NON-PERFORMING ASSETS : DISADVANTAGES, …sbioabhopal.org/el_book2019/el_pdf/NPA Management.pdfIn...
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H. SULAIMAN (SBIOA)
NON-PERFORMING ASSETS :
DISADVANTAGES, ETC.
Disadvantages of N.P.As. for Banking System :
• Interest income cannot be booked on NPA accounts which adversely affects profitability.
• Banks have to maintain huge provisions as per the IRAC norms on all NPAs which
also adversely affect profitability.
• Bank’s funds are blocked in NPAs (no recycling). This results in reduction in interest
earnings and affects profitability.
• NPAs are more risk-weighted assets. Banks having more NPA base have to maintain
more capital base as per CAR (Capital Adequacy Ratio) norms. This also affects
profitability because banks will have to serve the capital base by payment of dividend/
interest.
• Payment of Central Office interest @ prescribed rate by all branches on their NPAs.
• High level of NPAs downgrades the inspection rating (risk rating) of the branch.
• New branch licences are not given to banks which have high level of NPAs.
• NPAs also affect economy of the country as productive assets created out of bank
finance are not/under utilised.
• Adversely affect the image of the Bank in the eyes of public/shareholders (Indian/
international) and international banking industry.
• Heavy cost is involved on supervision and follow-up in terms of money and manpower.
Recalled Assets A/c : Purpose : The purpose behind transferring bad/doubtful advances to
Recalled Assets Account is to pay Special attention to the management of non-persorming
assets.
NPAs : Symptoms of any advance deteriorating should be picked up in time so that remedial
action can be initiated to obviate complications and further degradation at a later date.
Temporarily Irregular A/cs :
i) Accounts in which outstandings exceed the permissible drawing power.
ii) Accounts in which the outstandings exceed the sanctioned limits, though adequately
secured by securities charged to the bank.
Sick A/cs : Advances which can be nursed back to good health. For such units, a nursing
programme can be drawn with a view to reviving them and recovering the Bank dues.
Sticky A/cs :
i) The advances where the unit cannot be nursed back to health in any circumstances :
ii) Where the nursing programme drawn up for rehabilitation of the unit has absolutely
failed.
Special Mention A/cs : All banks have now introduced a new asset category between
‘Standard’ and ‘Sub-standard’ categories, i.e., Special Mention Accounts (SMAs) for the
Bank’s internal monitoring and follow-up in line with international best practices. The relative
mechanism is detailed in CIRCO/ADV/CL/275/2002-03.
Further details furnished separately.
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H. SULAIMAN (SBIOA)
NON-PERFORMING ASSETS
Indicative NPAs : An effective NPA Management System should be put in place for regular
monitoring of Indicative NPAs with a view to avoiding them turn into Real NPAs.
Underlying Frauds in NPAs : Prior to/after Migration of Accounts to SAMB (Stressed Assets
Management Branch) : Approach to be adopted by all the concerned entities in instances of
underlying frauds in NPAs : e-Cir/473/2010-11.
Defaulted Companies : H.C. Directive : The Hon’ble Patna High Court has directed the RBI to
direct all the banks that the companies as per list enclosed to CCFO/ADV/CL/57/2007-08 which
have been declared as “defaulted companies” should not be allowed to deal with money transactions
in their accounts : CCFO/ADV/CL/190/2007-08.
NPA Management : Review : Integrated Approach to Review and Management of Stressed
Assets (SMAs, NPAs and AUCA) : The integrated approach detailed in CIRCO/ADV/CL/34/
2004-05 supersedes all earlier instructions (non-BIFR/non-CDR) on review of problem loans/
SMAs/NPAs (including AUCA).
Stressed Assets Review (SAR) : SAR covers loan assets which have the potential for quick
turnaround, i.e., SMAs (Category I & II) and sub-standard assets : CIRCO/ADV/CL/34/2004-05.
Cut-off : Rs. 10 Lac and above (outstandings).
Modifications to instructions contained in CIRCO/ADV/CL/34/2004-05 : CIRCO/ADV/CL/41/
2004-05.
Formats and review mechanism : CIRCO/ADV/CL/50/2004-05.
NPA Management : Strategy for reducing NPAs especially, in ‘P’ Segment for all loans over
Rs. 50,000/- : Extant Provisions Reiterated : Enclosed to CCFO/ADV/CL/293/2007-08.
Special Mention A/cs (SMAs) : Modi. Defi. : CIRCO/ADV/CL/34/2004-05 :
a) Modified Defi. : As per the Bank's integrated approach, the following two categories of
accounts have been designated as SMAs :
i) Category I : Accounts where interest/instalment has not been serviced for 30
days.
ii) Category II : Accounts which are not in default but are showing early warning
signals such as frequent return of cheques/bills discounted,
devolvement of LCs, declining financials, etc. An illustrative list of
warning signals, as advised by the RBI, is given in Annexure-I of
CIRCO/ADV/CL/34/2004-05.
b) Integrated approach to review and management of SMAs, NPAs and AUCA and the
modified approach to rehabilitation/restructuring have been outlined in detail in CIRCO/
ADV/CL/34/2004-05.
Extant SMA review process reiterated in CCFO/ADV/CL/223/2005-06.
SMAs : Review : Extant instructions relating to on-going review of SMAs are reiterated in CCFO/
ADV/CL/101/2007-08.
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H. SULAIMAN (SBIOA)
Branches and controllers should ensure that instructions relating to follow up of SMAs are adhered
to (so that SMA are not allowed to slip into NPAs on account of inadequate attention/follow-up).
SMAs : Special Mention Accounts : Integrated Approach : to Review and Management : Extant
instructions reiterated : e-Circular/435/2009-10.
SMA : Verification of Security/other Documents : With a view to arresting the trend of increasing
frauds in asset accounts, it is required to continuously monitor the identity and address of the
borrowers/guarantors and also monitor scrupulously the securities available to the Bank. Security
and other documents should be verified immediately on classification of the account as SMA to
ensure that the slippage is not consequent to a fraud and the available security is marketable/
enforceable. The security need to be re-verified from an empanelled advocate other than the
advocate who had furnished the original Title Investigation Report. The field/maintenance officials
should also conduct independent verification of title/valuation of security to secure the Bank’s
interest. The aforesaid instructions are in addition to the instructions currently in place regarding
verification of security at the time of call-up of advances and also at the time the accounts are
written-off : e-Cir/621/2009-10.
SMA Accounts : In Multiple Banking Arrangement (MBA) : Approach for SMA accounts with
aggregate credit facilities of Rs. 50 Cr and above under MBA : e-Cir/944/2010-11.
Quick Mortality A/cs : Management : The Corporate Centre have enlisted various factors
contributing towards quick mortality as observed from the data/feedback received from Analysis
and Review of Quick Mortality Accounts (QMA) as of 31.03 with a view to controlling incidence of
QMAs : CCFO/ADV/CL/133/2007-08.
Branches should take special care of new loan accounts as per the Bank’s extant instructions to
avoid QMAs in our books.
NPA Management : Quick Mortality A/cs (QMAs) : Per Segment : Branches should take
appropriate steps to ensure prompt recovery from NPA Accounts. However, in case of Small-
Ticket Personal Loans (STPL) and Education Loans with no collateral cover, adhering to the
undernoted additional steps helps in augmenting the chances of recovery from recalcitrant
borrowers : e-Cir/417/2010-11 :
a) Personal visits to the Borrowers/Guarantor’s house/Office, and/or maintaining effective liaison
with DDO/Officials in Accounts Departments of concerned Office not only helps in ascertaining
the reasons for default, but also eventually helps in resolving the QM Account in Personal
Loans.
b) Further, in case of Education Loans, Operative Units should obtain campus placements
details of students, which help in following up with the employer in case of delinquent borrowers.
In case of Education loans for studies abroad, a copy of VISA should mandatorily be held at
the loan Sanctioning Office for eventual tracking, in case of need.
NPA Management : Quick Mortality A/cs : To provide focussed attention to QM Accounts, it has
been decided that (e-Cir/417/2010-11) :
a) Reduction in QM (Quick Mortality) accounts is now considered a Key Responsibility Area
(KRA) of the Operative Units, especially Branches/CPCs,
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H. SULAIMAN (SBIOA)
b) Network General Managers apprise CGM (Circles) at quarterly intervals on QM accounts in
their Network and spell out clearly an Action Plan and time-frame for bringing the QM accounts
to normalcy.
c) Circle CGMs to comment on quick mortality accounts, detailing their segment-wise
distribution, along with the action plan and time-frame for bringing back the account to normal
cycle, to the Dy MD and GM (NBG).
Quick Mortality : Suggested Steps : Gist of findings of the study conducted by the Bank and
measures suggested to minimize incidences of quick mortality : e-Cir/83/2011-12.
Stressed Assets Management : NPA and AUCA Accounts : Periodicity of Inspection of Units :
Detailed in e-Cir/797/2009-10.
No periodicity has been prescribed for the DGM (SAMB) and the AGM (SARC/SARB), i.e., the
Heads of SAMBs and SARCs/SARBs, who may undertake visits on a need-based approach.
Further, reduction in the periodicity of inspection or completely dispensing with inspection should
not, in any way, dilute efforts towards resolution of the stressed assets; the Branches should
continue to take all possible measures considered necessary towards this end, which may include
more frequent visits to the units.
Stressed Assets Management : Appointment of Nominee Director on the Board of Companies
Assisted by the Bank : Review of Authority Structure : CCFO/ADV/CL/28/2005-06.
Recalled Assets A/c : Important Points : CCFO/BO/CL/371/2006-07, 357/2007-08.
a) Write-offs are to be effected only through Recalled Assets Account.
No write-off should take place in live accounts.
b) Write-offs and fresh transfers to Recalled Assets Account may be permitted only up to
28th/29th February.
c) Debits on Account of permissible expenses and credits on account of recoveries may be
permitted up to 31st March (as the returns are generated at the Branch itself).
d) Legal expenses incurred should be debited to Charges A/c (instead of borrowers’ accounts).
The details of such expenses should be recorded properly in the Recalled Assets Account
Register for eventual recovery from the borrowers.
Recalled Assets, etc. : Non-BPR Centers : Credit process for putting up the proposals relating to
write-off, compromise cases & RD transfers to the Committees : e-Cir/57/2011-12.
Recalled Assets : Formats : For Approval/control of (1) Transfer of outstanding to Recalled
Assets Account, (2) Write-off of outstanding from Recalled Assets Account & parking in AUCA :
Amendments in Formats : Detailed in e-Cir/1103/2013-14.
Recalled Assets, AUCA : Standardised Formats for Approval & Control of : e-Cir/892/2013-14 :
i) Transfer of outstanding to Recalled Assets account and initiation of legal action, including
action under SARFAESI Act.
ii) Write-off of outstanding from Recalled Assets account and parking in AUCA.
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SME NPAs : Approach for Sale of Non-performing retail financial assets of SMEs Sector to
ARCs/Banks/FIs/NBFCs on portfolio basis : A policy on sale of NPAs in SME Segment portfolios,
with outstanding up to Rs. 1 crore, has been formulated recently : e-Cir/477/2010-11.
Review of NPAs : High Power Task Force (HPTF) : The Bank has recently decided that all NPAs
and AUCA with outstanding of Rs. 25 Crores and above with the other Business Groups (pending
migration of SAMG or for other reasons), are also reviewed by the HPTF. The responsibility for
putting up the review reports in respect of those accounts vests with the Business Group concerned :
e-Cir/739/2012-13.
Revised Format for Review : Enclsoed to e-Cir/739/2012-13.
NPA Management : HPTF Committee : High-Power Task Force Committee : For monitoring of
SMS, NPA & AUCA with outstanding of Rs. 25 Crore and above (since enhanced as under) :
Expansion of Committee : Enclosed to e-Cir/1184/2012-13.
Review of NPAs/AUCAs : by HPTF & Other Committees : In view of large number of NPA accounts,
the cut-off limit has been revised from Rs. 25 crore to Rs. 50 crore, for review of NPAs/AUCAs of
all Business Groups by the HPTF Committee. However, all NPA/AUCAs in CAG are to be reviewed
by HPTF Committee irrespective of the outstanding amount : e-Cir/1124/2013-14.
Other Details : Furnished in e-Cir/1124/2013-14.
Creation of SAMCC : Stressed Assets Management Credit Committee : Committees constitution,
financial powers, business rules, functions and responsibilities : Detailed in e-Cir/425/2013-14.
NPAs Management : Consortium Arrangements/Multiple Banking Arrangements : RBI has
recently advised that any fresh loans/ad-hoc loans/renewal of loans to new/existing borrowers
with effect from January 1, 2013 should be done only after obtaining/sharing necessary information :
e-Cir/937/2012-13.
Detective Agencies : In cases where borrowers/guarantors or their assets cannot be traced
despite our best efforts, the services of approved detective agencies may be utilised as per the
guidance received from the controllers/LHO.
Recovery of NPAs : Recent SC Ruling : Expressing serious concern over the misuse of legal
process to frustrate the recovery proceedings of the banks and financial institutions, the Supreme
Court has recently said that the borrowers are duty-bound to repay the due debt and any lapse in
this regard will invite serious action : ET 11.08.2010.
The Bank is a trustee of public funds. It cannot compromise the public funds. It cannot compromise
the public interest for benefitting private individuals.
Disputes : Pub. Sector : Settlement of Disputes Relating to Commercial and other agreements
between two Public Sector Entereprises and between a Public Sector Enterprise and a Government
Department : CCFO/ADV/CL/88/2006-07.
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The Committee on Disputes (COD) has taken a strong exception on apporaching courts/tribunals
by various Government/Semi-Government organisations for settling their disputes without obtaining
the clearance from the COD.
The clearance (approval) should be obtained as a mandatory practice as non-compliance of the
Hon’ble Supreme Court order tantamounts to contempt of court order.
Disputes Between Two Public Sector Enterprises : Procedure to be adopted for adding the
arbitration clause in the security documents by all borrowers in the public sector/Govt. Dept./
Banks : CCFO/ADV/CL/234/2005-06.
Format enclosed to CCFO/ADV/CL/234/2005-06.
AGL NPAs : Operation Red Alert : Containing NPAs in Accounts Restructured : Correct
Classification of Restructured Accounts : CCFO/ADV/CL/290/2006-07.
NPA dates for the restructured accounts : Detailed in CCFO/ADV/CL/290/2006-07.
NPA Follow-up : S.Is. : Standing Instructions in Core Banking : Branches should take note of
the points detailed in CCFO/ADV/CL/348/2006-07 to avoid any possible NPAs on account of non-
execution of SIs.
