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RECOVERY

MANAGEMENT

OCTOBER,2013

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REHABILITATION & RECOVERY Despite close monitoring, some accounts will become

sick. Then decision is to be taken whether there is scope

for nursing the account back to health and recover banksdues.

What is Sickness ?

In case of an SSI, a unit will be identified as sick onthe basis of following criteria :i. It is in operation for at least two years, and

ii. The amount has remained continuously overdue or out oforder for more than 12 months OR the accumulated cashlosses exceeds 50% of its net worth.

In case of large units :

i. The company should be in existence for a period of 5years.

ii. The accumulated cash losses are equal or more than its networth.

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BIFRBoard of Industrial & Financial Reconstruction (BIFR) :

BIFR was set up under the SICA,1985.

Under SICA, sick companies have to report their sickness

to BIFR under the following circumstances :i. When the accumulated losses exceeds 50% of its net worth

ii. When their net worth is completely wiped-off.

Implications :

a. Immunity from legal cases

b. Appointment of Operating Agency to work out Rehabilitation ofthe sick unit.

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DEBT RE-STRUCTURING - SMEs

SME : Investment in P & M between Rs.25 lacs to Rs.10 crs. incase of a Manufacturing unit and between Rs.25 lacs to Rs. 5

crs. in case of a Service unit.

Eligibility :Corporate or non-Corporate SMEs who are viable &potentially viable, are eligible irrespective of level of borrowings

from a Single Bank or multiple banks.

Viability Benchmark : The rehabilitated firm should turnfinancially viable in 7 years,with the repayment period not

exceeding 10 years.

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DEBT RE-STRUCTURING - SMEs

Time-frame : restructuring package to be implemented

within 60 days from the date of borrowers request for

rehabilitation.

Review : on a quarterly basis

OTS / Out of Court Settlement : OTS / Out of Court

settlement can be implemented for recovery of NPAs belowRs.10 crs.

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CORPORATE DEBT

RESTRUCTURING (CDR)

Unlike BIFR which is constituted under an Act, CDR is a non-statutory, voluntary organisation comprising of banks & FIs.

Under CDR, rehabilitation schemes can be worked out for

even a standard account.

Eligibility :

It takes up cases involving debts of Rs.10crs. & above from

the banking system. Minimum 2 banks funding.

60% of the financing banks who have lent at least 75% of thetotal borrowing approves reference to the CDR

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SARFAESI ACT,2002

The Act allows the SC / RC to acquire financial assets from

any bank / FI on mutually agreed terms.

Salient Features :

Incorporation of SPVs namely SC / RC

Securitization of financial assets

Funding of Securitization

Asset Reconstruction

Enforcing security interest i.e. taking over the assets given as

security for the loan WITHOUT COURT INTERVENTION.

Establishment of central registry for regulating &registering

the securitization transactions.

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LEGAL ACTIONS

When all efforts to recover banksdues fail, banks resort

to legal & other remedies. Options available are :

Civil Courts Criminal Courts

Lok -Adalats

Debt Recovery Tribunals (DRTs) Act,1993

SARFAESI Act,2002 Sale of Debt to other banks / NBFCs/ARCs

Compromise / Write-off

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THANK YOU

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