refundable to DICGC/ECGC should be added to the present

outstanding, if already credited to the account. However, C.V. interest on ECGC / DICGC claims received should alone be deducted from the amount due to arrive at notional dues if the ECGC amount was kept separately in Sundry Creditors / GL Head.

3. The amounts received from parties, ARDRS, Cash Margin, Subsidy etc credited to the account after date of NPA have to be deducted for arriving notional dues.

4. Please forward the following with the proposal: a. Statement of Account for each facility from the date when

account became stagnant. (say 1 year prior to date of last debit of interest].

b. Copies of plaint or decree; if decreed. c. Latest Valuer’s report d. OTS / OCS offer letter from the subjects. e. Minutes of Task Force Meeting.

RBI/2007-2008/152

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DBOD.No.BP.BC.34 /21.04.048 /2007-08 October 4, 2007

All Commercial Banks (excluding RRBs) All India Term Lending and Refinancing Institutions All Non Banking Financial Companies (including RNBCs) Dear Sir, Guidelines on purchase/sale of Non Performing Assets Please refer to our Circular No.DBOD.BP.BC.16/21.04.048/2005-06 dated 13 July 2005 on the captioned subject. 2. In terms of the above banks' Boards are required to lay down policies and guidelines covering among other things, valuation procedure to be followed to ensure that the economic value of financial assets is reasonably estimated based on the assessed cash flows arising out of repayments and recovery prospects. However, it has come to notice that in some cases NPAs have been sold for much less than the value of available securities and no justification has been given. 3. Banks should, while selling NPAs, work out the net present value of the estimated cash flows associated with the realisable value of the available securities net of the cost of realisation. The sale price should generally not be lower than the net present value arrived at in the manner described above. 4. Same principle should be used in compromise settlements. As the payment of the compromise amount may be in installments, the net present value of the settlement amount should be calculated and this amount should generally not be less than the net present value of the realisable value of securities. Yours faithfully, (Prashant Saran) Chief General Manager-in-Charge

Annexure to Recovery Policy 2011-12

The comparative table between Recovery policy for the year 2010-11

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and the modifications for the year 2011-12 are given below.

Recovery Policy 2010-11 Modification in Recovery Policy 2011-12

III MEASURES TO ACHIEVE THE OBJECTIVE OF THE POLICY:

7. The slippages are to be monitored on continuous basis and try for Upgradation by recovering the “critical amount” or by restructuring / rescheduling as per the prescribed norms of RBI.

IV METHODS OF RECOVERY:

Recovering critical / overdue amount to upgrade:


• Recovering the critical / overdue amounts.

• Re-structuring / Re-phasing / Rehabilitating the NPA accounts wherever possible as per extant guidelines.

• Implementation of rehabilitation / restructuring package permitted by BIFR / CDR and ensuring recovery as permitted.

• Whenever an account is upgraded one layer above the sanctioning authority should review the upgradation.

III MEASURES TO ACHIEVE THE OBJECTIVE OF THE POLICY:

7. The slippages are to be monitored on continuous basis and try for Upgradation by recovering the “overdue amount” or by restructuring / rescheduling as per the prescribed norms of RBI.

IV METHODS OF RECOVERY:

Recovering overdue amount to upgrade:


• Recovering the overdue amounts.

• Re-structuring / Re-phasing / Rehabilitating the NPA accounts wherever possible as per extant guidelines.

• Implementation of rehabilitation / restructuring package permitted by BIFR / CDR and ensuring recovery as permitted.

• Whenever an account is upgraded one layer above the sanctioning authority should review the upgradation.

Within 3 months of the account becoming NPA, the Credit Department concerned shall

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examine whether the account is viable for re-structuring or recovery action. Once a decision is taken for recovery, with due approval, the file may be transferred to Central Office / Regional Office Law Department as the case may be, for recovery action.


Use of ethical measures such as publication of photographs / classifying as willful defaulters etc;

• Identifying and classifying the

willful defaulters for submission to RBI / CIBIL as per the RBI guidelines.

WILFUL DEFAULTER: The identification and classification of “Willful Defaulter” should be done meticulously as per our Master circular / 36 / 2009 – 2010 dt. 06.7.2009 to enable the “High Level Committee and Grievances Redressal Committee to complete their process for reporting to RBI / CIBIL.