N.P.A. Management : Priority of Charge : The Central Govt. recently amended the provisions
of Customs Act, Finance Act & Central Excise Act as detailed in e-Cir/509/2012-13.
The purpose of these amendements is to give priority to the claims of the Banks as secured
creditors over the arrears of taxes such as the Customs Duty, Excise Duty and Service Tax. The
above provisions incorporated in the respective taxation laws supplement the overriding provisions
contained in Section 34(1) of RDDB Act and Section 35 of the SARFAESI Act. If priority of the
Bank’s claim under the RDDB Act or the SARFAESI Act is contested by the authorities concerned,
the Bank is now in a position to claim priority, placing reliance on the provisions of the amendments
carried out in the respective taxation laws by the Finance Act, 2011.
Borrower’s/Guarantor’s Salary : Attachment : As per the Sec. 60(1)(i) of Civil Procedure Code,
the unattachable portion of a salaried borrower/guarantor is Rs. 1000 + (2/3) of the balance. For
example, if the salary is Rs.1,600/-, the unattachable portion is Rs. 1000+(2/3) of Rs. 600, i.e.,
Rs. 1,400 (CIRDO/LAW/CL/2/2002-03). The employer’s full address must be mentioned on the
salary attachment warrant.
Adv. : Criminal Action : Wilful Defaulters : At the time of identifying and declaring the borrowers
as willful defaulters, initiation of criminal action based on the facts of each case should also be
examined invariably before taking such decision. In selective cases, criminal proceedings on
willful defaulters by the Bank, will not only have a demonstrative impact, but also possibly lead to
speeding up the recovery process in those cases : e-Cir/905/2011-12.
Arrest of Borrowers : Dealt with in Sec. 51 (c) and 58 of C.P.C. and Order 21 Rule 37 ibid.
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Though legally, there is no bar for execution of a decree by the arrest and detention of judgement
debtor, according to the Supreme Court of India, mere failure to pay loan amount is not a sufficient
ground for his arrest and detention. There must be some element of bad faith and proof of his wilful
failure to pay inspite of his sufficient means as held in Bank of Cochin’s case (Civil Appeal No.
1991 of 1979) : I.B.A. Bull April 1991.
Sec. 58 of the C.P.C. limits the maximum period of detention of person in civil prison.
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PHOTO NOTICES : PUBLICATION
Defaulting Borrowers : Photographs : Publication : Clarifications : CCFO/ADV/CL/201/2006-
07, etc. - Detailed separately.
The action of the Bank in publishing photographs cannot be said to be arbitrary or illegal in any
manner nor can it be said to be defamatory, provided the customer is put on notice about it.
In respect of defaulting borrowers against whom legal proceedings have already been initiated
under the SARFAESI/DRT/Civil Law, it is advisable to obtain the permission of the Court so that
there will not be any litigation on this score.
The above instructions also apply to publishing photographs of guarantors who have guaranteed
loans sanctioned to defaulting borrowers.
Photo Notices : The Chennai High Court has recently ruled that there is no violation of any right
or legal provision in a Bank’s threat to publish photographs of defaulters borrowers : CCFO/ADV/
CL/308/2006-07.
Education Loans : NPAs : The recent exemption from publication of photograph is applicable
only in the case of Education Loans, and is not applicable to other categories of borrowers, in
respect of whom such instructions have been issued for publication of photographs. Other measures
for recovery of Education Loan NPAs like initiation of action under SARFAESI, wherever applicable,
and filing of civil suits continue. In addition, details of Education Loan NPAs continue to be
reported to Credit Information Companies like CIBIL, etc. : e-Cir/465/2013-14.
Photographs of Defaulters : Education Loans : Branches should not resort to publication of
photographs of defaulters in Educations Loans : e-Cir/1050/2013-14.
Any violation henceforth is viewed seriously.
Authority Structure : The publication of the names and addresses of the wilful defaulters/defaulters
with or without their photographs should now be approved in each case by the CGM concerned-
CAG, MCG, SAMG or Circle on a case-by-case basis after the facts of each case are firstvetted by the Law Dept. at the Module/LHO (originally, by the Law Dept. at the Corporate Centre) :
CCFO/ADV/CL/125, 198/2007-08, e-Cir/235/2013-14.
Wilful Defaulters : Publication of Photographs : It has to be ensured that an advance Notice is
issued without fail to the defaulting borrowers/guarantors advising them of the Bank’s intent to
publish their names and addresses with photographs, before actually publishing the same in the
local/leading newspapers : e-Cir/715/2012-13.
Standard Format of Notices : Enclsoed to e-Cir/715/2012-13.
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SARB, SAMB
Soft Recovery : At branches, RACPC, SMECCC.
Hard Recovery : At SARC (now known as SARB), SAMB (Stressed Assets Management Branch) :
Per & SME Segment Loans.
SARB : Exclusions : BIFR cases, Mid-corporates, Staff Advances, Frauds.
SARCs have been recently renamed as “Stressed Assets Recovery Branches” (SARBs) - limited
functionality branches.
SARB : Transfer of A/cs : The Bank has recently decided to utilize them for resolution of NPAs
with outstanding above Rs. 1 Crore (up to Rs. 10 Crore-FB+NFB) also : e-Cir/1239/2012-13.
Further details furnished in e-Cir/1239/2012-13 :
a) PER & SME Segment NPA up to Rs. 10 Crore (FB+NFB).
b) Circles may migrate AGRI NPAs above Rs. 1 Crore and up to Rs. 10 Crore (FB+NFB) on
case- to-case basis for better recovery.
c) NPAs above Rs. 1 Crore and up to Rs. 10 Crore (FB+NFB) if any, will be migrated from CPCs
to SARB for better handling.
d) Migration of NPAs up to Rs. 10 Crore (FB+NFB) by Branches.
Migration to SAMG/SARB : Format : The Bank has recently devised a standardised format
along with work flow to be followed by branches while transferring account to SAMB/SARB :
Enclosed to e-Cir/742/2013-14.
The format prescribed for migration of accounts to SAMBs is also applicable for migration of
accounts to SARBs at pre and post migration stages : e-Cir/951/2013-14.
Migration of Accounts to SAMBs/SARBs : Search : After migration of accounts, SAMBs/
SARBs should immediately take a search in the CIBIL/CERSAI/I-PROBE data base to ascertain
the following : e-Cir/1174/2013-14 :
i) Whether the Proprietor/Partner(s)/Director(s)/Firms/Companies, etc., are having any loans
at any of the Branches of SBI or any other Bank.
ii) Details or encumbrances on the assets charged to the Bank.
iii) Credit history of the Borrower(s)/Guarantor(s).
The findings to the above effect have to be furnished in the migration report of the account to be
submitted to SAMG as per extant instructions.
Transfer of NPAs to SAMBs : Revised Accounting Procedure : Approach in the process of
migration of NPAs to SAMG, methodology, BGL Accounts, discount, etc. : w.e.f. 01.07.2011 : e-
Cir/700/2011-12.
Stressed Assets : Migration to SAMG : Group A/cs : All the accounts of group companies, even
if some of them have become NPA, may be held at the parent Branch to have a holistic approach :
e-Cir/105/2013-14.
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Stressed Assets : Check-list for Migration of Accounts to SAMBs : Pre-migration and post-
migration stages : e-Cir/108/2013-14.
Transfer for NPAs to SAMBs : Disincentive Discount for Migration of NPAs : Revised (Reduced)
Rates : e-Cir/952/2013-14.
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ASSET RECONSTRUCTION COMPANIES (ARCs)
Asset Reconstruction Cos. (ARCs) : Objective : The Narasimham Committee Report on
Financial Sector Reforms has been put into practice. As a first step, some banks were allowed
to float asset reconstruction companies (their subsidiaries) that take over the non-performing
assets in exchange for government-guaranteed bonds.
This is in line with the principle of narrow-banking mooted by the Narasimham Committee.
Shri Tarapore has also advocated narrow-banking.
The Cabinet has recently approved a legislation to set up asset reconstruction companies to
deal with non-performing assets of banks and financial institutions which have touched a whopping
figure.
ARCIL : Capital Structure : The SBI (with 19.95% share-holding) is a co-sponsor to Asset
Reconstruction Company (India) Ltd. (ARCIL). ICICI Bank : 29.58%, and IDBI Bank Ltd. :
19.95% .
The ARCIL was established in 2003 and it became operational during 2003-04 under the SARFAESI
Act. Sizeable reduction in NPAs (and focus on core operations) is targeted through transferring
NPAs to ARCIL.
The Govt. has recently allowed 49% foreign direct investment (FDI) in ARCs.
NPAs : Transfer of NPAs to ARCs / Banks / FIs / NBFCs / Third-Party : Authority to fix Reserve
Price/Signing Authority for Assignment : Agreement / Distribution of Settled Price for Portfolio
Assets : Competent Authority Structure : CCFO/ADV/CL/316/2005-06.
Modifications in CCFO/ADV/CL/316/2005-06 : CCFO/ADV/CL/317/2005-06.
Sale of NPAs : Approach for sale of NPAs to ARCs/Banks/Fls/NBFCs : Reference : CCFO/ADV/
CL/316, 317/2005-06.
It should be the endeavour of branches to first focus their efforts towards maximizing recovery
through compromise, enforcement of security rights under the provisions of SARFAESI Act, recovery
proceedings before the DRT, etc. : CCFO/ADV/CL/60/2006-07.
Format of valuation chart : enclosed to CCFO/ADV/CL/60/2006-07.
NPAs : Approach for purchase of Non-performing Assets (NPAs) from Banks/Fls/NBFCs : The
detailed policy guidelines for purchase of non-performing assets in conformity with RBI Guidelines
and due diligence processes to be followed in this regard approved by ECCB are furnished in
CCFO/ADV/CL/ 305/2007-08.
Sale of Financial Assets : Of Doubtful Standard/Fraudulent Origin to Securitization (SC) /
Reconstruction Company (RC) : Reporting Requirements : e-Cir/358/2011-12.
Sale of Loan Assets : Standardised format of Assignment Agreement for sale of loan assets by
banks to Asset Reconstruction Companies (ARCs) (Annexure-II of e-Cir/713/2013-14) along with
the paper on Auction Sale Process (Annexure-I of e-Cir/713/2013-14) ( circulated by IBA ).
NPA Management : ARCs : The Bank has recently decided to utilize the services of the following
three Asset Reconstruction Companies (ARCs) for expeditious recovery of loss assets above Rs.
25 Lac : e-Cir/772/2012-13 :
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i) India SME Asset Reconstruction Company Ltd. (ISARC),
ii) ARSEC (India) Ltd. (ASREC),
iii) Asset Reconstruction Company (India) Ltd. (ARCIL).
The ARCs would only supplement the efforts of the Branch officials for expediting recoveries of
accounts written off, whether parked in AUCA or where full provision have been made, i.e., still
lying in live ledger/Recalled Assets Account with outstanding above Rs. 25 Lac.
It should be ensured that the ARCs follow legally permissible means/procedure, and that their
recovery efforts should not result in adverse publicity to the Bank.
Stressed Assets Management : ARCs : Asset Reconstruction Companies : The Bank has
recently decided that the services of all the 14 ARCs (registered with Reserve Bank of India) may
be utilized for recovery of loss assets (instead of 3 ARCs as approved earlier) : e-Cir/1112/
2012-13.
The same account should not be allotted for resolution purposes to both Resolution Agent as well
as ARC under any circumstances.
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Adv - 590
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COMMON IRREGULARITIES
IN NPA ACCOUNTS
• Turn-Around-Time (TAT) by CCOs not observed in most of the cases. (It is very important for
speedy resolution.)
• Opinion Reports on borrowers / guarantors not updated.
• Insurance policies not renewed where assets are available.
• Rehabilitation / Restructuring / Rephasement not undertaken in respect of eligible accounts.
• Accounts upgraded to Standard Assets but not reverse-migrated to Branches / CPCs.
• CCOs are not making personal contacts with all the borrowers allotted to them.
• Inspection of units not carried out in terms of e-Circular No. 797/2009-10. (As long as accounts
remain in live ledgers, inspections are to be carried out as per terms of original sanction.)
• Documents / Title Deeds relating to mortgage not obtained from Branches / CPCs.
• Collateral securities in the form of deposits not obtained from Branches / CPCs.
• Collateral securities in the form of deposits matured but proceeds thereof yet to be credited
to respective loan accounts.
• Documents are getting time-barred but no efforts are visible for their revival.
• Delay in initiating hard recovery measures at SARBs / SARCs.
• Lawyer’s notice served long back but no further action initiated.
• Legal action initiated but account not transferred to Recalled Assets A/c.
• Approval for transfer to Recalled Assets A/c and initiation of legal action obtained but legal
action yet to be initiated.
• Small-value Government-Sponsored Scheme accounts : No record of initiation of legal action/
Approval of’ competent authority for waiver of legal action. (Please note that Recovery
Certificates issued for GSS loans are at par with legal action.)
• Withdraw the RRC/DRT case (Revenue Recovery Certificate) before filing a civil suit - the
lending bank can take recourse to the provisions of only one law at a time for recovery of its
dues.
• In respect of cases of Rs. 10 Lac and above, RRCs cannot be filed - only DRT cases can be
filed in view of the decision of the M.P. High Court (2003) in Santhosh V/s Central Bank of
India.
• Suits Filed Register not maintained properly. Latest developments not recorded for follow-up
with the Bank’s Advocates.
• Progress of Suits filed not reviewed with Bank’s Advocate/Controller.
• Cases decreed but Execution Petition not filed.
• Notice u/s 13(2) of SARFAESI Act issued, but further action not initiated u/s 13(4).
• No follow-up for recovery of compromise amount as per schedule.
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• No action being taken where compromise failed.
• After receipt of compromised amount, remaining amount yet to be written off or removed from
AUCA.
• Quarterly review of AUC accounts not carried out. Controller’s observations not complied
with.
• Seizure of vehicle not done in deserving cases.
• Seizure of vehicle took place, but no efforts made for sale / auction.
• No proper record of misc. and legal expenditure incurred e.g. Court fees / Advocate fees/
BRISC amount paid/Commission paid to Enforcement Agents / Recovery Agents / Resolution
Agents, etc. These are also not recovered from borrowers at the time of closure of accounts.
• Borrowers should be educated not to pay the BRISC amount direct to the govt. authorities.
• Delay in submission of compliance remarks of various audit reports resulting in delayed
closure of reports.
• Delay in submission of remarks in respect of Management Letter / Synopsis in respect of
RFIA / Circle Audit reports.
• Voucher Verification Reports (VVRs) not checked (manually, on-line) properly on daily basis.
Note : The above-mentioned items are illustrative only, and not exhaustive.
