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INTRODUCTION

Banks were never so serious in their efforts to ensure timely recovery and consequent reduction of NPAs as they are today. It is important to remember that recovery management, be of fresh loans or old loans, is central to NPA management. his management process needs to start at the loan initiating stage itself. !ffective management of recovery and NPA comprise two pronged strategy. "irst relates to arresting of the defaults and creation of NPA thereof and the second is to handling of loan delinquencies. message that either they perform or perish. into the asset quality. A debt from a loan, credit line or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. In accounting, the bad debt recovery would credit the #allowance for bad debts# or #bad debt reserve# categories, and reduce the #accounts receivable# category in the books. Not all bad debt recoveries are #like$kind# recoveries. "or e%ample, a collaterali&ed loan that has been written off may be partially recovered through sale of the collateral. 'r, a bank may receive equity in e%change for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit. he tenets of financial sector reforms were revolutionary which created a sense of urgency in the minds of staff of bank and gave them a he prudential norm has forced the bank to look

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Recovery Meaning:
!Recovery i" #e$ine# a" %&e 'roce"" o$ regaining an# "aving "o(e%&ing )o"% or in #anger o$ *eco(ing co"%"+, (ecovery is a key to the stability of the banking sector there should be no hesitation in stating that Indian banks have done a remarkable )ob in containment of Non$Performing Assets *NPA+ considering the overall difficult environment. (ecovery management is also linked to the bank,s interest margin,s we must recogni&e that cost and recovery management supported by enabling legal framework hold the key to future health and competitiveness of the Indian banks. No doubt, improving recovery management in India is an area requiring e%peditions and effective actions in legal institutional and )udicial processes. Banks at present e%perience considerable difficulties in recovering loans and enforcement of securities charged with them. he e%isting procedure for recovery of debts due to banks has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time.

Rea"on" $or Recovery Manage(en%:

Bank deserves to be paid for their products and services. he collection

professionals

in (ecovery -anagement .ystems will work to see that.


(easonable fees with no up$front costs. hey get paid only when it is collect. (ecovery -anagement .ystems will design a collection strategy to meet bank,s

ob)ectives. Bank can recover their debts without losing customers.

-onthly settlements with meaningful reporting. .tatus updates on demand.

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!%tensive e%perience obtaining and collecting money )udgments in 'hio. /arnishments,

liens, and levies (ecovery -anagement .ystems will collect when legal action is the only option.

0utting edge skip$tracing tools and techniques recovery -anagement .ystems can work

1st, 2nd, and 3rd placements and even turn bank old )udgments into money.

A#van%age" & Di"a#van%age" o$ Recovery Manage(en%:


A#van%age":
he process of assigning debt collection to outsides enables officials from Banks to develop more remunerative new business. hird party involvement in debt collection has proven time and again to improve the chances of recovering bank dues as these people are specialists in negotiating with debtors and the result usually speak for themselves. A skillfully negotiated debt collection could mean saving on litigation cost.

he process of assigning debt collection to outsides enables officials of non$Banks. 0ost to develop more beneficial new business.

Di"a#van%age":
4ebt collection does cost money5

he debt collection agency will be establishing a relationship with the banks customers, which could be potentially harmful if they sour that relationship by not dealing with customers in a courteous manner.

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I('or%an% /oin%" $or De*% Recovery:


On %&e *a"i" o$ %&e $oregoing 'roce#0re $or nor(a) recovery 'roce""1 2e (ay )i"% *e)o2 cer%ain Don3%" $or %&e #en% recovery1 2&ic& are a" $o))o2": 4on,t violate or breach the recovery policy, procedure etc. prescribed by the principal.

4on,t e%ceed the authority given in the recovery arrangement.

4on,t make a call to the debtor before 67.66 hours or after 21.66 hours.

4on,t make anonymous calls or bunched calls to the debtor, which may be perceived as harassment.

4on,t conceal or misrepresent your identity during calls and visit or other interaction with the debtor.