Use of ethical measures such as publication of photographs / classifying as willful defaulters etc;

• Identifying and classifying the

willful defaulters for submission to RBI / Credit Information Bureau(India) Ltd(CIBIL) and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the Credit Information Companies (Regulation Act, 2005 and of which our Bank is a member.

WILFUL DEFAULTER: The identification and classification of “Willful Defaulter” should be done meticulously as per our Master circular / 54 / 2010 – 2011 dt. 21.7.2010 to enable the “High Level Committee and Grievances Redressal Committee to complete their process for reporting to RBI / CIBIL and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the Credit Information Companies

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IX. ISSUE OF “NO DUE CERTIFICATE”/ DELISTING FROM DEFAULTER / WILLFUL DEFAULTER LIST IN RESPECT OF ACCOUNTS SETTLED UNDER OTS/OCS: For accounts with balance of Rs.1 crore and above, whenever the entire dues as per the compromise settlement sanctioned is paid, Regional Offices should inform ARD Central Office for non-suit filed accounts and Law Dept Central Office for suit filed accounts for delisting those borrowers from the defaulters list submitted to RBI / CIBIL. For accounts with balance of Rs.25 lacs and above, and classified as “Willful Defaulter”, Whenever the entire dues as per the compromise settlement sanctioned is paid, Regional Offices should inform respective credit departments at central Office for non-suit filed accounts and Law Dept Central Office for suit filed accounts for putting up to the High level Committee and Grievances Redressal committee for delisting those borrowers from the Willful defaulters list submitted to RBI / CIBIL.

(Regulation Act, 2005 and of which our Bank is a member. IX. ISSUE OF “NO DUE CERTIFICATE”/ DELISTING FROM DEFAULTER / WILLFUL DEFAULTER LIST IN RESPECT OF ACCOUNTS SETTLED UNDER OTS/OCS: For accounts with balance of Rs.1 crore and above, whenever the entire dues as per the compromise settlement sanctioned is paid, Regional Offices should inform ARD Central Office for non-suit filed accounts and Law Dept Central Office for suit filed accounts for delisting those borrowers from the defaulters list submitted to RBI / CIBIL and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the Credit Information Companies (Regulation Act, 2005 and of which our Bank is a member. For accounts with balance of Rs.25 lacs and above, and classified as “Willful Defaulter”, Whenever the entire dues as per the compromise settlement sanctioned is paid, Regional Offices should inform respective credit departments at central Office for non-suit filed accounts and Law Dept Central Office for suit filed accounts for putting up to the High level Committee and Grievances Redressal committee for delisting those borrowers from the Willful defaulters list submitted to RBI / CIBIL and / or any other credit information company which has obtained certificate of registration from RBI in terms of Section 5 of the

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Credit Information Companies (Regulation Act, 2005 and of which our Bank is a member.


Debt Recovery Agents Our Bank has formed a Policy for Engagement of Recovery Agents vide Law Dept circular No. Trans/E/11/2009-10 dt.18.1.10. Branches / Regional Offices to follow the procedures and engage Recovery Agents. Engagement of Sarfaesi Agents to assist the Recovery officer is also detailed in the circular. ROs should make use of the provisions available and engage Recovery Agents and SARFAESI Agents.

Debt Recovery Agents Our Bank has framed a Policy for Engagement of Recovery Agents. Regional offices are advised to engage the services of Recovery Agents as per the policy to maximize Recovery.


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RBI has framed separate guidelines for sale of NPAs by banks to ARCs / FIs / banks / NBFCs.

To reduce the NPA level, our Bank will also endeavor for sale of NPAs to such companies on individual account / portfolio basis. The terms of Recovery Policy is applicable to sale of NPAs as well. The offer can be cash / Security Receipts / both and the total of such offer shall not be less than the NPVs of the securities. The decision for sale shall be taken by Central Office and in respect of individual accounts, the sanction shall be as per the extant delegated powers and in respect of portfolio of accounts, sanction shall be by the Management Committee of the Board.

Whenever Central Office decides to sell the selected NPA accounts to ARCs and others, RO shall endeavor that they submit the required details and carry out the Nodal centre jobs required for due diligence.


RBI has framed separate guidelines for sale of NPAs by banks to ARCs / FIs / banks / NBFCs.