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NON-PERFORMING ASSETS :
GUIDELINES FOR IMPOUNDING OF
HYPOTHECATED VEHICLES* & SALE THEREOF
Extant Instructions : reiterated vide CIRCO/CPPC/MISC/CL/108/2000-01, CCFO/ADV/CL/
11/2006-07.
• Demand for Possession : The copy of the registered notice served on the borrower by
Regd. A.D. Post calling upon him to repay the entire outstanding dues with accrued
interest and incidental charges, within a period of 15 days or to hand over the vehicle to
the Bank, should be endorsed to the guarantor also. An additional copy thereof should
be despatched under certificate of posting.
• Taking Possession : After the expiry of stipulated period, the B.M. should take
possession of the vehicle, ignition key and registration certificate with the help of F.O.
and other staff members in the presence of two independent witnesses.
In doing so, he should not take law in hand, and no force should be used either by the
B.M. or the field staff while taking possession of the vehicle.
If need be, assistance from the local police may be taken.
It is desirable to furnish the borrower with the inventory of the vehicle impounded.
• Civil Suits : If the borrower does not deliver possession of the hypothecated vehicle, an
application for appointment of a receiver with powers to take possession of the security
should also be moved at the time of filing the suit (with the prior approval of the controlling
authority).
An application for attachment of the hypothecated vehicle before judgement should also
be moved, where considered necessary.
• Storage of Impounded Security : The impounded vehicle should be stored safely in
the Bank’s compound/hired godown, preferably in the joint custody of the B.M./F.O.
and Cash Officer (in the presence of two witnesses), under advice to controlling authority.
• Transfer of Ownership : If the borrower does not deliver the possession of the registration
certificate, the Bank should request the R.T.O. to transfer the ownership of the vehicle
in the name of the financier Bank and issue a duplicate registration certificate.
• Final Notice before Disposal : Immediately after taking possession of the vehicle, the
borrower and the guarantor should be served with final notice for repaying the Bank dues
within 15 days from the date of the notice, failing which the Bank shall be at liberty to
dispose of the impounded vehicle either by private treaty or by public auction, as it
deems fit, at the best available price.
• Highest Bid : The branch should intimate the borrower and his guarantor about the
highest offer received for the security and give them reasonable time (as per the
SARFAESI Act) to pay off the advance or to forfeit the security.
• Floor Price : A suitable floor price should invariably be fixed by the Branch Manager
in consultation with a mechanic of repute (under advice to the controlling authority),
before the vehicle is auctioned.†
* and other securities (SIB/CL/19/1986, 59/1977, 28/1988).
† The borrower's name is now disclosed in the notice.
For crops, the floor price should not be less than the procurement price.
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• Auction : As soon as the permission for auctioning the vehicle is accorded by the
controlling authority, a public auction should be arranged.
It should be preferably handled by the Government authorised auctioneers. The notice
of auction. should be published in one of the prominent local newspapers of the area.
The notice should also be displayed prominently on the branch notice-board. The
copies of the auction notice incorporating the date of action should be sent to the
borrower and guarantor well in advance.
• Delivery of Vehicle : The auctioned vehicle should be delivered to the highest bidder,
provided the cost fetched is fair and reasonable, after the sale is confirmed by the
auctioneer(s) and the BM, and all the related formalities have been completed.
The purchaser should deposit at least 25% of the bid amount (as down payment) at the fall
of the hammer.
• Second Auction : In case the vehicle does not fetch a satisfactory price, another
auction should be arranged, under advice to the controlling authority.
• Sale by Private Treaty : If the vehicle is to be sold by private treaty, prior permission
from the controlling authority, quoting the price offered by the prospective purchaser,
should invariably be obtained.
• Completion of Sale : The borrower/guarantor should be advised when the auction sale
is completed.
• Accounting Entries : The sale proceeds less expenses should be credited to the relative
loan account. The residual amount (after deducting all the expenses), if any, should be
refunded to the borrower by means of a banker’s cheque.
• Acknowledgement : The purchaser should pay the rest of the bid amount in lump sum
(within 7/10 days) before the delivery of the vehicle.
At the time of final delivery of the vehicle, the purchaser’s stamped receipt/
acknowledgement should be obtained, together with a simple certificate signed by two
or more independent witnesses to the effect that the vehicle has been delivered in
their presence. It should be duly preserved on the Branch record in the relative file.
• Record of Auction Proceedings : A record of action proceedings should be made in a
separate book. It should be attested by two independent witnesses, apart from the
Branch officials present at the auction. A copy of the auction proceedings should be
forwarded to controlling authority in due course.
• Advice to Controlling Authority : Controlling authority should be kept advised of the
developments from time to time.
• NPA Management : Sale of Immovable Secured Assets Through Private Treaty : Salient
features of revised guidelines : issued by the Department of Financial Services (DOFS),
Ministry of Finance (MOF), Government of India (GOI) : e-Cir/398/2012-13.
Authority Structure : Detailed in e-Cir/398/2012-13.
• NPAs : Sale of Assets : Permission to sell Hypothecated Assets Seized by Police and kept
in Police Custody : e-Cir/317/2012-13.
In a recent landmark judgment, in one of the cases filed by one of our Branches seeking
permission to sell the hypothecated asset seized by the Police and kept in their custody in
594
Adv - 594
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connection with some other criminal case pending before it, the Hon’ble Court passed an
important order giving permission to the Bank to sell the seized asset.
• NPA Management : AGL Adv. : Auction of Seized Vehicles Through Organized Malls :
With the objective of creating a seamless process of seizure and sale of the impaired tractor
loans, the Bank has entered into a tie-up with M/s Shriram Automall India Ltd. who arranges
to repossess identified tractors, store and refurbish them, if required, before selling them
through well organised public auctions : e-Cir/1065/2012-13.
SPECIMEN OF FINAL NOTICE TO BORROWERS
Dear Sir(s),
Advances : Small Scale Industries/Small Business Finance/C&I Segment
We have sanctioned to you the following credit facilities and the present outstandings
thereunder are as given below :
Nature of Facility Limit Outstandings
........................ ........................ ........................
2. You have not been conducting your accounts satisfactorily despite our repeated
reminders. It is observed that :
i)
ii) (Please state here the unsatisfactory features observed or
iii) the terms and conditions not complied with by the borrower).
iv)
3. It has, therefore, been decided to withdraw the facilities granted to you. We hereby call
upon you to repay the entire amounts due under various facilities, as stated above, with
interest up-to-date on or before........If you fail to repay the outstandings due to us on or
before the above date, we will without any further notice to you, arrange to sell the
stocks/machinery pledged/hypothecated to us as security for our advances at your risk
and responsibility, either by public auction or private treaty, and appropriate the net sale
proceeds thereof towards liquidation of your dues to us and proceed against you for the
amount of shortfall/the recovery of the balance amounts due to us, if any.
Yours faithfully,
Branch Manager.
Copy to the Guarantor (where applicable).
595
Adv - 595
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SPECIMEN OF FINAL NOTICE TO GUARANTORS
Dear Sir,
Our Advances to...............
We enclose copy of our letter of even date to ........... The repayment of the sums due by
...................has been guaranteed by you.
We hereby call upon you as guarantor of the advances, to remit the sum of Rs............due
by......................together with future interest within 15 days from the date of receipt hereof
failing which we will institute proceedings against you for recovery thereof with costs, without
any further reference to you and without prejudice to our rights to pursue other modes of
recovery of the same to which we are entitled.
Yours faithfully,
Branch Manger.
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AUTO LOANS :
SEIZURE OF VEHICLES
Auto Loans : Seizure of Vehicles : The Loan-cum-Hypothecation Agreement for Car Loans has
been modified to include a clause for re-possession of vehicles hypothecated to the Bank. A
copy of the modified agreement is enclosed to CCO/ADV/CL/279/2003-04.
The authority empowered to sanction the original amount of loan is authorised to take a decision
for repossession of the vehicle. No approval from the Controlling Authority for effecting the re-
possession/sale of the vehicle is required if there is no deviation from the laid down conditions in
the matter.
Auto Loans : Procedure for Re-possession of Hypothecated Vehicles (without invocation of
provisions of the SARFAESI Act) : CCFO/ADV/CL/279/2003-04.
In the case of M/s Bhagya Products Pvt. Ltd. v/s Commissioner of Police & others, the Delhi
High Court have stipulated guidelines, which are to be strictly followed before exercising the
option to re-possess vehicles hypothecated to the Bank.
Auto Loans : SC Ruling : The Supreme Court has recently upheld the right of financiers to re-
possess a vehicle whose owner has not met the loan repayment schedule : TOI 13-02-2006.
"If agreement permits the financier to take possession of the vehicle, there is no legal impediment
on such possession being taken", the SC said.
Seizure of Vehicles : P/Agr/SME Advances : The detailed instructions as regards seizure of
vehicles of defaulting borrowers under Car Loans, Commercial vehicle loans and Tractor loans
and the procedure to be followed for initiating re-possession of vehicles are given in CCFO/ADV/
CL/11/2006-07.
The action for actual re-possession of vehicles is to be initiated only after dishonour of the
second cheque in cases of post-dated cheque (PDC), or after the borrower has defaulted in
repayment of two instalments and the period of demand notice has expired. In respect of Tractor
Loans, the period of default is two instalments, subject to the maximum of one year.
NPAs in ‘P’ Segment : Auction of Seized Vehicles Through Organised Malls : Tie-up : With the
objective of creating a seamless process of seizure and sale of the Bank’s impaired car loans, it
has entered into an MOU with Shriram Automall India Ltd. who will assist in repossessing identified
vehicles, store and refurbish them if required, before selling them through well organised public
auction : e-Cir/927/2013-14.
Shriram Automall India Ltd (SAMIL) is a wholly-owned subsidiary of Shriram Transport Finance
Company (CTFC). SAMIL is presently conducting electronic as well as physical auctions for
NBFCs and other financiers of commercial vehicles and construction equipment through 65 auctions
malls and 500 kiosks every month.
597
Adv - 597
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STAFF ACCOUNTABILITY :
RECALLED ASSETS A/CS, WRITE-OFF,
COMPROMISE
Ingredients : While submitting recommendations for transfer of outstanding to Recalled Assets
Account and for write-off/compromise, the B.M./Controllers should ensure that:
- no laxity in pre-sanction surveys, documentation, and post-sanction supervision,
follow-up, monitoring and control was observed.
- periodical inspections were carried out at irregular intervals by the F.O./Manager/
B.M. and recorded at the branch in the prescribed manner.
- the adverse features of the advance were brought to the notice of the respective controllers
from time to time.
- the stock/securities/machineries were kept insured at all the times against usual
risks.
- various notices/legal notices were served on the borrowers/guarantors calling upon
them to regularise the position; they were contacted and counselled on several
occasions.
In conclusion, he should state that as all these efforts did not evoke any favourable response/
result, and therefore the branch is left with no alternative but to all call up the advance with
a view to safeguarding the Bank’s interests adequately.
The staff accountability aspect should continue to be examined (as hitherto) while transferring
the outstandings to Recalled Assets Account, as also while deciding compromise proposals
and/or final write-off : GEN/CL/70/1992-93, P&SB/CL/62/1992-93.
The Finance Ministry has instructed the banks to dispose of the cases of staff accountability
aspect in serious irregularities and malpractices within 6 months.
NPA : Staff Accountability : Examination : Consolidated Instructions Post Circle Re-design :
e-Cir/492/2010-11.
Staff Accountability : Conduct of Preliminary Investigation : Authority Structure : for the preliminary
investigation work : relating to examination of lapses at various stages of sanction and follow-up
of the advances : e-Cir/221/2012-13.
Suitability : Instructions about who can be assigned the job of preliminary investigation for the
purpose of Staff Accountability Exercise in respect of sanctions by various credit committees :
e-Cir/420/2013-14.
Staff Accountability : Report : The Bank has recently enhanced the amount involved from Rs. 5
Crore to Rs. 25 Crore for submission of copy of report of Investigating Official to Vigilance
Department : e-Cir/1156/2012-13.
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ADVANCES : STAFF ACCOUNTABILITY ASPECT :
SOME IMP. TIPS
Responsibility of Sanc. Authority :
The reporting of the exercise of the powers to the higher authority, whether in detail or by simple
listing, in no way reduces the responsibility and accountability of the sanctioning authority. It
does not have the effect of shifting of responsibility to the higher authorities in respect of cases
reported for control purposes.
Large C&I Advances (Old Cases) : Control Responsibility :
The mere fact that one of the inputs needed in handling large C&l advances (i.e., specialist
appraisal) is not supplied by the Branch Manager, but by another level of management, should not
vitiate the assumption of responsibility by the Branch Manager for handling large
C&I advances. In other words, every advance proposal should invariably be recommended by
the concerned B.M. It is, as such, very necessary for a BM to perceive his ‘total responsibility’ for
all business, including C&l large advances, at his Branch.
Purchase of Equipment/Assets :
Branch Managers and field staff must not involve themselves in the selection and/or purchase of
assets (of a particular make) or suppliers. The B.M. should ensure that he does not, in any way,
support middlemen at the cost of borrowers. However, the B M. should ensure that the equipment/
asset, which is being purchased by a borrower, is of good standard quality and commensurates
with the loan sanctioned for proposed equipment/asset. Any wilful violation of above instructions
would attract strict disciplinary action.
Misappropriation of Capital Subsidy :
Subsidy is not a source of repayment in regard to subsidy-based programmes. Any act of
omissionlcommission on the part of the B.M./F.O. which would have the effect of misappropriationof subsidy by the beneficiary would make the bank staff equally culpable. It will render them liable
to disciplinary action by the Bank, and criminal proceedings by the Govt.
Consumer Loans to Bank’s Staff :
The agreement for consumer loan (prescribed format) contains a clause to the effect that if the
consumer loan is not utilised by an employee for the purpose for which it was requested/granted,
he is deemed to have committed an act of gross misconduct, and is proceeded against accordingly.
Invocation of Bank Guarantees :
The payments to the beneficiaries should be made promptly giving no opportunity to the parties
to take recourse to courts and obtain injunction orders against enforcement of guarantees. (Delay
on the part of branches in making payment against bank guarantees under any pretext, creates
an erroneous impression that bank officials are in collusion with the parties, which tarnishes the
image of the banking system.) Any lapse in this regard is viewed seriously by the Bank.
For any non-payment of Bank guarantees in time (provided all the terms and conditions for
invocation of the guarantee are satisfied), staff accountability is fixed and STERN disciplinary
action initiated against the concerned official.