4on,t show uncivil8indecent8dirty behavior or use such language during calls and visits to the debtor.

4on,t harass8humiliate8intimidate8threaten the debtor$verbally or physically.

4on,t intrude into the privacy of the debtor,s family members, friends8colleagues.

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4on,t disclose the customer,s debts8dues8account information to unauthori&ed person.

4on,t forget that the debtor is a human being and deserves to be treated with fairness and courtesy, despite the fact that he8she is a debtor for the time being.

E)e(en%" o$ De*% Recovery:


he agency regarding debt recovery contains the main terms and conditions agreed by the principal *bank+ and the agent. include9 .pecific tasks to be accomplished e.g. the amount to be recovered from the specified loan accounts in default and the broad time frame. 4ebt (ecovery Policy and Procedure of the bank. he main elements of the debt recovery would generally

0ode of conduct in recovery process may include dress code, verbal and written communication rules top be followed by the individuals employed by the agency for the purpose of collection.

4uties of the agent.

(ights of the agent, including the commissions8fees payable by the principal to the agent8agency for the recovery of debt8other services. he 4ebt (ecovery Policy and code of conduct in the debt recovery will be regulations

compliant, i.e. in accordance with the directives and guidelines of the (eserve Bank of India issued from time to time. If, however these are not incorporated therein, it is advisable for agents to seek clarification from the principal, as compliance with the regulations is mandatory for the banks and also their recovery agents. 5
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he 4ebt (ecovery Agreement between the credit institution and the debt recovery agent8agency serves as the contractual arrangement that is legally binding on both. .uch an arrangement, being bank specific may vary from bank to bank in details. he duties of the agent8agency the authority delegated and code of conduct prescribed by the bank in the process of recovery function would to be carefully noted for strict compliance by the agent.

S%ra%egy $or De*% Recovery:


4evising a strategy helps in achieving a set goal or ob)ective. (ecovery agents should therefore devise a strategy for debt recovery. proper strategy for debt recovery9 he collection process should be compliant to the bank$specific recovery norms and also regulatory guidelines. he collection timing should be synchroni&ed to the cash inflow pattern of the debtors9 "or e%ample, recovery from salaried employees should be timed when salary is received by or credited to the debtor,s account, normally at the moth$end. In case of .-! borrowers the effort should coincide with cash flow on account of sales. In case a collection from agriculturist should be made, then it should be soon after the crops are sold. his will call for knowledge of bank products on the part of agents. It should be the endeavour of the agent that collection should be made well before the cash inflows are spent away by the debtor for meeting other e%penses. Adopt different collection strategy for different debtor types9 his is based on the he following guidelines would help in preparing

dictum that :one si&e does not fit all,. In the foregoing paragraphs, three types of debtors have been described and they need different strategies for recovery success9 Normal debtors, i.e. who :can pay, and :will pay, if reminded or8and persuaded to pay. 4ifficult debtors, i.e. those who :can pay,, but :will not pay,. 6
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4oubtful debtors, i.e. whose who can pay the reduced amount as negotiated with them. ;hile different strategies are required for different types of debtors, the following are the common points to be followed in all kinds of recovery strategies9 (ecovery effort should start with the establishing a good rapport with the debtor. 0ommunication, listening and persuasive skills would be applied in building good interpersonal relations. /o through the :know <our 0ustomer, papers furnished by the bank and know the customer,s identify and personal profile. /o through the copy of the loan agreement of the debtor furnished by the bank and note down the financial position, cash flow pattern, and assets charged to the bank.