To reduce the NPA level, our Bank has been selling NPAs to such companies on individual account / portfolio basis. The terms of Recovery Policy is applicable to sale of NPAs as well and the sale shall be as per RBI guidelines issued from time to time on the subject. Further in terms of RBI guidelines dt. 5.4.2011 it shall be ensured that accounts originated fraudulently or have been classified as on the date of sale as involving fraud are not sold. The offer can be cash / Security Receipts / both and the total of such offer shall not be less than the NPV of the securities. The decision for sale shall be taken by Central Office and in respect of individual accounts, the sanction shall be as per the extant delegated powers and in respect of portfolio of accounts, sanction shall be by the Management Committee of the Board.

Whenever the proposal for sale of NPA accounts to ARCs and others is taken up, RO shall endeavor that they submit the required details and carry out the Nodal centre jobs required for due diligence.


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VALUATION OF THE SECURITIES: If the valuation by the approved panel valuer is more than one year, fresh valuation should be obtained from approved panel valuer for this purpose ( we propose addition).

The Branch should obtain minimum two independent valuation reports from Approved Valuers for all properties valued at Rs. 5 Crores or above. If the variation in the two valuations is not more than 10%, the lower value of the two should only be accepted. If the variation is more than 10%, a third valuer will be engaged at the cost of borrower and of the three valuations, lowest would be taken as value of the property. Valuation Report should be obtained from one valuer for all properties valued up to Rs. 5 Crores.

The lowest value of the following should be computed as realizable value of the securities: � Government guideline value to be certified by approved panel valuer. � Realisable value given by the approved panel valuer based on the specific location and other relevant factors. � Desktop valuation by branch manager assessed after inspection

VALUATION OF THE SECURITIES FOR COMPROMISE SETTLEMENT / RELEASE OF SECURITY: In the case of partial release of security not under OTS/OCS, the valuation report should not be more than six months old.

The Branch should obtain minimum two independent valuation reports from Approved Valuers for all properties valued at Rs. 5 Crores or above. If the variation in the two valuations is not more than 10%, the higher value of the two should only be accepted. If the variation is more than 10%, a third valuer will be engaged at the cost of borrower and of the three valuations, highest would be taken as value of the property. Valuation Report should be obtained from one valuer for all properties valued up to Rs. 5 Crores. The valuer should send the valuation report to the Branch Head in a closed cover. The valuation of the property should be kept confidential.

The highest value of the following should be computed as realizable value of the securities: � Government guideline value to be certified by approved panel valuer. � Realisable value given by the approved panel valuer based on the specific location and other relevant factors. Deleted

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and local market enquiries. In the proposal, value of securities should be given as of original sanction date, last review date and present position. If there is vide variation (especially for land / buildings etc.,) in value, the reason for such variation should be justified with proper reasons and a certificate to that effect should be enclosed duly signed by the Regional Head.

In the proposal, value of securities should be given as of original sanction date, last review date and present position. If there is wide variation (especially for land / buildings etc.,) in value, the reason for such variation should be justified with proper reasons. The valuation of securities should be in line with market realities. The desk top value viz. the value as ascertained by the Branch Manager should also be taken on record.


PARTIAL RELEASE OF SECURITY / GUARANTOR NOT UNDER OTS/OCS:

It should be made clear in the proposal whether it is a compromise settlement in full quit or only partial release of security / guarantor. If it is partial release then the available security for the balance amount should be substantiated. Partial release can be permitted only if the residual securities are sufficient to cover the balance outstanding or the offer for payment is not less than the Fair Market value of the property proposed to be released. Such proposals, both in full quit or partial release may be considered

PARTIAL RELEASE OF SECURITY / GUARANTOR NOT UNDER OTS/OCS: It should be made clear in the proposal whether it is a compromise settlement in full quit or only partial release of security / guarantor.

If it is partial release, then the available security for the balance amount should be substantiated.

Partial release can be permitted if the offer for payment is not less than the Fair Market value of the property proposed to be released or the Forced Sale Value of the residual securities are sufficient to cover the balance outstanding.

The valuation reports should not be more than six months old. Such proposals, both in full quit or partial release may be considered

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by the respective layer of authority as per the discretionary powers for compromise settlements under OTS / OCS for Waiver / write-off of NPA account, other than BIFR/CDR. For Part release of security / personal guarantee, the minimum offer shall be Fair Market Value of the property to be released. While arriving at the value of the remaining securities, Forced Sale Value of such securities shall be taken. Though the offer is not under OTS / OCS and only for partial release of security / guarantor, the dues / sacrifice shall be calculated notionally as in the case of OTS / OCS. For release of personal guarantee without release of property, the networth of guarantor shall be considered. To arrive at the notional balance in case of partial release, the same is explained by way of example. Example: Notional Dues Rs.100.00 Fair Market Value of the property to be released / offer amount, if higher than FMV Rs.20.00 Forced Sale value of the remaining securities Rs.60.00 Rs. 80.00 Notional Balance Rs. 20.00