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Adv - 599
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WRITING-OFF OF BAD DEBTS
Writing-off of Bad Advances : Pre-conditions : In cases where :
i) the balances are held in Recalled Assets Account,
ii) the relative guarantee claims are settled by DICGC/CGTMSE,
iii) no tangible/realisable assets are available to fall back upon,
iv) bleak/no chances of recoveries from the personal assets of borrowers/guarantors,
v) all avenues of recovery are exhausted, and in case such steps are continued, the
chances are that the additional expenditure would be more than the amount likely be to
recovered, and
vi) provision for bad/doubtful debts has been made for appropriation from the Bank’s profits,
suitable recommendations for writing off the remaining dues should be submitted to
concerned controlling authority (in the revised proforma enclosed to SIB/CL/99/1985).
(In view of the prudential IRAC norms, the level of non-performing assets should be kept as
low as possible).
For writing off the bad debts, the outstandings should be fully provided for. Only the accounts
lying in Recalled Assets A/c (not in live ledgers) can be written off (applicable to compromises
also) : GEN/CL/67, 71, 86/1988, 182/1989, 47/1992-93.
Write-off Entries : Accounting : (Bhopal Circle Management decided that from September 07
till July 2008, the TRs relating to write-off were to be originated on respective Zonal Offices instead
of on the LHO : CCFO/BO/CL/154/2007-08.)
The branches are now required to debit the required amount of provision, for each account written-
off, to Local Head Office : CIRDO/OP&SP/CL/7/2008-09.
Partial Write-off : In respect of compromise proposal involving partial write-off, specificapproval for transfer to Recalled Assets Account should be obtained as part of branch
recommendations : Cir. 13/1995-96.
The competent authority while approving compromise proposals should also give specificapproval for transferring the outstandings (which is to be eventually written off as part of
compromise) to Recalled Assets Account, so that actual write-off is invariably routed through
Recalled Assets Account.
Write-off/partial write-off has now been permitted in non-suit-filed accounts also : CIRCO/ADV/
244/2002-03.
Upfront Partial Write-off : It may be permitted in O.T.S. (One-Time Settlements) to the extent
of write-off approved, subject to adequate provision being available : CIRCO/ADV/CL/285/
2002-03.
The policy for such upfront partial write-off is also applicable to compromises approved prior to
issue of CIRCO/ADV/244/2002-03. Further, no separate approvals are necessary for upfront
partial write-off in One-Time Settlements already approved/being approved by the appropriate
authority.
600
Adv - 600
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Write-off Policy : Modification : The branches may consider writing off of accounts guaranteed by
State Govt. on the same footing as other accounts (viz. those which have not been guaranteed
by State Govt.), subject to the following additional conditions (CIRCO/ADV/CL/206/2003-04) :
i) The account should have been classified as "Loss Asset",
ii) The State Govt. guarantee should have been invoked, and if not honoured, suit for recovery
should have been filed.
The Bank's Write-Off Policy would continue to be not applicable to accounts guaranteed by the
Central Government.
Write-offs : Modified Policy : Detailed in CCFO/ADV/CL/276/2006-07.
Approval for Write-Off/Compromise : Details : It is to be ensured that all proposals/control
reports put up to the Corporate Centre for seeking sanction of the COCC/ECCB/Control of the
COCC contain the details furnished vide CIRCO/ADV/CL/48/2002-03 (to facilitate expeditious
disposal of proposals/control reports).
AUCA & Written-off Accounts : Recoveries : Incentive Scheme : Detailed in e-Cir/1098/2012-13.
Write-off/Compromise : Deficiencies Observed : CIRCO/ADV/CL/30/2004-05, 136/2005-06.
601
Adv - 601
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ADVANCES UNDER COLLECTION A/C (AUCA)
A.U.C. : Cut-off Point : The accounts written off are held in Advances Under Collection A/c
for further follow-up, only if both the following conditions are satisfied (CPP/MISC/CL/142/
1997-98) :
i) Outstanding in the accounts should be more than Rs. 50,000/-,
ii) Legal action has been initiated and/or some tangible security is available and the
realisable value thereof is more than 20% of the outstandings.
[In case of write-off of such loan account where the Bank has filed a suit to recover the dues
from a borrower, we park the outstandings in Recalled Assets A/c in a separate proforma
account styled ‘Advances Under Collection (A.U.C.) A/c’. (The rationale for the procedure is,
on the one hand to cleanse the balance sheet of the Bank and on the other hand to monitor
the recovery of the amount from the borrower) : CCO/CPP/C&I/CL/170/1996-97.]
AUCA : Advances Under Collection A/c : Parking : Modification in Policy : The Bank decided on
25.02.2010 that all accounts written off, irrespective of the outstanding or security available or
initiation/non-initiation of legal action, were to be parked in AUCA henceforth : e-Cir/798/2009-10.
As the AUCA reversal policy is also under review, decisions in regard thereto have been kept in
abeyance till the revised policy is communicated : e-Cir/804/2009-10.
[Now, the removal of entry from AUCA can be considered after 2 years of parking in AUCA
(reduced from earlier period of 3 years) as per the instructions in force prior to 25.02.2010 :
CIRCO/CPPC/MISC/CL/100/2001-02.]
Adv. Under Collection A/c : Modifications in Policy : In the light of the RBI guidelines on the
definition of technical write-off, the Bank has withdrawn the instructions issued on 25.02.2010,
regarding parking of all written-off accounts in AUCA : e-Cir/734/2010-11.
The Bank’s earlier instructions in regard to parking written off accounts in AUCA, as reiterated
below, would continue to be in operation :
a) Outstanding in the account being more than Rs. 50,000/-.
b) Legal action has been initiated and/or some tangible security is available, and the realizable
value thereof is more than 20% of the outstanding.
AUCA : Monitoring : Accounts in AUCA (Advances Under Collection) are considered as part of
NPAs for internal monitoring at all levels : CIRCO/CPPC/MISC/CL/130/2001-02.
Reversal of Entries : Earlier, entries in AUCA could not be reversed whenever there were
part-recoveries or charges were incurred for such recoveries, which were, however, to be
noted (and not posted) in the relative account in the "Advances under Collection Account" :
B.B.I.
Partial reversal of AUCA outstandings is now permitted in the circumstances detailed in
CCFO/ADV/CL/263/2005-06 (e.g. in case of partial recoveries).
AUCA : Modifications : Final reversal may also be permitted in AUCA accounts in cases where
some credit are received from sources detailed in CCFO/ADV/CL/362/2005-06, or where decreeawarded is 3 years old and no recovery could be made during that period.
602
Adv - 602
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The balance amount in AUCA left after credit of sale proceeds received from sale of stressed
assets to ARCIL or other Banks/ Agencies, etc. should also be removed from AUCA after
ensuring that no further recovery is possible in the account.
The reversal of AUCA to the extent of actual recovery made in the AUCA account can be
permitted at the branches for which no approval is required from any authority.
Further Modications in Policy : The extant policy permits final reversal of AUCA accounts before
two-year period, in case of decreed accounts, where the decree awarded is more than 3 years
old and no recovery could be made : CCFO/ADV/CL/63/2007-08.
The final reversal of AUCA entries even before 2 years period is now extended to loan accounts
where Revenue Recovery Certificates (RRC) is issued / Revenue Recovery action is considered
for implementation also.
AUCA : Review : Accounts written off and parked in AUCA should be reviewed at controlling
officers at quarterly intervals to watch the progress of recovery in such accounts and to examine
the desirability or otherwise of further continuation of such accounts in AUCA : CCFO/ADV/CL/
41/2006-07.
603
Adv - 603
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CIVIL SUITS, DRTs
STAGES OF CIVIL SUITS :
• Issue & Service of Summons : to defendants/co-defendants :
a) by post or court’s representative (process writer) - substituted service : Order 5
Rule 20 of C.P.C. - accompanied by a copy of the plaint.
b) through publication in a local newspaper.
Apart from services of summons through the court machinery, these should also be
sent simultaneously through registered/ordinary post (Order 5 Rule 19-A of C.P.C.)
In cases where the defendants are evading the service of summons, the court should
be requested to pass orders for publication of summons against them in the
newspapers.
• Written Statement : by defendants (of their defence).
• Replication : Plaintiff’s reply to defendant’s plea.
• Framing of Issues : by the Court : to dispose of the case (issues of fact, issues of
law); notice for admission/denial (Order 12 Rule 2).
• Summoning & Production of Evidences in support of the issues; examination of
witnesses.
Evidence stage : filing of documents, filing list of evidences, recording of statements
of plaintiffs and thereafter of defendants.
• Arguments.
• Compromise, if any.
• Decision/judgement.
• Decrees.
• Execution of Decrees : and orders (or, to prefer appeal); application for execution.
Payment under decree.
Court Cases : Authority to Represent Branches : All officers, employees of the Bank on whom
prescribed signing powers are conferred shall continue to exercise the powers conferred on them
for the discharge of their functions notwithstanding the place of their posting : Gazette Notification
dated 27.03.1987. Thus, the SARB Officers have the authority to represent the branches in
terms of this Notification.
Civil/DRT Suits : Precautions : In order to safeguard the Bank’s interests adequately, the following
procedures should be followed after the account become NPA and at the time of filing of civil/DRT
suit : e-Cir/54/2011-12 :
604
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a) When the loan accounts become NPA, the genuineness of title deed/documents should be
verified from the empanelled Advocate.
b) Before filing Civil/DRT suit, the loan documents should be verified to ensure that these are
complete and in order. Further, genuineness of title deed should also be re-verified from
another empanelled Advocate, if such earlier verification has not taken place within 6 months.
c) The property held as security should be physically verified to ensure its existence in the
name of borrower(s).
d) The KYC compliance of the account should be confirmed.
Civil Suits : Mortgaged Properties : In all cases where the loans are secured by the
mortgage of immovable properties, the suit should be filed invariably in the place where the
mortgaged property is situated.
However, in the cases detailed in SIB/SPL L/15/1995-96, decision to file the suit elsewhere
should be approved by the controlling authority, that too after the legality as to jurisdictionis examined by the Law Dept. of the concerned L.H.O.
Summary Suits : These should be filed in cases where no tangible security is available
with the borrower/guarantor (to get the decree expeditiously with lesser expenses). The
lending banker can avail of the summary procedure in certain circumstances (detailed in
Order 17 Rule 2 of Code of Civil Procedure) : IBA Bull April 1992.
The basic difference between the procedure that is followed in a regular suit and the one that
is followed in a summary suit is that in a regular suit the defendant is entitled to defend the
suit as a matter of right, in a summary suit he cannot do so.
The option is of the plaintiff and the defendant cannot compel the plaintiff to get the suit
tried as a summary suit.
Payment of Legal Fee : Earlier reference : Law/1/1998-99.
Current ref. : CIRDO/LAW/CL/01/2005-06.
The prescribed legal fee, including clerkage, should be paid in two instalments as per CIRDO/
LAW/CL/01/2004-05.
Court Cases : Fees Structure : for Conducting Cases Before Various Courts of Law : w.e.f.
01.06.2005 : CIRDO/LAW/CL/01/2005-06.
Empanelment of Advocates : Process and Other Guidelines : Detailed instructions for
empanelment of advocates, review of panel of advocates, process for de-panelment as well process
for taking appropriate action against the advocates : Detailed in e-Cir/045/2013-14.
Law Matters : Panel : of Advocates-on-record for Supreme Court Matters and Schedule of
Fees for Supreme Court Matters : w.e.f. 01.01.2014 : Details furnished in e-Cir/1165/2013-14.
Follow-up of Legal Cases : Detailed guidelines : CIRCO/CPPC/MISC/CL/30, 34/2001-02.
605
Adv - 605
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Suit-Filed A/cs : Monitoring : There is need to step-up of suit-filed / RRC cases follow-up, and
proper maintenance of suit-filed register : CCFO/ADV/CL/85/2005-06.
Engagement of Advocates : The practice of engaging an advocate from outside station is to
be discouraged except under extreme/grave situations that too with the prior permission of GM
(Network) at LHO and DGM at Modules, as the case may be : CIRDO/LAW/CL/01/2005-06.
606
Adv - 606
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DEBT RECOVERY TRIBUNALS (DRTs)
DRTs : Precedence : The Supreme Court recently ruled that Recovery of Debts Due to Banks &
Other Financial Institutions Act will take precedence over the Companies Act in the recovery of
debt : ET 15.04.2000.
DRT Cases, RRCs : Debt Recovery Tribunals and Revenue Recovery Certificates (RRCs) are
mutually exclusive (i.e., both actions cannot run concurrently).
DRTs : Adjournment : In order to save time and cost involved in recovery proceedings pending
before DRTs in respect of NPAs and AUCAs, it has been decided to file applications for sine die
adjournment till enforceable assets of certificate debtors are unearthed, if the following conditions
are fulfilled : e-Cir/705/2013-14 :
a) Recovery proceeding is pending for more than 5 years.
b) The Bank does not have details of the properties owned by the borrowers/guarantors.
c) In spite of the best efforts such as search through social media, CIBIL, engagement of
detective agencies, the whereabouts of the borrowers/guarantors and/or the details of the properties,
movable or immovable are not known to the Bank.
The power to approve filling applications for sine die adjournment has been vested with officials
authorized to issue notice under SARFAESI Act.
DRT Cases : Documents : Application under Section 19 of the Recovery of Debts due to Banks
and Financial Institutions Act, 1993 should be prepared in the prescribed format setting forth
concisely the required details, including limitation, facts of the case, relief sought, jurisdiction of
the Tribunal, interim orders, if prayed for, and other details as per the format. The application
should be accompanied by the required application fee by way of demand draft or postal order
favouring the Registrar of the Tribunal. The application should be accompanied by copies of the
documents detailed in e-Cir/629/2013-14.
DRT Cases : Expenses : Clasification :
a) The professional fees paid to Enforcement Agents (EAs) may be paid by debit to “Charges
A/c (Miscellaneous).” This expense is not to be treated as a legal expense.
b) Expenses incurred for publishing notices in Newspapers are to be treated as legal expenses.
DRT Cases : Appeal : Any person aggrieved by any order made by the DRT may prefer in appeal,
along with the prescribed fees, to an Appellate Tribunal within 30 days from the date of receipt of
the order of Debts Recovery Tribunal : Sec. 17 of SARFAESI Act.
DRTs : Debt Recovery Tribunals : DGM & CCO at LHOs of respective circle should ensure that
the identified Nodal Officers and the advocates attend the DRTs regularly. DGM & CCO should
discuss and review the cases with the Nodal Officer concerned, once in a quarter and submit a
consolidated report to the corporate Centre : e-Cir/901/2012-13.
DRTs : Recovery of Bank Dues : The Banks should start e-auction of immoveable properties
under Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 and
SARFAESI Act, 2002 in all cities and in cases over Rs. 10 Lac with immediate effect. For cases
in rural areas or cases below Rs. 10 Lac, no notice for auctions other than e-auctions is issued :
e-Cir/1076/2012-13.