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DE8AU9TS O8 9OAN:
'ne ma)or problem which the banks in India are facing is the problem of recovery and overdue of loans. he reasons behind this may vary for different financial institutions as it depends upon the respective nature of loans. =ere an attempt is made to find out the some causes of default of loans due to which financial Institutions are facing the problems of overdue of loans. he recovery officers of different banks are interviewed for finding out the causes of defaults. hese reasons may be useful for the and Banks for the better recovery of loans in future. After surveying different banks, the following can be said to be some of the main causes of default of loans from industrial sector9$

I('ro'er "e)ec%ion o$ an en%re'rene0r:


.election of the right !ntrepreneur is one of the ma)or factors in the profitability of Banks. wo ma)or criterions namely the intention to repay and the capacity to repay should be properly dealt with in 0redit !valuation. he entrepreneurs who have the willingness, capabilities, qualities and the requisite e%pertise for successfully setting up and running an industrial unit, should be identified with proper prudence and )udiciousness. his is the best way of safeguarding the investment of a bank, thereby ensuring proper and timely repayment. >nbiased survey reports of the site and capability of the !ntrepreneur must be verified by the surveyor. In other words the credit worthiness of the entrepreneur as well as the pro)ect should undergo very careful scrutiny before the sanctioning of the loan. .trict measures and security should taken before the sanctioning of the loan.

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De$icien% ana)y"i" o$ 'ro;ec% <ia*i)i%y:


'ne of the important reasons for poor recovery of loan is attributable to wrong selection of pro)ects. .uccess of any pro)ect depends upon the viability of the pro)ect, and the viability in turn, depends upon the easy availability of raw material, transportation, railways, skilled labour, communication facilities, markets etc. If any of the above is not easily available to the entrepreneur it results in an increase in the cost of the pro)ect and also in delay of production. his inevitably causes default in repayment of loans. here are many e%amples where the banks accede to finance pro)ects deficient in one or more of these areas. In usual practice, when an entrepreneur approach for a loan he presents his pro)ect in such a way that no one can easily comprehend the non$availability of the primary prerequisites. All the weak points are camouflaged and only strong points of the pro)ect are highlighted.

Ina#e=0acy o$ Co))a%era) Sec0ri%y>E=0i%a*)e Mor%gage again"% 9oan:


0ollateral .ecurity by way of mortgage of immovable property or other fi%ed assets, thereby creating a charge, trains the mind of the borrower to be prepared to pay the dues to the lenders. But when he is free from this fear of losing his encumbered asset in the event of his defaulting in the payment of dues to banks, he often takes the liberty, and tends to weigh the pros and cons vis$?$vis default. .ecurity against loan, though at times may fall harsh on the borrower, serves a worthwhile purpose in that it creates promoters@ stake in the borrowers and thus, disciplines the borrower to be more committed in paying the dues to Banks.

Unrea)i"%ic Ter(" an# Sc&e#0)e o$ Re'ay(en%:


'ccasions are not few when there develops a tendency on the part of the financers to paint a rosy picture of the pro)ect at the time of appraisal. If the sanctioning authority is guided by considerations of personal interests, many things may happen. he breakeven point of a pro)ect may be shown at an unrealistically low level of operation, or profitability may be shown at an unduly high level )ust to brighten the chances of acceptability of the pro)ect by the financial institution5 or cash inflow may be shown in an unduly optimistic manner and, ?
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therefore, 4ebts .ervice 0overage (atio *4.0(+ worked out incorrectly, fi%ing unrealistically high installments and conservative schedule of repayments. hese inner pulls and pressures may find reflection in fi%ing e%cessive amounts of installments in order to show an early period of repayment. he borrower at this stage finds himself in an unenviable position of a @<es -aster@ and nods his head at whatever conditions are attached or whatever repayment schedule is fi%ed by the financial institutions, in all probability, covering up his design to evade payment of the future dues. And, the real problem surfaces when repayment of installment8payment of interest falls due and the borrower conveniently and blissfully ignores calls for clearance of the said dues, not so much due to his intention to defraud the loans, as due to him already bleeding white to keep his concern going.