In Cases where the Fair Market Value of the securities to be released and Forced Sale value of the remaining securities is more than the Notional Dues, the

by the respective layer of authority as per the discretionary powers based on sacrifice for compromise settlements under OTS / OCS for NPA account. While arriving at the value of the remaining securities, Forced Sale Value of such securities shall be taken. Though the offer is not under OTS / OCS and only for partial release of security / guarantor, the dues / sacrifice shall be calculated notionally as in the case of OTS / OCS. For release of personal guarantee without release of property, the networth of guarantor shall be considered. To arrive at the notional balance in case of partial release, the same is explained by way of example. Example: Notional Dues Rs.100.00 Fair Market Value of the property to be released / offer amount, if higher than FMV Rs.20.00 Forced Sale value of the remaining securities Rs.60.00 Rs. 80.00 Notional Balance Rs. 20.00 In Cases where total amount offered for the securities to be released and Forced Sale value of the remaining securities is more than the Notional Dues, the

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Notional sacrifice is to be treated as Nil. In such cases, the sanctioning authority can release the securities on payment of the Fair Market Value of the properties. (The same principle will be applied for release of personal guarantee as well.)

Notional sacrifice is to be treated as Nil. In such cases, the Regional Head is empowered to release the securities on payment of the Fair Market Value/offer amount. If such sum is less than the notional dues, the powers may be exercised as per the delegation of powers by the respective layer of authority for sacrifice. (The same principle will be applied for release of personal guarantee as well.)


CONDITIONS TO BE INCORPORATED IN THE SANCTION OF PROPOSALS Post dated cheques should be obtained as per the terms of payment and if this not possible, for any valid reason, specific mention should be made in the proposal itself and the waiver shall be approved by the sanctioning authority.

CONDITIONS TO BE INCORPORATED IN THE SANCTION OF PROPOSALS Endeavour may be made to obtain post dated cheques for the OTS / OCS amount/instalments.

Recovery Policy 2010-11 Modification in Recovery Policy

2011-12 STAFF LAPSES: All OTS proposals should have the status report on staff lapses as on the date of submission of proposal as per the Bank’s Staff Accountability Policy for Non Performing Credits vide circular No.EST/42/2009-10 dt.19.6.2009.

STAFF LAPSES: All OTS proposals should have the status report on staff lapses as on the date of submission of proposal as per the Bank’s Staff Accountability Policy for Non Performing Credits vide circular No.EST/63/2010-11 dt.4.10.2010. Therefore, RO should note to incorporate the status report while

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It may be noted that it is the responsibility of the Regional Office to ensure that the exercise of identification of Staff Lapses, if any and fixing Staff Accountability is to be completed within six months from the date of account becoming NPA.

recommending for OTS / OCS.

The staff accountability has to be fixed for all the NPA accounts as per our Bank’s Staff Accountability Policy for Non-Performing Credit.


2011-12

PAYMENT TERMS: � Time limit for payment of OTS: The sanctioned OTS should be recovered, normally, within 3 months from the date of conveying the sanction without charging interest. However, if the payment is to be made in installments and has to extend beyond 3 months, 25% of the OTS sanctioned amount is to be paid within 3 months of conveying the sanction and the balance 75% may be paid in monthly / quarterly installments not exceeding further 9 months together with interest at PLR on the date of sanction, from the date of conveying the sanction to date of final payment made. EXTENSION OF TIME: a. Whenever the extension of time for honoring the OTS/OCS sanctioned by RM / CGM, is sought and if the request is genuine, the concerned sanctioning authority themselves may extend the time with payment of interest @ PLR for

PAYMENT TERMS: � Time limit for payment of OTS/OCS: The sanctioned OTS/OCS should be recovered, normally, within 3 months from the date of conveying the sanction without charging interest. However, if the payment is to be made in installments and has to extend beyond 3 months, 25% of the OTS / OCS sanctioned amount is to be paid within 3 months of conveying the sanction and the balance 75% may be paid in monthly / quarterly installments not exceeding further 9 months together with interest at the prevailing Bank’s base rate on simple basis for the period beyond 3 months of conveying sanction. EXTENSION OF TIME: a. Whenever the extension of time for honouring the OTS / OCS sanctioned by RM / DGM or GM(Law) at Central Office is sought and if the request is genuine, the sanctioning authority themselves may extend the time with payment