607
Adv - 607
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Recovery Through DRTs : Action Points : In the recent meeting held under the auspices of
Department of Financial Services (DOFS), Ministry of Finance (MOF), with the General Managers
of Public Sector Banks (PSBs) and the Recovery Officers (RO) of DRTs, the action points emerged
thereat (detailed in e-Cir/653/2012-13) were examined and accepted for implementation at the
whole Bank level.
DRT Cases : Expeditious Disposal : Govt. of India’s Instructions : e-Cir/250/2013-14 :
a) In cases pending before the DRTs where the details of assets are not available, the Bank
should file appropriate applications for getting the cases adjourned sine-die.
b) In case the Bank has finalized the OTS, the DRTs need to be informed so that the case does
not remain pending in the DRT.
c) The Bank has to nominate Nodal Officers for DRTs and to ensure regular follow-up of the
cases by these nodal officers.
d) While issuing demand notice under Section 13(2) of SARFAESI Act, the Bank should attach
a statement of account from date of declaration of NPA up to the date of demand note,
clearly indicating the rate of interest charged. Further, the Bank should submit form 13 “E-
auction form”, along with latest valuation report, to the Recovery Officer of DRTs for necessary
action promptly.
DRTs : Holding of Lok Adalats in DRTs : Action Points : e-Cir/885/2013-14.
DRTs : Ombudsman Cases : In Durga Hotel Complex v/s the Reserve Bank of India & others,
the Patna High Court has upheld that the Learned Ombudsman ought not to have proceeded
with the complaint when the Debt Recovery Tribunal is in seizin (taken cognizance) of the matter.
608
Adv - 608
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LAW SUITS, ETC. : TITBITS
• U/s 25 (3) of the Indian Contract Act, even a time-barred debt can be revived.
• U/s 5 of the Limitation Act, delays involved in bringing to the records of the court legal
representatives of deceased defendants within 90 days of his death, are allowed. Even if
we bring to record only some of the legal heirs, it will be binding on all the other legal
representatives as well.
• Whenever the equitable mortgage has been taken, we should pray for a mortgage decree
and as a general suit personal decree as well under Order 34 of C.P.C.
• If we have given a case to a lawyer, please do not withdraw from him, unless he has created
a professional breach of conduct.
• Complicated suits can be entrusted to senior advocates and simple cases to juniors.
• Keep yourself in constant touch with the advocate for expediting the cases/matters. Arrange
Advocate Meets at quarterly intervals to expedite/sort out the things.
• Contracted Rate of Interest : The powers granted to the courts/DRT to decide on the rate of
interest to be recovered on advances has been withdrawn vide Banking Laws Amendment
Act, 1983
If there is a mistake in the decree copy, please file application/memo and get it amended.
Lendings to agriculture are also deemed as landings to industry for this purpose.
• The requisite particulars of the suit-filed cases/DRT cases should be recorded in the prescribed
Civil Suits Register.
• Steps in connection with legal matters/SARFAESI Action/civil suits filed/DRT cases/follow-
up action therefor, etc. should be initiated after getting necessary approval from/in consultation
with/and under periodical progress report to the controlling authority.
• You are the best judge as the man on the spot to decide on various issues.
• The best way of recovery is not through the courts. After exhausting all the chances, let us
seek for a legal remedy which is costly and time-consuming. Borrowers may be court
birds, but we are not.
Misc. Useful Points :
• The postal receipts and the returned envelopes in respect of notices calling up the entire
dues should be kept intact (unopened). These should be given to the advocate, along with
the other security documents. for drafting the plaint.
• Certificates at the foot of the statements of account should be in accordance with the
provisions of the Banker’s Books Evidence Act.
• Only One suit should be filed for all the borrowal accounts of the unit.
• Law charges/incidental expenses in respect of suit-filed accounts should be debited to
Branch Charges Account (Law Charges), and a proper record thereof maintained.
• The advocate fee should be paid in stages (and not in lump sum at the time of filing of civil
suit). It should be as per the Current High Court Schedule/DRT Schedule.
• A copy of the plaint should be forwarded to the respective controlling authority for perusal
and record.
609
Adv - 609
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• All the necessary parties (or other legal heirs) must be impleaded in the suit
• The averments in respect of rate of interest should be specific and comprehensive.
In the interest clause, it should be specifically mentioned that the said rate of interest is as
per the contract, and is as per the directives issued by the Reserve Bank of India to the
plaintiff bank, and that the defendants are liable to pay interest at such rate.
• The Branch Managers are empowered to sign and verify the plaint. If their authority is
challenged, reliance may be placed on the ruling reported in AIR 1981, P & H 188; Umesh
Chandra Misra v/s State Bank of India, AIR 1987 Orr 67, etc.
• The Bank’s advocate should be advised to oppose undue requests of the defendants for
seeking time for filing written statement.
• The documents on which the other party has put the endorsement as ‘admitted’ do not
require to be proved,
• In case the borrower/guarantor approach for compromise during the pendency of the suit,
their request may be considered with the prior approval of the controlling authority and the
Court/DRT.
• If any part of Bank’s claim has been rejected erroneously, it is desireabte to file an appeal
against such judgement and decree (within the prescribed limitation period)
• In the case of State/Central Govt., etc, suits cannot be filed until and unless two months’
prior notice has been issued. This provision is mandatory and cannot be waived by mutual
consent.
• In the case of Co-op. societies, 60 days’ notice u/s 126 of the Co-op Societies Act is a
condition precedent for filing a suit.
• Attachment Before Judgement (Order 38 Rule 5 CPC) : When it is apprehended that the
borrower/guarantor may dispose of/tamper with the securities/assets charged to the lending
bank during the currency of the civil suits, or may run away from the jurisdiction of the
Hon’ble Court, with a view to defeat/obstruct the execution of the decrees likely to be
passed against him/them, for recovery of the Bank dues, a petition for ‘Attachment Before
Judgement’ should be filed. A statement on oath by way of affidavit, signed by an authorised
officer of the branch, is required to be filed in the court for this purpose. Such a statement
should be made only on the basis of some definite information with the financing branch.
• Revision Petitions should be filed, where necessary.
• Govt-sponsored Schemes : Defaulted casses (below Rs. 10 Lac) under the State-Sponsored
schemes should be promptly handed over to the Asstt. Registrar of Co-op. Societies/Dist.
Collector/Recovery Officer, as the case may be. There is no legal bar on the bank for filing
a civil suit against the borrower/guarantor in such cases. But both actions cannot be
taken together.
• All the vital documents relating to suit filed accounts should be recorded in the appropriate
section of the Branch Document Register.
• Summary Suits should be filed in cases where no tangible security is available with the
borrower/guarantor.
• In case the amount decreed is to be paid ininstalments, the relative due dates should be
properly diarised. On default thereof, an application should be filed in the court/DRT for
recovery of the decretal amount in a lump sum.
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Adv - 610
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LAW SUITS :
IMP. TIPS FOR EXPEDITIOUS DISPOSAL
• BEFORE FILING OF CIVIL SUITS / DRT CASES :
• Decision to file a suit to be taken at the earliest. Last minute haste to be avoided.
• Complicated cases to be handed over to senior advocates.
• Before filing suits against special categories of borrowers like co-op. societies, Government
departments, recommended transport operators, etc., relative statutory provisions must
be complied with.
• Statements of accounts to be certified as prescribed in the Banker’s Books Evidence Act.
• Finding and confirming particulars of properties of borrowers and guarantors before filing of
suit.
• Finding particulars of uncharged properties of borrowers/guarantors.
• Ascertaining details of legal representatives of borrowers/guarantors at the time of granting
of advances initially.
• Except in very exceptional cases, the civil suit should be filed invariably at the place where
mortgaged property is situated.
• Blank spaces in security documents to be filled in at the time of execution itself and, in any
case, before filing of civil suit. Contractual rate of interest as also compounding with prescribed
rests (e.g. monthly/half-yearly) to be mentioned clearly in plaints.
• Linkage of interest rate with S.B.A.R./Base Rate to be mentioned in plaint comprehensively/
unambiguously.
• Particulars of movable/immovable assets belonging to borrower/guarantor to be mentioned
clearly in plaint.
• Summary suits to be filed in cases where no tangible security is available with borrower/
guarantor.
• AFTER FILING OF CIVIL SUITS / DRT CASES :
• Summons to be served on borrowers/guarantors at the earliest through court’s representative/
registered post/ publication in newspaper, as the case may be.
• Requesting court, by way of an affidavit, to direct (advise) borrowers/guarantors to declare
particulars of their (uncharged) assets, where necessary.
• Petition for ‘Attachment Before Judgement’ to be filed, where necessary.
• Firm advance arrangements to be made to enable concerned officials to be present at the
Bank Advocate’s office/concerned court, well in time, as per the Bank’s instructions.
• Bank’s Advocate to oppose unreasonable requests of defendants’ advocates for undue
postponements.
• Execution petitions to be filed at the earliest.
611
Adv - 611
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• If all reliefs sought by the Bank are not granted by the Court/DRT, appeals/revision petitions,
etc. should be filed within the prescribed limitation period, under guidance of the concerned
controllers.
• Extreme steps like arrest of borrowers, filing of insolvency petitions, perjury cases, etc. to
be initiated, only with the prior approval of the controlling authority.
• GENERAL :
• Have benefit of advices and guidance of the Law Section/Deptt. at the Zonal Office/Local
Head Office, periodically.
• Maintain close rapport/liaisoning with dealing advocates and court/DRT staff.
• Arrange Advocates’ Meets periodically. Law Department at the LHO provides necessary
guidance and advices to dealing advocates at regular intervals, suo motto or on request.
(NOTE : REMEMBER THAT LEGAL REMEDIES ARE COSTLY, CUMBERSOME & TIME-
CONSUMING. WE MUST ALWAYS ACT WITH DUE DILIGENCE IN TIME TO RECOVER THE
BANK DUES AND AVOID LAW SUITS. A STITCH IN TIME, SAVES NINE).
612
Adv - 612
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H. SULAIMAN (SBIOA)
COMPROMISE PROPOSALS
Compromise Proposals : Advantages :
• Saves money, time and manpower (maximum recovery at minimum expense).
• Projects a helpful image of the Bank (win-win situation for the Bank as well as the borrowers).
• Expedites recycling of funds otherwise blocked (resulting in additional interest generation).
• Cleanses Balance Sheet (upgradation of assets, reduced provisions, higher profits, improved
capital adequacy).
• Besides the above, compromise offers the best option when :
• the documents are defective and cannot be rectified (the Bank’s position is weak),
• security is not conforceable,
• forced sale is extremely difficult, or would result only in realising a paltry amount, and
• the borrowers become untraceable and recovery can be only though guarantors.
Compromises : Compromise/Negotiated/One-time Settlement of Non-Performing Assets :
Henceforth all the compromise proposals submitted by Operating Units need to be submitted in
the Revised Compromise Format, with a certificate confirming that extant RBI guidelines on
compromise have been compiled with : e-Cir/301/2010-11.
Compro. Settlements : Consent Decree : Once a case is filed before a Court/DRT/BIFR, any
compromise settlement arrived at with the borrower is subject to obtention of a consent decree
from the Court/DRT/BFIR concerned. These instructions are applicable to all Compromise
Settlements whether under a One-Time Settlement of the RBI/Bank or otherwise : CCFO/ADV/
CL/296/2007-08.
Compro. Proposals : No-Dues Certi. : Where the borrower has made full payment of the
compromise amount in respect of a particular amount, a ‘No-Dues Certificate’ in respect of
the particular amount may be issued, if demanded by the borrower, in the format enclosed
to SIB/CL/15/1989.
Prescribed service charges on N.D.Cs. should be recovered.
Writing Off : For writing off the bad debts, the outstandings should be fully provided for.
Only the accounts lying in Recalled Assets A/c (not in live ledgers) can be written off
(applicable to compromises also) : GEN/CL/67, 71, 86/1988, 182/1989, 47/1992-93.
Compro. Proposals : Fresh Finance : Granting Loans to Borrowers whose Loans have been
Settled through Compromise under the Bank's Regular Schemes : CIRCO/ADV/CL/294/
2003-04 :
As the Bank agrees to accept an amount less than the total amount due to the Bank under the
relative loan contract in full and final settlement of dues, as a general policy, it is tantamount to
cessation of lender-borrower relationship with the borrowing unit, its promoters and guarantors.
Compromise/Negotiated/One-Time Settlement : of NPAs : While taking reports on record/
approving for write off of accounts/transfer to AUCA, details such as current status of staff
accountability exercise, deficiencies/lapses found, if any, disciplinary action initiated, if any, should
be incorporated invariably in the proposals and control reports : e-Cir/132/2013-14.
613
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Compromise/OTS : Fresh Finance : Ordinarily, no fresh finance is granted to the existing unit
or any new unit being promoted by the same promoters/guarantors. However, exceptions are
made in respect of settlements under OTS Schemes of RBI/SBI wherein fresh finance may be
considered highly selectively to another unit, of the same promoters/guarantors, engaged in
similar or other activities : CIRCO/ADV/CL/312/2004-05.
Authority structure and related guidelines detailed in CIRCO/ADV/CL/312/2004-05.
Compro. Proposals : Deficiencies Observed : CIRCO/ADV/CL/30/2004-05, 136/2005-06.
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NPAs : ONE-TIME SETTLEMENTS
RBI OTS-2003 : Lok Adalats : The Lok Adalat cannot pass any order for settlement and / or
order for an amount lower than what the Bank agrees to or consents for : CIRCO/ADV/CL/96/
2004-05.
The cases where decree has already been passed, the Bank can straightaway execute the
same and recover the dues as the RBI Circular on OTS-2003 (dated 29th January, 2003) does
not cover the cases where decrees have already been passed : CIRCO/ADV/CL/109/2004-05.
RBI OTS-SME : Clarification : regarding Cases Pending before Courts/DRTs, BIFR Recovery
Certificates issued/BIFR order available : CCFO/ADV/CL/256/2005-06.
The accounts, where decrees have been obtained/recovery certificates issued/BIFR order received,
were not covered under the RBI OTS-SME : CCFO/ADV/CL/256/2005-06.
State Government guaranteed accounts were kept out of the purview of RBI OTS Scheme :
CCFO/ADV/CL/256/2005-06.
Both the RBI OTS-SME as well as the Bank's extant instructions for compromise settlement of
dues ran simultaneously : CCFO/ADV/CL/265/2005-06.