9ac@ o$ 8o))o2 0' Mea"0re":


"A "%i%c& in %i(e "ave" nineA "ollow$up measures taken regularly and systematically keep the borrowing unit under constant vigil of the banks. -any ills can be checked through such follow$up measures by keeping the borrowing units on their alertness and guiding them to rectify their mistakes in the first opportunities or e%tending them a helping hand in tiding over their tight times. Normally, such close follow$up programs are conspicuous by their absence. In the result, the borrowing units not only ignore payment of their dues to banks but also often tread on wrong tracks, much to the detriment of their own financial health and that of the banks. Performance of the borrowing units, if carefully and systematically monitored through regular inspections by scrutiny of returns, annual balance sheet and inspection of site, can be significantly improved. Naturally, such inspections prevent the borrowers from deviating from the terms and conditions of the loan or from diverting any fund for purpose other than those earmarked in the sanction letter and keep the financial health of the units in good order.

9a*o0r 'ro*)e(":
he labour situation in India can be broadly classified into two categories namely availability and welfare related problems. .killed labour is in shortage for many speciali&ed industrial units particularly because of the geographical situation of such units. .hortage of 1B

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labour results in unwarranted deceleration of production thereby hampering the profitability of the concerned unit. 'n the other hand labour welfare is grossly neglected by industrial units leading to a feeling of dissatisfaction and disgruntlement among the working force. here are numerous instances where political and vested interests tend to instigate labour problems.

De$a0)% #0e %o na%0ra) ca)a(i%ie":


A certain proportion of default can be attributed to natural calamities such as floods, earthquakes, storms, etc. Prima$facie this would seen to be a factor beyond human control. A more detailed insight, would however, suggest that certain precautionary preventive measures such as proper meteorological and topographical analysis of the industrial sight can go a long way in reducing this element of risk. Natural calamities not only affect the unit directly but also e%ert additional burden on the /overnment in terms of relief measures, waivers etc. A further fraction, albeit nominal, is of such borrowers who tend to take undue advantage of such natural calamities in order to avoid repayment, thereby increasing the magnitude of default.

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/o)icy1 /roce""e" an# /roce#0re o$ De*% Recovery Manage(en% Meaning:


0ollection of post due debt or receivables of the bank that has engaged a recovery agent is the core function of the agent. All other functions, as discussed in the preceding unit, revolve around this core function. ;e will discuss in detail the policy, processes and procedure for debt recovery function in this unit. Banks lay down their policy and procedure for collection of past due debts in conformity with the legal and regulatory framework. he banks will in particular, abide by9 he (BI directives on recovery of debt, including recovery agents engaged by the bank.

he -odel Policy on collection of 4ues and (epossession of security framed by the Indian Banks, Association.

A bank will normally incorporate its policy and procedure for debt recovery in the arrangement entered into its recovery agents. In terms of the recovery management agreed with the bank, the recovery agents should adhere to the policy, procedure, etc. prescribed by the bank.

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9oan Recovery /o)icy:


he debt collection policy *recovery policy+ of the bank is built around dignity and respect to customers. he Bank will not follow policies that are unduly coercive in recovery of dues from borrowers. he policy is built on courtesy, fair treatment and persuasion. he bank believes in following fair practices with regard to recovery of dues from borrowers and taking possession of security *properties 8 assets charged to the bank as primary or collateral security+ *known as security repossession+ and thereby fostering customer confidence and long$term relationship. he repayment schedule for any loan sanctioned by the Bank will be fi%ed taking into account the repaying capacity and cash flow pattern of the borrower. he bank will e%plain to the customer upfront the method of calculation of interest and how the !quated -onthly Installments *!-I+ or payments through any other mode of repayment will be appropriated against interest and principal due from the customers. he bank would e%pect the customers to adhere to the repayment schedule agreed to and approach the Bank for assistance and guidance in case of genuine difficulty in meeting repayment obligations. he Bank,s .ecurity (epossession Policy *taking possession of the mortgaged properties under .(!.I Act or acquiring the property as non banking asset through enforcement of decree+ aims at recovery of dues in the event of default and is not aimed at whimsical deprivation of the property. he policy recogni&es fairness and transparency in repossession, valuation and reali&ation of security. All the practices adopted by the bank for follow up and recovery of dues and repossession of security will be in consonance with the law.