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b. Whenever the extension of time for honoring the OTS sanctioned by ED / CMD / MCB, is sought and if the request is genuine, CGM (Law) or CGM (Credit Departments) may extend the time with payment of interest @ 12% for the delayed period. c. Extension of time for an OTS/OCS sanctioned by MCB, waiving part / full interest for the delayed period may be considered subject to a floor @ 3 year G Sec plus 2% by CMD and in his absence by ED.

b. Whenever the extension of time for honoring the OTS / OCS sanctioned by ED / CMD / MCB, is sought and if the request is genuine, GM(Law) at Central Office may extend the time with payment of simple interest @ 12% for the delayed period i.e. the period after the time originally stipulated for payment. For the purpose of clarification, in respect of an OTS/OCS sanctioned on deferred payment, for payment of the 25% amount payable within 3 months, if there is any delay, interest will be charged at 12% simple for the period delayed beyond 3 months. In respect of the balance 75% amount payable in 9 months, simple interest will be charged at Bank’s base rate upto 9 months and for the period beyond 9 months, at 12%. Deleted

the delayed period.

of simple interest @ 12% for the delayed period i.e. the period after the time originally stipulated for payment.

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SETTLEMENT FORMULA FOR COMPROMISE / CALCULATION OF SACRIFICE: Simple interest to be added from the date of last debit till date of expected payment of compromise amount at the rate of 9.25% per annum / contract rate / decreed rate of interest which ever is less to be reviewed once in 6 months as on 31st March and 30th September

SETTLEMENT FORMULA FOR COMPROMISE / CALCULATION OF SACRIFICE: Simple interest to be added from the date of last debit till date of expected payment of compromise amount at the Bank’s base rate prevailing on the date of submitting the proposal / contract rate / decreed rate of interest which ever is less


2011-12 * SACRIFICE under OTS is always the difference between NOTIONAL DUES and OTS OFFER. Notional Dues (minus) OTS Offer = SACRIFICE = Waiver + Write-Off. (Sacrifice is the basis for deciding the sanctioning authority)

* SACRIFICE under OTS is always the difference between NOTIONAL DUES and OTS OFFER. Notional Dues (minus) OTS Offer = SACRIFICE (Sacrifice is the basis for deciding the sanctioning authority) As per the existing accounting policy of our Bank, all recoveries other than the case of suit filed accounts and OTS / OCS shall be appropriated first towards interest / uncharged interest. In the process, any payment made before the OTS / OCS proposal was submitted would have been taken to interest account in which event, there would not have been reduction / there would have been nominal reduction in the book outstanding. However, when the OTS / OCS proposal is considered, the amount already remitted subsequent to NPA date and taken to interest account may be notionally treated as recovery towards principal and the sacrifice may be arrived at. Example:

Book outstanding on date of NPA: Rs.100

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Subsequent payments taken towards interest: Rs. 20 Notional dues: Rs.110 Offer amount including Rs.20 already paid(i.e.Rs.70+Rs.20) Rs.90 Sacrifice: Rs. 20 Write off: Rs. 30 As this sacrifice is falling under CRM’s powers, he can consider sanction and pass orders for writing off (though the write off amount of Rs.30 lacs falls beyond his powers).


2011-12 At the end of para on valuation of hypothecated stocks, Machinery and Book Debts, we propose addition.

After discounting the hypothecated stocks & book debts as above and obtaining the value of the machinery from the valuer, the NPV shall be arrived as per formula already explained. The NPV of Plant & Machinery and other property such as vacant land, factory land etc; should be separately given in the OTS / OCS proposal. The minimum acceptable amount shall be the NPV of the securities available as on the date of NPA. Therefore, repayments made by the party after classifying the account as NPA shall also be taken into account while arriving at the NPV. However, the amount remitted by sale or release of securities shall not be reckoned while arriving at the minimum acceptable amount and NPV should be arrived for the remaining securities. Example: (1)Amount paid for release of security after date of NPA: Rs.30

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(2)Amount realized by sale of security by Bank through SARFAESI/DRT after date of NPA Rs.25 (3)NPV of the remaining securities at the time of offer: Rs.100 (4)Repayments made after classifying account as NPA: Rs. 40 (5)Minimum amount acceptable will be (Rs.100 minus Rs.40) : Rs. 60 (The recovery under (1) & (2) shall not be reckoned while arriving at the minimum acceptable amount) Though the minimum acceptable amount shall not be less than the NPV of the securities, it is possible that there may be cases where the NPV is more than the notional dues / contractual dues. If the OTS / OCS offer is to pay the Notional dues / contractual dues , the acceptance of the borrower’s offer should be restricted to the contractual dues only and in the case of offer to pay notional dues, the offer should be placed to the Management Committee of the Board, for approval on a case to case basis.