Wilful Default : Modification : Cases where dues under OTS settlement made earlier (i.e., schemes
earlier announced by RBI/SBI) have not been paid, the borrower becomes a wilful defaulter and
therefore not entitled to RBI OTS-SME scheme : CCFO/ADV/CL/319/2005-06.
N.F.B. Limits : Treatment of exposure(s) o/a non-fund-based limits (BGs/LCs) enjoyed by the
borrower, who are seeking settlement of dues through RBI OTS-SME : CCFO/ADV/CL/331/
2005-06.
RBI-OTS-SL : Small Loan A/cs : (In order to offer small borrowers another opportunity to settle
their NPA accounts with banks and become eligible for fresh finance), the Corporate Centre has
devised a Scheme (RBI-OTS-SL), as per directive of RBI, to provide a simplified mechanism for
One-Time Settlement of loans where the principal amount is equal to or less than Rs. 25,000/-
and which have become doubtful and loss assets as on September 30, 2005 : CCFO/ADV/CL/
330/2005-06.
The Scheme remained operative up to 31st December 2006.
Write-off of interest included in the outstanding amount as on 30.09.2005 : CCFO/ADV/CL/91/
2006-07.
Loans Granted Under G.S.S. : Govt.-Sponsored Schemes : Principal amount Rs. 25,000/- :
Guidelines formulated by SLBCs of MP & Chhattisgarh : CCFO/ADV/CL/145/2006-07.
RBI-OTS-AGL : Scheme for One-Time Settlement of Dues/Non-Performing assets to distressed
farmers and eligibility for fresh loans : CCFO/ADV/CL/409/2006-07.
All the borrowers, who settled their dues under the Scheme, are eligible for fresh loans under the
Bank’s existing schemes one month after the settlement of dues in full.
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Clarifications : The Scheme was applicable only to accounts rescheduled / restructured during
the financial year 2004-05 : CCFO/ADV/CL/62/2007-08.
SBI OTS-SME, 2009 : Details : As per e-Circular/319/2009-10.
A non-discretionary and non-discriminatory one-time settlement scheme for recovery of
non-performing SME Loans.
All NPAs in the SME sector, classified as doubtful or loss on or before 31st March 2009, with
outstanding balance of Rs. 25 Lac and below on the date on which the account was classified as
doubtful, were covered.
OTS : Fresh Finance : No fresh finance from our bank should be considered for a unit who has
settled its dues under RBI OTS 2003/OTS-SME schemes with other Banks : CCFO/ADV/CL/
296/2006-07.
Other clarifications detailed in CCFO/ADV/CL/296/2006-07.
SBI OTS : SME, 2010 : details as per e-Cir/820/2009-10, 125/2010-11 :
• The Bank launched this Scheme as an improved version of SBI OTS - SME, 2009.
• Salient features of the Scheme : detailed in e-Cir/820/2009-10.
• Eligible A/cs : All NPAs in the SME sector, classified as “doubtful” or “loss” on or before 31st
March 2009, with outstanding balance of Rs. 1 crore and below on the date on which the
account was classified as “doubtful” or “loss”.
SBI OTS - MSME, 2012 : Detail furnished in e-Cir/1111/2011-12.
Special OTS : For Tractor Loans : Doubtful and Loss Assets : e-Cir/1224/2012-13.
Frequently Asked Questions, Proposal Formats, etc. : e-Cir/1241/2012-13.
Special OTS for Tractor Loans : Decreed Cases : The Bank has recently included decreed
cases also, in the eligible category for settlement under special OTS for tractor loans, as execution
of decree is time-taking and the value of tractor erodes quickly : e-Cir/488/2013-14.
The compromise arrived at between the Bank and the borrower has to be recorded in execution
petition or recovery proceedings, as the case may be, with a default clause. If execution petition
(EP) in civil court and recovery proceedings in DRT is pending, this compromise can be recorded
in the proceedings.
Special OTS for Tractor Loans (Doubtful & Loss Assets) : Extended up to 30.09.2013 with the
modifications detailed in e-Cir/025/2013-14.
Further modifications detailed in e-Cir/094/2013-14.
Special OTS for Agri Term Loans : Salient Features : e-Cir/592/2013-14.
Frequently asked questions and the Bank’s responses therefor : e-Cir/964/2013-14.
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LOK ADALATS*
• Lok Adalats : Advantages :
- There are no court fees involved.
- Lok Adalat can take cognizance of any existing suit (recovery) in the court as well as
look into and adjudicate upon fresh disputes.
- If no settlement is arrived at, the parties can still continue with court proceedings.
- Lok Adalat decrees have legal status and are binding.
(The Bank’s participation in Lok Adalats is very useful especially for the settlement of
disputes between small borrowers and the Bank for recovery of loans. Lok Adalats
reduce the time and minimise the cost towards litigation) : SIB/SSI/C-8/1992-93.
Lok adalats are founded on the principle of persuasion, as against coercion. Interpretation
of laws are also not usually involved.
In the West, arbitration is the dominant method of settling disputes. It is steadier and
less expensive than court case.
• Court Fees : Remission : In the whole of Madhya Pradesh, in the cases settled/to be
settled through the instrumentality of Lok Adalats (on or after 19.11.1985) : Law/2/1988.
• Legal Sanctity : The LAs have been constituted under the statute called the Legal
Services Authorities Act, 1987. They do have, therefore, sanctity under law.
• Limitation Period : The limitation period under the law is not extended on account of
the presentation of the dispute before Lok Adalat : LB/CL/7/1988.
• Attendance : The D.G.M. (Dy. General Manager) is required to attend the Lok Adalats
and to negotiate to take a decision on modifications/scaling down of debts during the
proceedings : SIB/CL/3/1990, DM/AGR/12/1990.
SIB & AGL Segments : (In order to make full use of the route of settlement of bank loan
recovery cases through Lok Adalats for efficient management of NPAs,) the Bank has
now allowed Regional Managers (AGM/AGR/24/1995-96) the flexibility/option to either
appear before the court personally, or authorise another suitable competent official,
preferably, the Chief Manager (NPA Management Cell in the Administrative Office), or
Chief Manager (Credit Support Cell in the Regional Office), to commit before the Lok
Adalats scaling down of dues by 25% of the suit amount, subject to a maximum loss of
their (RM’s) powers for write-off : CCO/CPP/AGL&SIB/CP/CL/12/1996-97.
• Jurisdiction : Lok Adalats have no jurisdiction to compel the parties to accept a
particular verdict. The settlements before the Lok Adalats depend on the voluntaryagreement between the parties : U.B.I. v/s Narendra Plastics, Bhavnagar & Others,
1990, 31 (2) GLR 1983, SBI Monthly Review, Nov. 1990.
• Suit Value : Cut-off Limit : In the first phase, the cut-off limit of suit value of cases
eligible for being referred to lok adalats was raised (from Rs. 1 Lac : SIB/SSI/C-8/1992-
93, AGM/AGR/16/1992-93) to Rs. 5 Lac : SIB/SSI/CL/56/1993-94, ABD/10/1994-95.
* Detailed instructions : DM/AGR/12/1990, SIB/CL/3/1990, SIB/SSI/C-8/1992-93, etc.
617
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This has been recently raised to Rs. 20 Lac : CIRCO/ADV/CL/103/2004-05.
Against this backdrop, cases involving amounts in excess of Rs. 20 Lac cannot be
referred to Lok Adalat at present : CPP/SIB/SSI/CL/208/1997-98 (updated).
The ceiling for the suit amount, for referring the cases to Lok Adalat for settlement, is
fixed and revised from time to time by the Govt. of India, Ministry of Finance : CPP/SIB/
SSI/CL/208/1997-98.
• Lok Adalats : DRTs/DRATs : W.e.f. October 2001, banks are permitted to participate in
the Lok Adalats organised by the DRTs/DRATs irrespective of the ceiling : CIRCO/
ADV/CL/103/2004-05.
• Performance : The Lok Adalats have resolved a record number of cases in the country,
including banking cases.
• Authority Structure : for according in-principle approval is detailed in CIRCO/ADV/
CL/103/2004-05.
A compromise decree is obtained from the Lok Adalat after the compromise is reached.
Therefore, formal sanction of the competent authority is required to be obtained.
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M.P. RECOVERY ACT,
REVENUE RECOVERY CERTIFICATES (RRCs)
MP Lok Dhan (Shoudhya Rashiyon Ki Vasuli) Adhiniyam, 1987 : Sec. 5 : Nothing in this Act
shall debar the recovery of dues under any other law for the time being in force :
Provided that the authority to which the sum is due shall take recourse to the provisions of onlyone law at a time for its recovery.
Thus, the M.P. Lokdhan Act does not bar or prohibit the recovery of dues under any other
law for the time being in force : Sec. 5.
Injunction : Save as otherwise expressly provided, no injunction shall be granted by any court or
other authority in respect of any action taken or intended to be taken in pursuance of any power
conferred by or under this Act : Sec. 3(5).
MP Lok Dhan (Shodhya Rashiyon Ki Vasuli) Adhiniyam, 1987 : Keeping in view the
increasing investments made by banks in the State of M.P. and role of banks in promoting
the economic growth of the State, the M.P. Government declared the loan schemes detailed
vide CIRCO/CPPC/MISC/CL/35/2000-01 as "Socially Desirable Schemes".
The branches should arrange to recover dues from the borrowers taking advantage of the
amended Act.
RRCs : Filing & Follow-up : M.P. Lok Dhan (Shodhya Rashiyon Ki Vasuli) Adhiniyam & Niyam,
1987 : Comprehensive instructions : reiterated : CCFO/ADV/CL/321/2005-06.
RRCs, DRT Cases : Debt Recovery Tribunals and Revenue Recovery Certificates (RRCs) are
mutually exclusive (i.e., both actions cannot run concurrently).
R.R.C. Filed Cases : [under the M.P. Lokdhan (Shodhya Rashiyon ki Vasuli) Adhiniyam] :
LB/CL/4/1989.
The MP Lokdhan (Shoudhya Rashiyon Ki Vasuli) Adhiniyam, 1987 : The branches should ensure
to move an original application before the DRT, Jabalpur in all the cases pertaining to Rs. 10 Lac
and above where RRCs have become unexecutable in view of Hon'ble High Court of M.P. Indore
Bench judgement : CIRDO/LAW/CL/06/2002-03.
RRC Cases : of Rs. 10 Lac & Above : In the light of the decision of the Hon’ble High Court ofM.P., Indore Bench, in writ petition no. 851/2002 in the matter of Santhosh V/s. Central Bank of
India decided on 13.02.2003, the legal position is as under : CIRDO/CL/LAW/06/2002-03 :
DRT is having exclusive jurisdiction in cases where the debt due is Rs. 10 Lac and above. If any
Revenue Recovery proceeding is pending in such cases, then that is to be withdrawn and
recovery application shall have to be filed before DRT Jabalpur within the limitation period. If a debt
is already time-barred, then the Bank has no option but to file an application for exclusion of the
period of pendency from the date of issuance of Recovery Certificate (RC) till the date of withdrawal.
Upkeep : The RRC filed register should always be updated : AGM/AGR/21/1995-96.
Recoveries : The concerned Tehsildar should invariably be informed as and when recoveries
are effected in such cases.
The fact should also be mentioned in the prescribed register.
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Acknowledgement : Collector’s/Tehsildar’s acknowledgement should be obtained on the
office copy of the RRC filed recovery cases, with his rubber stamp and signatures.
(Due to lapses, on the part of the operating staff, i.e., not informing the Collector/Tehsildar
immediately after recovery having been effected, such borrowers are given opportunities for
approaching civil/consumer courts against the Bank for defamation charges and putting the
Bank in financial losses).
Limitation Period : Recovery Acts : The banks should initiate the recovery process (issuing
RRCs - revenue recovery certificates - or certificate of dues, etc. to the revenue authorities),
before the expiry of the prescribed period of limitation as per the provisions of the Indian
Limitation Act, though these statutes, including M.P.’s Act, do not contain in themselves
any period of limitation. These enactments only provide for easy recovery, not recovery at
any time : A.K. Nanu & Others v/s State of Kerala, etc. & Others (1989, 65 Comp Ca sp.
510) : IIBJ, Sept. 1989.
The Supreme Court, in the case of New Delhi Municipal Committee v/s Kalu Ram, AIR 1970,
SC 1639, has stated that a time-barred debt would not be recoverable merely by reason of
the special mode of recovery provided by a special enactment. What was recoverable was
only the money payable, and not the money the recovery of which is barred by the limitation :
IIBJ July-Sept. 1989.
The only restriction is that a Bank shall take recourse to the provisions of only one law at
a time for recovery of its dues. The Bank has been given a discretion either to file civil suits
or R.R.Cs. as also to withdraw the RRC cases filed before the District Collector midway.
It may, however, be noted that while it is so, it will not be open to the Bank to institute a suit
in a civil court when the certificate proceedings are actually pending before the concerned
District Collector. In other words, no civil suit shall lie in a Civil Court for the period during
which certificate has been issued by the Collector for recovery of the amount mentioned
therein.
Where the RRC is withdrawn by the Bank and Civil Suit is to be filed, the period during
which certificate proceeding was pending with the District Collector is excluded for the
purpose of computing the period of limitation for institution of such Civil Suit.
Option for Civil Suit : Govt.-Sponsored Schemes : Defaulted cases under the State-
sponsored schemes should be promptly handed over to ARCS (Asstt. Registrar of Co.op.
Societies)/Dist. Collector, as the case may be. There is no legal bar on the bank for filing of
a civil suit against the borrower/guarantor in such cases.
The banks should be very careful while choosing either of the two alternate remedies available
to banks for recovery of dues : Canara Bank v/s Thankappan, 1989 (2) KLT 74 (SBI Monthly
Review, Aug. 1989).
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BRISC :
BANK RECOVERY INCENTIVE SCHEME CELL IN M.P.
B.R.I.S.C. : Bank Recovery Incentive Scheme Cell : Payment of recovery-linked incentiveto Tehsildars for accelerating recovery of Bank dues : @ 2.5% of recoveries in RRC-filed
accounts through the Govt. (apart from the 3% being paid to the govt. under the head
detailed vide CIRCO/CPPC/MISC/CL/4/2000-2001) : CCO/RRC/CL/89/1996-97.
The amount (2.5%) is debited to Branch Charges A/c : to be deposited through the cheque/
draft every month in BRISC account - opened in the Lead Bank and operated by the Collector
of the district : CCO/RRC/CL/89/1996-97, CIRCO/CPPC/MISC/CL/4/2000-2001.
Yearly Statement relating to RRCs Filed and Disposed of : in the format enclosed to CIRCO/
CPPC/MISC/CL/4/2000-2001. This statement should be submitted to the District Collector
and the Lead Bank Office by 30th April every year, through the concerned District Co-
ordinator.