Genera) G0i#e)ine":
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All the members of the staff or any person authori&ed to represent our Bank in collection and 8 or security repossession would follow the guidelines set out below9 he customer would be contacted ordinarily at the place of his 8 her choice and in the absence of any specified place, at the place of his 8 her residence and if unavailable at his 8 her residence, at the place of business 8 occupation. Identity and authority of persons authori&ed to represent the Bank for follow up and recovery of dues would be made known to the borrowers at the first instance. he bank staff or any person authori&ed to represent the bank in collection of dues or 8 and security repossession will identify himself 8 herself and display the authority letter issued by the bank upon request.

he bank would respect privacy of its borrowers.

he bank is committed to ensure that all written and verbal communication with its borrowers will be in simple business language and the bank will adopt civil manners for interaction with borrowers.

Normally the bank,s representatives will contact the borrower between 6766 hrs and 1A66 hrs, unless circumstances warrant visiting the borrower at odd hours and occasions. .uch circumstances would include continuous irregularity in the accounts.

Borrower,s requests to avoid calls at a particular time or at a particular place would be honored as far as possible.

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he bank will document the efforts made for the recovery of dues and the copies of communication, if any, sent to the customers will be kept on record.

All assistance will be given to resolve disputes or differences regarding dues in a mutually acceptable and in an orderly manner.

Inappropriate occasions such as bereavement in the family or such other calamitous occasions will be avoided for making calls 8 visits to collect dues.

Giving no%ice %o *orro2er":


;hile written communication, telephonic reminders or visits by the bank,s representatives to the borrowers, place or residence will be used as loan follow up measures, the bank will not initiate any legal or other recovery measures including repossession of the security without giving due notice in writing. he Bank will follow all such procedures as required under law for recovery 8 repossession of security.

Re'o""e""ion o$ Sec0ri%y:
(epossession of security is aimed at recovery of dues and not to deprive the borrower of the property. he recovery process through repossession of security will involve repossession, valuation of security and reali&ation of security through appropriate means. All these would be carried out in a fair and transparent manner. (epossession will be done only after issuing the notice as detailed above. 4ue process of law will be followed while taking repossession of the property. he bank will take all reasonable care for ensuring the safety and security of the property after taking custody, in the ordinary course of the business.

<a)0a%ion an# Sa)e o$ /ro'er%y:


Baluation and sale of property repossessed by the bank will be carried out as per law and in a fair and transparent manner. he bank will have right to recover from the borrower the balance due, if any, after sale of property. !%cess amount, if any, obtained on sale of property will be returned to the borrower after meeting all the related e%penses provided the bank is not having any other claims against the borrower. 15
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O''or%0ni%y $or %&e *orro2er %o %a@e *ac@ %&e "ec0ri%y:


As indicated earlier in the policy document, the bank will resort to repossession of security only for the purpose of reali&ation of its dues as the last resort and not with intention of depriving the borrower of the property. Accordingly, the bank will be willing to consider handing over possession of property to the borrower any time after repossession but before concluding sale transaction of the property, provided the bank dues are paid in full. If satisfied with the genuineness of borrower,s inability to pay the loan installments as per the schedule which resulted in the repossession of security, the bank may consider handing over the property after receiving the installments in arrears. =owever, this would be sub)ect to the bank being convinced of the arrangements made by the borrower to ensure timely repayment of remaining installments in future.

