No bad loan means you are not in business. Bad Debts are an insurmountable part of business life. Despite the caution, impaired assets accrue out of subdued economic cycles. Failures are not entirely due to malafide intentions. Most stressed assets germinate out of disruptions in the financial ecosystem that impair the supply chain. Wars, natural disasters, pandemics, delayed sanctions, and personal humiliations inflicted on borrowers also cause bad debts in banks.
Banking is essentially a risk-prone activity conducted to earn profits by lending on trust. Infirmity in selecting a borrower makes a recovery painful. Despite setbacks, the NPAs in banks have rarely crossed 10% of the loan portfolio. The history proves that 90% of the borrowers across all geographies comply with the ethos of banking. They redeem debt on time to ensure the cyclicality of funds.
Lending is the art of foreseeing the potential in borrowers’ business. Take measured steps while financing. It takes two to make a deal, two to negotiate, and two to go wrong. He who is quick to borrow is indeed slow to repay. An invoice that is 90 days overdue has about a 50% chance of being collected in full. People never pay back with the same mood they used to borrow money. Buying on instalments makes the months shorter and years longer. Some people trust that If they are born poor, it’s not their mistake, but if they die poor, it’s their mistake. They over-indulge in chasing the money for overnight enrichment, right or wrong, ending up messing up their loans defiling the credit history. They forget that it is better to go to bed hungry than wake up in debt. They fail to comprehend that the primary difference between rich and poor is handling the debt diligently.
The aspirational Indian market is full of players searching the pot of gold in the loan departments of banks. Getting a loan is winning a lottery for some of them. They ruminate and digest the credit funds too long, leaving virtually little to repay. The NPAs are a natural offspring of such lust for running faster before perfecting the art of walking. More than Rs. 9.00 lac crores worth of loans have gone sour in Indian banks as of 30.09.2021. The write-offs were of a similar level. The need of the hour is first to firewall the banking system from fragile credit and then un-lock the treasure of stressed assets to release the capital for banks.
Following are the four golden rules to recover the NPAs:-
1. Repair the Deficient Features in the Account :
The priority should be: Follow-up and rectification of irregularities pointed out in the audit reports, including (a) RBI Inspection Report (b) Central Office Inspection Report/Credit Audit Report (c) Concurrent Audit Report (d) Stock Audit Report & (e) Statutory Audit Reports. Recover applicable charges/fees/penalties. The repair effort would ease the identification of accountability in the Account throughout its life cycle.
2. Initiate All Legal Actions of Recovery :
Insist on an ongoing verification of assets charged as security to ensure the protection of the Bank’s interest. Ensure continuous availability of insurance even at Bank’s cost. File claims on CGTMSE/ DICGC/ECGC.Issue Lawyer’s notice. Enforce Sarfaesi Act to auction the security. Move NCLT/ BIFR. Conduct Forensic Audit. Initiate Wilful Default classifications and report for confiscation of the passports.
3. Remain in Touch With the Recalcitrant NPA Borrowers:
Keep the documents/files effective and in safe custody. Maintain a stable relationship and touch with the borrower and guarantors. Never show the original documents or title deeds to avoid being stolen or destroyed connivingly. Find the new residential and business address as most defaulters migrate for oblivious reasons. Visit regularly to show the sincerity of purpose. Disseminate the reasons for the default and empathise with occupying space in his mind to bring him back to the Bank. Arrange meetings with the top visiting officials of the Bank to pull him closer. Not many people like to remain indebted at the cost of risking their credit history to ruin the future. They want the Bank to be nearer when resuscitated and have surpluses to repay. Banks’ visibility is a powerful reminder for NPA borrowers to remain loyal.
4. Never Indiginify the Borrower :
Having lost business and respect from his circle of friends and relatives, the borrower becomes thick-skinned as he has nothing else to lose. Do not shout or in-dignify him when he visits the branch or you visit his house. He knows his fault; the banker has to protect the umbilical cord and confine the borrower in the network for recovery.
Recovery Branches must train the staff about the intricacies of the minds of the wounded borrowers. The knowledge inculcating the soft skills shall keep the recalcitrant borrowers in good humour. Affable ambience shall make defaulters run smilingly to the banks to reduce the NPAs.
The respect given to a defaulter is directly proportional to the amount recovered.
By -Hargovind Sachdev
About the author
Mr. Hargovind Sachdev is an Ex-Banker, GM(Retd) of State Bank of India. Has over 39 years of experience in banking, having occupied senior positions in UCO Bank, United Bank of India,State Bank of Patiala, State Bank of Travancore & State Bank of India where he headed the Central European Credit Desk at Frankfurt,Germany from 2006 to 2011 covering 15 countries of Central Europe.Has undergone International Banking Training from Asian Institute of Management, Manila, Philippines in the Year 2003 and a Multi-currency lending-technique training at the Euro Money Institute, London in 2009.
He has specialisation in Credit, Foreign Exchange,Vigilance, Monitoring & appraisal of Corporate Loans, MSME Credit,Gold Loans, Agricultural Loans & NRI Business Management in assets & liabilities. As a Forensic Auditor, he has conducted various Transaction Audits allotted by Banks.
He was felicitated by the Central Vigilance Commissioner , Sh. C.V Chowdhry for winning first prize for best article on Preventive Vigilance in 2015. He is also an accomplished Public Speaker having conducted multiple Motivational Seminars for institutions like ONGC, National Housing Bank & Bank of Baroda. He is an Independent Director & consultant to various big entities in corporate sector at present.
The respect given to a defaulter is directly proportional to the amount recovered.