BRISC : RRC Cases : Recoveries effected under RBI OTS : In view of the heavy amount of
sacrifice involved by way of compromise, branches were instructed to withhold payment of
2.5% BRISC incentive in such cases. The RRC charges @ 3% of recoveries in these cases
are to be paid to the credit of Government Account, as per the extant instructions.
(In cases of RRCs settled under OTS, the BRISC incentive and RRC charges were to be
recovered from the borrowers separately and were to be remitted to the State Authorities.)
Compromise and RRC : Payment of Incentive to Revenue Authorities : Clarifications : CIRCO/
ADV/CL/234/2003-04.
The Govt. Authorities have expressed their displeasure over the manner in which incentive to
Revenue Authorities was not paid by banks in RRC-filed cases where compromises were settled
and paid : CIRCO/ADV/CL/234/2003-04.
BRISC : Bank Recovery Incentive Scheme Cell in M.P. : Payment of Incentive to Revenue
Authorities : Clarifications : CIRCO/ADV/CL/234/2003-04 :
• Efforts : Primarily, branches should make efforts for compromise before issuing the RRC
to the Recovery Officer/Tehsildar.
• Compromise : While entering into the compromise, there has to be a clause stating
therein that in case of default of any of the terms of the compromise by the Borrower/
Guarantor, the whole amount under the RRC shall become due and payable immediately,
and the Recovery Officer shall have a right to execute the pending RRC for the whole
amount mentioned in the RRC.
• Part-Recovery : Where only part of the compromise amount is received, and any of the
terms of the compromise is defaulted by the borrower/guarantor, the branch should
request immediately the Recovery Officer/Tehsilder to proceed with the execution
proceedings of pending RRC for the full amount mentioned in the RRC.
• Full Recovery : Where the full amount is received by the Bank, the pending RRC should
be withdrawn immediately.
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• Security : The branch must ensure that the security charged to the Bank remains intactin all respects with the Bank till the time the entire loan amount is liquidated and/or the
terms of compromise are complied with by the Borrower and the Guarantor in totality.
Other Aspects :
• Charges : Till such time the RRC filed with the State Government is not withdrawn,
BRISC charges at the prescribed rates are to be paid to the State Government with
exception as mentioned under (ii) below. At present, these are payable @ 3% towards
the cost of proceedings plus 2.5% as incentive amount (as detailed in Circular Letter No.
CCO/RRC/CL/89/1996-97 & CIRCO/CPPC/MISC/CL/04/2000-01). The instructions
contained in these Circular letters are to be complied with meticulously.
• Exception : Only those of our branches, which are located in the State of Chhattisgarh,
are exempted from paying incentive amount @ 2.5%. In case the recovery is through
settlement of dues under One-Time Settlement (OTS) Schemes, branches in the State of
Chhattisgarh should pay cost of proceedings @ 3% even on recovery under OTS Schemes.
The branches located in the State of Madhya Pradesh continue to pay BRISC charges
as before (at 3% + 2.5%), in such cases also (till such time the State Government ad-
vises its decision for waiver of incentive amount in this regard).
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The SARFAESI (SRESI) Act, 2002(The Securitisation & Reconstruction of Financial
Assets & Enforcement of Security Interest Act, 2002)
Securitisation Ordinance : Copy of The Securitisation & Reconstruction of Financial Assets
& Enforcement of Security Interest (Second) Ordinance and operative guidelines : enclosed to
CIRCO/ADV/CL/184/2002-03.
The Bank has modified the criteria for issue of notices by extending the coverage to all cases
with total outstandings (ledger balance) of Rs. 1 Lac and above in live ledger or otherwise :
CirCO/ADV/CL/222/2002-03.
SRESI Act : The Securitisation & Reconstruction of Financial Assets & Enforcement of Security
Interest Act, 2002 came into force on 21.06.2002 : CIRCO/ADV/CL/276/2002-03.
The Act : Guidelines : Detailed Operative Guidelines : CIRCO/ADV/CL/184/2002-03.
The Constitutional Validity of the SARFAESI Act was challenged in the Supreme Court of India
by Mardia Chemicals Ltd., etc. v/s ICICI Bank and a few others. The Supreme Court of India
pronounced the judgement in these cases on 08.04.2004 : CIRCO/ADV/CL/73/2004-05.
SARFAESI Act : Constitutional Validity : The Supreme Court recently upheld the constitutional
validity of the Securitisation Act.
The S.C., however, struck down a significant provision [Sec. 17 (2)] that barred a defaulter
borrower from moving the court (i.e. which barred from preferring some appeal/petition) against
attachment of his property unless he deposited 75% of the amount claimed by the bank. The
S.C. struck down Section 17(2) of the Act as unconstitutional : CIRCO/ADV/CL/107/2004-05.
The S.C. has also ruled that secured creditors cannot straightaway attach the defaulter's
assets after giving the mandatory 60-day notice. The Apex Court said it was mandatory on the
part of the secured creditors to serve 60 days notice on the defaulting borrower and consider the
objections raised on it before proceeding to attach the assets of the latter.
Certain important points/directions emerge from the decision given by the Supreme Court. The
views expressed by the Supreme Court and the action points emerging therefrom are detailed in
CIRCO/ADV/CL/73/2004-05.
The President has recently promulgated an Ordinance to align the provisions of the SARFAESI
Act, 2002 to the historic judgement of the Supreme Court in Mardia Chemicals case; also to
address the concern of the lenders, especially in the context of waiver of deposit criterion for
making application to the DRT by the aggrieved borrower, on the secured creditors taking recourse
to the measures specified in sub-section (4) of Section 13 to realise their security interest :
CIRCO/ADV/CL/238/2004-05.
1. Eligible Accounts :
* Non-Performing Accounts : Amount Rs. 1 Lac and above.
The Act does not cover the loans where the amount due is less than 20% of the
principal and interest.
* The account must be secured by mortgage (not agricultural land) charge,
hypothecation (not pledge), assignment of assets of borrower or guarantor.
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* In pending cases, the BIFR/DRT/Civil Court, as the case may be, is to be informed
suitably/simultaneously.
2. Authorized Officer :
* Chief Manager (SMGS-IV) and above of the branch or in administrative office.
* The Authorized Officer empowered to issue notices to the borrowers under Section
13(2) of the SARFAESI Act, 2002 has to be an officer in SMGS-IV (Chief Manager) or
above : CIRCO/ADV/CL/107/2004-05.
The objections raised by the borrower should be considered by an authority onestage higher than the notice issuing authority.
3. Issue of Notice : Under Sec. 13 (2) :
* To be issued by authorized officer.
* To be given to borrower and guarantor when the property of borrower and guarantor
(or of guarantor alone) is mortgaged. Where guarantor has not mortgaged property,
a copy of notice is to be sent to guarantor.
* The service to be made by Regd. Post A.D., Speed Post, Courier. In case of non-
delivery service, the service is to be effected by affixing the notice on the
conspicuous part of the building where the borrower/guarantor resides, and it may
also be published in two leading newspapers, one in vernacular language.
4. Procedure After Issue of Notice :
If the borrower/guarantor fails to meet their liability in full within 60 days from the
notice (i.e., 60 days mandatory notice period), the authorised officer may by himself
or through enforcement agency take one or more of the measures under Sec. 13 (4) :
CCFO/ADV/CL/308/2006-07, i.e.,
* To take possession.
* To take over the management.
* To appoint manager.
* To issue notice for collection of receivables/book-debts.
* If borrower/guarantor seeks time and intends to compromise, the proposal should
be submitted to competent authority, provided 25% of the amount offered is
deposited.
* For taking possession of secured assets, the authorized officer may take assistance
of an outside enforcement agency or the Chief Metropolitan Magistrate or District
Magistrate having jurisdiction over such assets.
* A panchnama should be drawn in the presence of at least two witnesses and
should also be signed by the witnesses.
* Until the assets are sold, steps for preservation, protection, insurance, etc. are
necessary.
* Valuation of secured assets taken into possession should be arranged through
approved valuers.
* The reserve price for the assets to be sold should be determined by the 'SRESI
Valuation Committee’.
* Possession Notice, along with Inventory Report, is to be given to the borrower/
guarantor. In case of immovable property, this should also be published in two
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prominent newspapers of which one should be in vernacular language, having
sufficient circulation in that locality.
* Borrower and guarantor is to be given notice of at least 30 days prior to arranging
sale of the secured assets.
* The assets taken into possession may be sold to secure maximum price by any of
the following modes :
- By obtaining quotations from parties dealing in the secured assets;
- By inviting tenders from public;
- By holding public auction;
- By private treaty/contract.
• Uploading of Auction/Sale Notices Issued Under SARFAESI Act, 2002/RDDBFI Act,
1993 (DRT) on Government of India (GOI) Website (tender.gov.in) : e-Cir/880/2012-13.
No auction should take place without such auction notice being put on website http://
tenders.gov.in for at least 30 days.
* Upon confirmation of sale and after receipt of sale price, the authorized official
issues certificate of sale for movable/immovable assets.
* For recovery of balance due, if any, the Branch should file an application to the
DRT or other competent court within the limitation.
* After full recovery of the Bank's dues, if any excess amount is left over, the same
should be refunded to the borrower or the guarantor, as the case may be, within the
prescribed period.
Note : The forms for Notice, Panchnama, Inventory, Possession Notice, Certificate of Sale
for movable/immovable assets, etc. are given as 'Annexure' to CIRCO/ADV/CL/184/2002-03.
Misc. Clarifications, etc. :
• SARFAESI Act : Notice U/s 13(2) : The approval for issuance of notice under section
13(2) of SARFAESI Act is required to be given by Branch Head of incumbency Scale IV
and above, involving an aggregate exposure up to Rs. 25 Crore : e-Cir/1020/2013-14.
Before initiating action under Section 13(4) of SARFAESI Act, the Branch should invariably
obtain approval of the appropriate authority, as prescribed.
A monthly report in the enclosed format should be sent by the branches to their Controllers
for control purpose.
• SARFAESI, DRT : e-auction : Forward e-Auction module is to be used for disposal of
assets by the Bank, including those under DRT and SARFAESI : e-Cir/998/2013-14.
Asking for the Bid/Sealed Cover Bids/On-line Sealed Bids/Request Letters with the auction
amount/quote/bid, etc. from the bidders through e-auction notice prior to real time e-auction,
to participate in e-auction is not required. However, bidders should submit application to
participate in e-auction along with KYC, other process compliance papers and EMD Payment
details to Bank/DRT.
• SARFAESI, DRT : e-auction : Facilitation Centre : The Bank has finalised agreements
with a panel of two vendors viz. M/s C1 India Pvt. Ltd. and M/s e-Procurement Technologies
Ltd. for provision of e-auction services by inviting applications from interested agencies
through newspaper advertisement for a period of 24 months : e-Cir/544/2013-14.
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The Branches, which conduct e-auction under SARFAESI/DRT, should make arrangement
for Facilitation Center to provide all information about the process of e-auction and facilitate
the bidders to bid in the e-auction in a transparent manner.
• Appeal : Internal Authority Structure : CIRCO/ADV/CL/107/2004-05.
SARFAESI Act : Appeal : The civil court has no jurisdiction to entertain any suit or proceeding
in respect of any action taken or to be taken in pursuance of any power conferred by or
under the SARFAESI Act (Sec. 34 ibid). This section also prescribes that no injunction
shall be granted by any court or other authority. This was also held by the M.P. High Court
in Manoj Kumar Jain V/s Corporation Bank (MPLJ 2008, Vol. 1, Case 619).
SARFAESI Action : Stay : of SARFAESI Action by High Court/DRT/Lower Court : Course
of action to be followed : e-Cir/89/2011-12.
The observations of the Hon’ble Supreme Court are equally applicable to the Debt Recovery
Tribunals also.
• Valuation Committee : Powers of ZCC (Zonal Office Credit Committee) for approving
reserve price of assets to be sold under the provisions of the Act : CIRCO/ADV/CL/115/
2004-05.
Constitution of committees : CIRCO/ADV/CL/326/2004-05.
Clarifications : CCFO/ADV/CL/125, 157/2005-06.
SARC/SARB : Fixing of Reserve Price of Movable/Immovable Properties : The proposals
for this purpose are now put up to Network Credit Committee of the respective Network.
Empanelment of Valuers : Revised Authority Structure : e-Cir/741/2012-13.
SARFAESI Act : Review of Panel of Valuers : Subject to their being registered under
Wealth Tax Act, 1957 : e-Cir/14/2010-11 .
Panel of Valuers : Review : Latest Guidelines : Detailed in e-Cir/1158/2013-14.
The valuers should be registered under Wealth Tax Act, 1957.
The review of approved valuers should be done annually.
Calling up of Adv. : Fixation of Reserve Price of Immovable Assets : Guidelines :
Detailed in e-Cir/200/2012-13.
The Standard Format for fixation of Reserve Price has also been devised and enclosed as
Annexure ‘B’ : e-Cir/249/2013-14.
With a view to save time of respective committees, a simplified format of Control Report(Annexure -A of e-Cir/890/2013-14) has been devised, which should be used for putting up
control reports by way of listing, at weekly intervals.
The market value of the properties should be the guiding factor for determining the Reserve
Price.
Points to be considered while fixation of reserve price of movable/immovable assets :
Detailed in e-Cir/1021/2013-14.
As per instructions of Department of Financial Services, Ministry of Finance, Govt. of India,
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all auctions through DRTs and SARFAESI are to be conducted electronically for transparency
and to help break cartelization.
Generally, market value should be based on a valuation report which is not more than sixmonths old.
• SARFAESI Act : Sale of Movable/Immovable Secured Assets : Terms & Conditions through
Private Treaty or by Obtaining Quotations from Parties Dealing in Secured Assets : e-Cir/
940/2013-14.
If the Bank is proceeding with the sale of secured asset, under SARFAESI Act, either by
private treaty or by obtaining quotations from the persons dealing with similar secured
assets or otherwise interested in buying such assets, it is mandatory for the Bank to
discuss the terms and conditions for such sale with the borrower/mortgagor/hypothecator
and to arrive at an agreement in respect of method of such sale, reserve price and such
other terms of the sale . Further, before proceeding with such methods, the terms and
conditions so arrived with the borrower/mortgagor/hypothecator are to be made in writing
and signed by all the parties, i.e. the Bank and the borrower/mortgagor/hypothecator.
• Simultaneous Action : S.C. Judgement : In a recent judgment, the Supreme Court has
upheld that the banks can take action against defaulting borrowers under SARFAESI Act
and simultaneously proceed against the same borrowers at DRT under DRT Act : CCFO/
ADV/CL/326, 370/2006-07.