De*% Recovery /roce"":


4ebt recovery processes can be typically of following kinds, each involving different procedure9 Di$$ic0)% recovery 'roce"" 2&ere %&e #e*%or" are no% 2i))ing %o 'ay an# 2&o in%en%iona))y re"i"% or avoi# recovery e$$or%": he recovery agent has to follow special process of recovery against the recalcitrant defaulters, in consultation with the bank. A""e%" 'o""e""ion 'roce"": If the recalcitrant debtors do not eventually pay the dues, the movable assets charged to the bank by way of hypothecation or pledge, can be possessed by the bank or the recovery agent and thereafter auctioned or otherwise sold to recover the dues. he detailed procedure for such recovery is discussed later, after e%plaining the meaning of pledge, hypothecation etc. in another >nit. 16
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9ega) recovery 'roce"": he intervention of the court is required to possess mortgaged immovable property by the bank or its recovery agent. Also if the charged assets do not e%ist, or the debt is unsecured, the debtor will have to be sued for recovery of the dues by the bank8recovery agent.

Nor(a) Recovery /roce#0re:


As mentioned above, this procedure will generally apply to the debtors who are willing to pay the dues with normal recovery process. Based on the above$mentioned regulatory guidelines, following procedure may be outlined for such recovery. =owever the recovery agents should follow the bank$specific debt recovery procedure as advised by their principal. Be)o2 are given %&e (ain r0)e" $or (a@ing Te)e'&one Ca))" an# vi"i% %o %&e #e*%or $or recovery o$ #0e": Ma@ing c0"%o(er ca))": his is the first step in recovery procedure. "ollowing rules should be generally followed9 0alls are made from the same number as advised by the bank to the customer. he agents disclose his identity and authority at the first instance.

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he agent contacts the debtor between 6766 hours and 1A66 hours, unless the special circumstance of his8her business or occupation requires the bank to contact of a different time. >nder no circumstances, can the customer be called beyond 2166 hours.

All calls where the customer becomes abusive or threatening should be appropriately documented. 0ustomer,s question be answered in full. hey should be provided with information requested and given assistance in making recovery. -inor issues should be resolved. =ow often to call customer8 he purpose of a collection call as to bring to the

0ustomer,s notice the obligation and to seek a commitment to pay on a specified date. 'nce a promise is elicited a call may be made to serve as a reminder and for confirmation of payment. If the customer is not available during a few calls made by the agent, a message may be left to an adult family member as followsC Please leave a message that AB0 had called and request the customer to call AB0 back at the given phone numberC. from a (ecovery agency. <i"i% %o c0"%o(er (#e*%or): his is the second step in collection process. "ollowing procedure should generally be followed9 A c0"%o(er "&o0)# *e vi"i%e# $or #e*% co))ec%ion on)y a$%er %&e"e con#i%ion" are "a%i"$ie#: he debtor has not paid the due amount within the days of grace and the dues are still outstanding against him8her. he debtor has been notified of the amount due and also of the name of the collection agent. he collection agent has taken an appointment from the debtor for the visit. he message should not indicate that the customer AB0 has overdue amount , or the call originated

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4uring visit, the agent should be in proper dress and appearance, or wear the dress prescribed by the principal and follow the timing and place of the visit as per the principal,s or (BI8IBA code, unless otherwise agreed by the debtor e%pressly.

At the first stance, the agent should utter salutation words *like good morning8eveningD sir8madam, as per custom of the bank+. he agent should thereafter show his I4 card and authority given by the principal for debt collection from the debtor.8 'nly after these initial formalities, the conversation regarding debt collection should start.

he time of visiting the customer will be generally between 67.66 hours to 21.66 hours.

<i"i%" ear)ier or )a%er %&an %&e 're"cri*e# %i(e B7+BB &r"+ -1+BB &r"+) (ay *e (a#e on)y 0n#er %&e $o))o2ing con#i%ion": ;hen the customer has e%pressly consented to that timing.

;hen attempts to contact the customer have resulted in information that the customer is normally only available outside these hours and no alternate telephone number is available to contact him8her,

;hen due to nature of the customer,s employment i.e. working in shifts e.g. call center, hotel. =e8she is usually available outside these hours.

he agent should respect privacy of the debtor. Privacy policy as discussed above for calls would apply during visits also.