FOR UNSECURED LOANS, Book outstanding as on the date of proposal may be taken as Minimum acceptable amount, to avoid write off. However, under unavoidable circumstances write off may be permitted after recording proper justification for the same.

FOR UNSECURED LOANS, though the endeavor shall be to recover the Book outstanding as on the date of proposal to avoid write off, decision may be taken on the basis of the tangible net worth of the borrower / guarantor.

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Compromise below the minimum acceptable Amount / Benchmark Amount should not be treated as deviation as long as it is with cogent reasons.

Under unavoidable circumstances write off may be permitted after recording proper justification for the same. Note: Unsecured loans include credit card dues. Guidelines for recovery of Credit Card NPAs through OTS/OCS have been issued by Credit Card Division, Central Office vide Comlet No.8/2010-11 dated 07.09.2010.

The page on Executive Summary deleted since these details are contained in the format of OTS / OCS proposal.


CERTIFICATE BY REGIONAL HEAD( in the event of wide variation in valuation):

OTS / OCS PROPOSAL (in terms of CO Circular No ADV / 55/2010-11 dated 21.07.10

Name of account : Branch : The General Manager / Chief / Senior Regional Manager certifies that the present value of the prime and collateral security (as valued by the valuer / branch manager) furnished in the OTS / OCS proposal is correct and justifiable.

CERTIFICATE BY REGIONAL HEAD:

Name of account : Branch : 1. The General Manager / Chief / Senior Regional Manager certifies that the present value of the prime and collateral security (as valued by the valuer) furnished in the OTS / OCS proposal is correct and justifiable. 2. The proposed compromise settlement is in conformity with RBI guidelines / our Bank’s Recovery Policy. (In case of proposals sanctioned by RO, RO should record in their note that the proposed compromise settlement is in conformity with RBI

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guidelines / our Bank’s Recovery Policy after ensuring the same).

********************

Annexure -2

Indian Overseas Bank,………………. Branch

DESK TOP VALUATION REPORT 1. Name of the Borrower 2. Facilities Limit Balance Outstanding --------------------------------------------------------------------------------------------------------------------------- A. Fund Based : a) b) c) B. Non-Fund Based : a) b) c) --------------------------------------------------------------------------------------------------------------------------- 3. VALUATION OF LANDED PROPERTY : --------------------------------------------------------------------------------------------------------------------------- Location Nature Extent Owned/ Value (at Current Urban/Semi-Urban/ Leased Market Rate) Rural/Agri./House Sites etc. Rs. Rs. ---------------------------------------------------------------------------------------------------------------------------

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--------------------------------------------------------------------------------------------------------------------------- 4. VALUATION OF BUILDING : --------------------------------------------------------------------------------------------------------------------------- Nature Condition Extent Location/ Owned/ Value(at Self Residential/ I Class/ Sq. Address Leased Current occupied House/Factory/ II Class Mtrs. Market or Office Building Construction Rate Rs. leased

5. VALUATION OF MACHINERY : Brief Details Location Imported/ Aged/Date of Cost as per Market Value Indigenous Purchase including taxes Rs. 1 2 3 4 5 6 6. VALUATION OF OTHER ASSETS : ------------------------------------------------------------------------------------------------- Brief Details Present Value Rs. -------------------------------------------------------------------------------------------------

CONSOLIDATION Earlier Valuation Present Valuation Amount Amount Rs. Rs. 1. Land 2. Building 3. Machinery 4. Others (LIC Policy/Jewellery/UTI/NSC, etc) ------------------------- ------------------------

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------------------------- ------------------------ Date : Branch Manager Notes : 1. It should be prepared in triplicate. One copy to be retained at the branch, one copy

to be sent to Regional Computer Centre along with HYR Return, one copy to be given to Auditors along with HYR Return.

2. The present value indicated in this report should be incorporated in the HYR Returns at the appropriate columns.

Documents

NPA (Recovery Policy )