Withdrawal of an application pending before the DRT under the DRT Act is not a pre-
condition for taking recourse to the SARFAESI Act.
• 'P' Segment : The provisions of the Act are applicable to 'P' Segment also : CIRCO/ADV/
CL/289/2002-03.
It is in order to take possession of the mortgaged properties in case of default, after going
through the formalities.
• Car Loans : As the provisions of the Act cover seizure of movable property also, these
are applicable to the Bank’s Car Loan Scheme as well : CIRCO/ADV/CL/06/ 2003-04.
• Housing Loans : 'P' Segment : Under the provisions of the SARFAESI Act, and subject
to usual safeguards and after seeking approval of the appropriate authority. Branches
should implement the strategy of publishing photographs of delinquent borrowers, along
with their personal profile and property details in leading local vernacular newspapers (in
order to reduce NPAs in Home Loans and other P Segment Loans in a time-bound manner) :
CCFO/ADV/CL/260/2005-06.
Format of notice (regarding publication of photograph) to be served on borrower /
guarantor : enclosed to CCFO/ADV/CL/260/2005-06. Further clarifications : CCFO/ADV/
CL/201/2006-07, etc. - Detailed separately.
Issues pertaining to Bank's Legal Rights and Responsibilities for taking Possession of a
House/Flat under the SARFAESI Act : Summary : CIRCO/ADV/CL/07/2004-05.
Issues raised and the Corporate Centre response thereto : CIRCO/ADV/CL/104/2004-05.
SARFAESI Act : Home Loans : Publication of Name & Photograph of Defaulter : The
Bank has recently decided that the Circle may consider the publication in National
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Newspapers, of names and addresses (with photographs), of Home Loan defaulters, against
whom notice under Section 13 (2) of SARFAESI Act ,2002 has already been issued : e-Cir/
247/2011-12.
It should be approved by the Circle CGM on a case by case basis after the facts of each
case are first vetted by the Law Department.
• Sanction of H.Ls. to Purchasers : There is no legal impediment to sanction Home Loans
to the purchasers of residential property attached and sold by the Bank under the provisions
of SARFAESI Act (as it involves substitution of ownership rights) : CCFO/ADV/CL/13/
2006-07.
However, care has to be taken that the property is vacant and no attachments from Income-
tax/Sales-Tax Departments exist. Further, the usual title verification report has to be obtained
before sanctioning the loan.
SARFAESI Action : Edu. Loans : NPAs : Co-borrowers in Education Loans, which have
turned NPA and recoveries are not forthcoming, may be served with legal notices : e-Cir/
667/2011-12.
In case of Education Loans backed by collateral security, the security may also be enforced
and SARFAESI notices may also be issued, wherever applicable : e-Cir/667/2011-12.
• Part-Payments : Clarification on acceptance of part-payments from the borrowers
subsequent to servicing of notice under Section 13(2) of the SRESI Act, 2002 : CIRCO/
ADV/CL/104/2004-05.
Related formats enclosed to CIRCO/ADV/CL/124/2004-05.
It is, however, advisable to get the Compromise Agreement vetted by the Law Officer at
Zonal Office/Local Head Office.
SARFAESI Act : Common Security : For initiating recovery action under SARFAESI in
respect of different accounts of a borrower, it is necessary that all the loan accounts
should be secured by a common security and have the same borrower in all the accounts.
SARFAESI Act : Auction Notice : If deemed fit, in the auction notice published in the
newspaper for sale of properties under SARFAESI Act, new auction date(s) can be
incorporated without publishing another auction notice in case the auction remains
unsuccessful (i.e., in case the auction fails to materialise for the first time).
If the authorized officer deems it fit, he may put the notice of sale on the website of the
secured creditor (i.e., our Bank) on the Internet (Rule 8 Sub-rule 7).
No sale of immovable property under these rules shall take place before the expiry of 30days from the date on which the public notice of sale is published in newspaper (or, notice
of sale has been served to the borrowers) : Rule 9(1).
• Legal Heirs : Format of demand notice to be served on the legal heirs of the deceased
borrower(s)/guarantor(s), when required, is enclosed to CCFO/ADV/CL/153/2005-06.
• Enforcement Agents : Modifications made in the procedure for empanelment of EAs :
CCFO/ADV/CL/179/2005-06.
Indemnity Bond : A revised indemnity bond has been prescribed recently, restricting the
liability of the EA to 10% of the outstanding in the account : Format enclosed to e-Circular/
738/2008-09.
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• SCs and RCs : Price Recognition : Securitisation Companies and Reconstruction
Companies : Approach to Price Recognition on Sale of NPAs/AUCA : Revised Approach :
Detailed in e-Circular/256/2009-10.
• SARFAESI Act : Legal Issues : Clarifications/guidelines provided by Law Department :
Furnished in e-Cir/564/2012-13.
• Securitisatton Transactions : RBI Guidelines on securitisation of standard assets, etc. :
Detailed in e-Cir/366/2013-14.
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SARFAESI ACT, 2002 :
TIME-LIMITS FOR DIFFERENT ACTIVITIES
Action Time Limit• Time to be allowed to the borrower/guarantor in 60 days from the date of Demand Notice.
Demand Notice to repay the Bank dues under
Sec. 13 (2) :
• Time within which the borrower can submit 60 days from the date of Demand Notice.
representation/objection to the above
demand notice :
• Time within which the Bank has to convey its 7 days from the date of receipt of the
decision against the above representation/ representation/objection.
objection :
• Time within which the Bank has to publish the Within 7 days of taking possession of the
possession notice u/s 13(4) in local secured assets (i.e., within 7 days from the
newspapers for sale of the movable secured date of issue of the Possession Notice to
assets : the borrower).
• Time within which the borrower can file a Within 45 days from the date of action of
petition in the DRT against the Bank for the Bank.
having taken possession of property :
• Maximum time within which DRT has to pass Within 4 months from the date of Application
the order for the above : in the DRT.
• Time within which the Bank/borrower can file Within 45 days from the date of receipt of
an appeal with the Appellate Tribunal against the Order of the DRT.
the Order of the DRT :
• Minimum Time the Bank has to permit for the 30 days from the date of Sale Notice.
borrower to repay the debt while issuing the
Sale Notice :
SARFAESI ACT. : AMENDMENTS
CCFO/ADV/CL/2/2008-09 :
i) The approved valuer has been defined in the amendment as a person registered as a
valuer under section 34 AB of the Wealth-Tax Act, 1957 and approved by the Board of
Directors of the secured creditor. Further amended as per next page.
ii) The possession notice as stated in the Rule 8(2) needs to be published in two leading
newspapers within 7 days of taking possession of the secured assets.
iii) In rule (9)7, a new proviso has been incorporated to the effect that if any balance amount
is available after meeting all the liabilities, including cost and contingencies, etc., it should
be returned to the purchaser within 15 days from the date of finalization of sale.
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SARFAESI ACT, 2002 : IMP. LEGAL DECISIONS
a) The Jammu & Kashmir Bank Ltd. filed a Writ Petition in the Delhi High Court against the
order of the DRAT, Delhi which had stayed the action of the Bank to take over the possession
of the secured assets from a defaulting borrower under section 13(4) of the SARFAESI Act,
2002.
After examining the issue in detail, the High Court came to the conclusion that the borrower
had created a tenancy right in favour of his sister concern over the properties mortgaged to
the bank, with an intention to defeat the bank’s bona fide action of taking over the possession
of the secured assets as per the provisions of the SARFAESI Act. The High Court concluded
that it was a sham transaction and has been entered into by the borrower to obstruct the
recovery of the loan amount by the creditor bank. The H.C. set aside the order passed by
the DRAT and allowed the creditor bank to take the possession of the suit property in
accordance with law : J&K Bank Ltd. Vs. Goldline Impex Pvt. Ltd. & Ors, Judgement dated
26.05.2008 of Delhi High Court.
b) By virtue of Section 17(4) read with Section 35 of the SARFAESI Act, if in a given case, the
measures undertaken by the secured creditor under Section 13(4) come in conflict with the
provisions of any State Law, then, notwithstanding to such a conflict, the provisions of
Section 13(4) shall override the local Law.
Any tenancy created by the mortgagor after the mortgage in contravention of Section 65(A)
would not be binding on the Bank/FI and in any event, such tenancy rights shall stand
determined once action under Section 13(4) has been taken by the Bank/FI.
2007 (2) CTC 193 Sree Lakshmi Products, represented by its Partner, S. Lakshmi Prabha,
1790, Trichy Road, Ramanathapauram, Coimbatore-45... V/s State Bank of India,
represented by Branch Manager, Red Fields Branch, Race Course, Coimbatore-18.
SARFAESI ACT : VALUERS
Definition : SARFAESI Act : Approved Valuers : The Ministry of Finance has recently amended
the definition of an approved valuer : e-Circular/383/2008-09 :
“Approved Valuer means a person registered as a valuer under Section 34AB of Wealth-Tax Act,
1957 and approved by the Board of Directors or Board of Trustees of the Secured Creditor as the
case may be.”
A partnership firm can be recognized as a registered valuer only if all the partners are registered
under the Wealth-Tax Act.
Only those valuers registered under the Wealth-Tax Act, 1957 will now be allowed to be continued
in the list of empanelled valuers. The valuers registered under the Wealth-Tax Act, 1957 are
permitted to value properties irrespective of their value. The existing restriction of valuation of
immovable and industrial assets with a cap of Rs. 5 Crore stands abolished.
Copy of the revised list of valuers approved by the ECCB : enclosed to CCFO/ADV/CL/329/
2007-08.
ENFORCEMENT AGENTSIndemnity Bond : A revised indemnity bond has been prescribed recently, restricting the liability
of the EA to 10% of the outstanding in the account : Format enclosed to e-Circular/738/2008-09.
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NPA MANAGEMENT :
OUTSOURCING OF RECOVERY EFFORTS
Eligibility : All the written-off accounts, irrespective of date, whether parked in AUCA or otherwise,
with outstanding not exceeding Rs. 25 Lac, are now eligible for outsourcing of recovery : CCFO/
ADV/CL/341/2006-07.
For recovery in respect of accounts with outstanding above Rs. 25 Lac, the services of Enforcement
Agents may be utilised, in terms of extant instructions.
The distinguishing features of two schemes (Recovery Agents, Enforcement Agents), aimed at
supplementing the recovery efforts of branch officials, are detailed in CCFO/ADV/CL/341/
2006-07.
Recovery Agencies : Resolution Agents, Recovery Agents : Empanelment : Authority Structure :
e-Cir/189/2012-13.
Recovery Agents : Appointment : The Bank has recently appointed Dealers of Commercial
Vehicles or firms set up by the Dealers of Commercial Vehicles as recovery agents to supplement
the recovery efforts of Branch officials and to mitigate the risk in the Commercial Vehicle Financing :
e-Cir/1130/2012-13.
Further details furnished in e-Cir/1130/2012-13.
Recovery Agents : Fees : T.D.S. : The fees to Recovery Agents should be paid by debit to
Branch Charges A/c (Sundries) only after deducting TDS payable on such fees : CCFO/ADV/
CL/420/2006-07.
The fees payable is inclusive of service tax, if any payable.
RBI Policy, etc. : Enclosures to e-Cir/442/2008-09 :
• Model Code of Conduct for Recovery Agents;
• Declaration-cum-Undertaking to be obtained from Recovery Agents;
• Model Policy on Re-possession of Security;
• Operating Guidelines for Re-possession of Security;
• Application Form for Appointment of Collection Agency and Collection Agents;
• Grievance Redressal Mechanism for Redressal of Complaints arising from the Misconduct
of Recovery Agents.
All recovery Agents are required to undergo 100 hours training being conducted by indian Institute
of Banking & Finance. (I.I.B.F.)
Constitution of Committee : For empanelment of Recovery Agents : for resolution of Stressed
Assets parked in SARCs : Modified Instructions : e-Circular/476/2008-09.
Recovery Agents : IMs : The circles may explore the possibility of appointing the subsidiaries of
Industry majors as Recovery Agents of the Bank for the defaulting borrowers of commercial
vehicles with the guidelines issued by CPPD in this regard from time to time : e-Cir/130/2013-14.
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Performance of Recovery Agents : A format - enclosed to e-Cir/531/2008-09 - has been designed
to review the performance of recovery agents. The operating offices shall submit their progress
report to the concerned DGM (O&C)/DGM (SAMB) as at the end of each quarter. The performance
report should be submitted to the concerned DGM latest by 10th of the month following the
quarter to which it relates.
RESOLUTION AGENTS
Stressed Assets Management Resolution Agents : While the various Recovery Agent’s Schemes
formulated by various Business Groups would continue to operate without any change, it has
been decided to merge the scheme for appointment of Enforcement Agents and the scheme for
appointment of Resolution Agents the details of which are outlined in e-Cir/220/2010-11.
The schemes of appointment of Enforcement Agents and Resolution Agents have been integrated
on account of commonalities and overlaps between them.
NPA Management : Resolution Agents : Modifications : e-Cir/805/2012-13 :
a) Agencies (Individuals/Proprietorship/Partnership) with good track record and experience in
recovery of impaired assets may also be empanelled as Resolution Agents.
b) Services of empanelled Resolution Agents in the same area of operation may be utilized by
any Business Group and there is no need for separate approval by other Groups for the same
agency.
Performance : Branches/CPCs should submit the performance of Resolution Agents engaged at
the Branch/CPC at half-yearly intervals in the revised format for review by their Controllers and
also review the performance of Resolution Agents, in the same format, at the Branch/CPC at
quarterly intervals as envisaged in the scheme : e-Cir/891/2013-14.
ASSET MANAGEMENT CONSULTANTS (AMCs)
AMCs : Asset Management Consultants : Engaging Retired SBI Officers as Asset Management
Consultants at RACPCs (for soft recovery) : Details furnished in e-Cir/854/2009-10.
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H. SULAIMAN (SBIOA)
MODEL CODE OF CONDUCT :
FOR RECOVERY AGENTS, ETC.
Model Code of Conduct : For recovery agents, etc. : e-Cir/442/2008-09, 854/2009-10 :
• The Recovery Agents (RAs) must agree to abide by this code prior to undertaking recovery
operations on behalf of the Bank. Any RA violating the code will be blacklisted and will not be
considered for renewal of contract.
• Telephonic contact may normally be limited between 8 AM to 8 PM.
• Will talk in language which is most comfortable to the borrower.
• Will keep conversation limited to business.
• Will avoid demeanour that will suggest criminal intimidation or threat of violence.
• Will not accept any kind of gift or bribe.
• Must be dressed appropriately. Decorum and decency will be maintained.
• Would resort to only the legally permissible activities during the course of recovery.