4uring the visit, due respect and courtesy should be shown to the customer and the interactions should be civil and polite as per the principal,s policy. 4uring interactions with the debtor, the agent must not use threats or intimidation verbally or by body language. >nder no circumstances, any physical violence be used in debt collection process. 1?
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.+5 O%&er Mo#e" o$ Recovery:


;here a certificate has been issued to the (ecovery 'fficer under .ub$section of section 1A, the (ecovery 'fficer may, without pre)udice to the modes of recovery specified in section 2E, recover the amount of debt by any one or more of the modes provided under this section. If any amount is due from any person to the defendant, the (ecovery 'fficer may require such person to deduct from the said amount, the amount of debt due from the defendant under this Act and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the (ecovery 'fficer Provided that nothing in this sub$section shall apply to any part of the amount e%empt from attachment in e%ecution of a decree of a civil court under section F6 of the 0ode of 0ivil Procedure, 1A6G *E of 1A6G+.

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*i+

he (ecovery 'fficer may, at any time or from time to time, by notice in writing,

require any person from whom money is due or may become due to the defendant or to any person who holds or may subsequently hold money for or on account of the defendant, to pay to the (ecovery 'fficer either forthwith upon the money becoming due or being held or within the time specified in the notice *not being before the money becomes due or is held+ so much of the money as is sufficient to pay the amount of debt due from the defendant or the whole of the money when it is equal to or less than that amount. *ii+ A notice under this sub$section may be issued to any person who holds or may subsequently hold any money for or on account of the 4efendant )ointly with any other person and for the purposes of this subsection, the shares of the )oint holders in such amount shall be presumed, until the contrary is proved, to be equal. *iii+ A copy of the notice shall be forwarded to the defendant at his last address known to the (ecovery 'fficer and in the case of a )oint account to all the )oint holders at their last addresses known to the (ecovery 'fficer. *iv+ .ave as otherwise provided in this sub$section, every person to whom a notice is issued under the sub$section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, bank, financial institution, or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like to be made before the payment is made notwithstanding any rule, practice or requirement to the contrary. *v+ Any claim respecting any property in relation to which a notice under this sub$ section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. *vi+ ;here a person to whom a notice under this sub$section is sent ob)ects to it by a statement on oath that the sum demanded or the part thereof is not due to the defendant or that he does not hold any money for or on account of the defendant, then, nothing contained in this sub$section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the (ecovery 'fficer to -1
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the e%tent of his own liability to the defendant on the date of the notice, or to the e%tent of the defendant,s liability for any sum due under this Act, whichever is less. *vii+ he (ecovery 'fficer may, at any time or from time to time, amend or revoke any notice under this sub$section or e%tend the time for making any payment in pursuance of such notice. *viii+ he (ecovery 'fficer shall grant a receipt for any amount paid in compliance with a notice issued under this sub$section, and the person so paying shall be fully discharged from his liability to the defendant to the e%tent of the amount so paid. *i%+ Any person discharging any liability to the defendant after the receipt of a notice under this sub$section shall be personally liable to the (ecovery 'fficer to the e%tent of his own liability to the defendant so discharged or to the e%tent of the defendant,s liability for any debt due under his Act, whichever is less. *%+ If the person to whom a notice under this sub$section is sent fails to make payment in pursuance thereof to the (ecovery 'fficer, he shall be deemed to be a defendant in default in respect of the amount specified in the notice and further proceedings may be taken against him for the reali&ation of the amount as if it were a debt due from him, in the manner provided in sections 2E, 2F and 27. he (ecovery 'fficer may apply to the court in whose custody there is money belonging to the defendant for payment to him of the entire amount of such money, or if it is more than the amount of debt due an amount sufficient to discharge the amount of debt so due. he (ecovery 'fficer may, by order, at any stage of the e%ecution of the certificate of recovery, require any person, and in case of a company, any of its officers against whom or which the certificate of recovery is issued, to declare on affidavit the particulars of his or its assets. he (ecovery 'fficer may recover any amount of debt due from the defendant by distrait and sale of his movable property in the manner laid down in the hird .chedule to the Income$ a% Act, 1AF1 *H3 of 1AF1+.

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(BANKING & INSURANCE)

DEBT RECO<ERC AGENT Meaning:


he phrase I4ebt (ecovery AgentC comprises three terms$ 4ebt, (ecovery and Agent. Jet us understand the meaning of these terms separately, before we e%plain the meaning of I4ebt (ecovery AgentC. De*%: -.
(BANKING & INSURANCE)

It refers to a sum of money owed by one person or entity *debtor+ to another person or entity *creditor+. hus there are two parties to a debt$ debtor who receives money by way of a o illustrate, if (am takes a loan of (s. 3 lacs debt5 and creditor who lends money to the debtor.

from a bank for purchasing a car, (am becomes the debtor *or borrower+, the bank is the creditor *or lender+ and the loan of (s. 3 laces is the debt *principal+. (am would be required to repay the loan in equated ,monthly installment *!-I+,comprising the principal and interest, spread over the repayment period of, say, 3 years * debt tenor+. Recovery: It means collection or recovery of money from the debtor by, or on behalf of the creditor, after it has become due for payment in accordance with the debt terms agreed between the creditor and the debtor. In the above e%ample, if (am *debtor+ fails to pay the agreed installment *!-I+ on the due date, the bank may send him notice to remind him to pay the agreed amount within a stipulated period. If he does not pay even after receiving the notice here that a debt becomes payable by the debtor only on or after the due date, but not before that date. If the debt is not paid on the due date it becomes over due or past due. Agen%: It is a legal term defined in section 1G2 of Indian 0ontract Act as Ia person employed to do any act for another or to represent another in dealings with third personC. he person for whom such acts are done, or who is represented, is called the IPrincipalC. An agent has thus an authority to do acts on behalf of the principal within the limits of the authority and thereby bind the principal for such acts in relation to third parties. here are several kinds of agents e.g. brokers *financial or commodity brokers+, auctioneers, insurance agents, estate or property agents, commission agent, selling agents, marketing agents, debt recovery agents. 4ebt (ecovery Agent may now be defined as a person or entity engaged by a bank for the purpose of collecting specified loans, or advances or other kind of dents from the debtors *or borrowers+ in accordance with the specified terms and conditions. In the above e%amples of the car loan to (am, if the bank *creditor+ engages K< will be called as 4ebt (ecovery Agent of the bank.

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(BANKING & INSURANCE)

CONC9USION
o conclude with, till recent past, corporate borrowers even after defaulting continuously never had any real fear of bank taking any action to recover their dues despite the fact that their entire assets were hypothecated to the banks. his is because there was no legal Act framed to safeguard the real interest of banks. =owever with the introduction of .ecuriti&ation Act, 2662 banks can now issue notices to their defaulters to repay their dues or else make defaulters face hard and tough actions under the aforementioned Act. his enables banks to get rid of sticky loans thereby improving their -5
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bottom lines. Also a hallmark of a good business is approaching it with a fresh, new perspective and requires management that is fully awake, fully alive and of course fully focused on making things better. Also, the passing of the .ecuriti&ation Act, 2662 came as a bonan&a 4iscouraged by the results of debtors in filling the coffers of banks, legislature enacted securiti&ation and reconstruction of financial assets and enforcement of .ecurity Interest Act *securiti&ation act+ Lune 21, 2662 for investors in banking sector stocks that in turn resulted into an improvement in their share prices. he banks were empowered under section 13*H+ of securiti&ation act to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale for reali&ing the secured asset. he role of the court was limited to challenge the measures under section 13*H+, by way of appeal, that too on deposit of 7EM of amount claimed on the notice under section 13*2+ of securiti&ation act.

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(BANKING & INSURANCE)

BIB9IOGRA/DC

/RIMARC DATA: Boo@ Re$erence


=andbook on debt *Indian Institution of banking and "inance+.

Ne2" /a'er"
Business !conomics * .<.B.com+.

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