To look at is one thing. To see what you look at is another.
To understand what you see is third. To accept from what you understand is most
important. But to act on what you accept is all that really matters. Isn’t it?”
It is very much applicable in the resolution of NPA accounts.
Ever since the initiation of banking reforms in the year 1990 under the
Narasimhan Committee report, there have been three important legal legislation
for the recovery of stressed financial Assets namely Recovery of Debts Due To
Banks And Financial Institutions, 1993 later amended as The Recovery of Debts
and Bankruptcy Act, 1993 in the year 2016,
The Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 and The
Insolvency And Bankruptcy Code, 2016.
The intention of promulgating these Acts is to give the secured financial
lenders like the banks and financial institutions a level playing ground towards
the recovery of debts. Despite the entire judicial system, the government
policies and RBI being protective and favoring the lenders, the rate of recovery
of debts is dismal and further revamping the system is very much inevitable.
add fuel to the fire, the recent order of the NCLAT in the matter of Arcelor
Mittal's bid for Essar Steel treating the financial creditors and the
operational creditors on par has created a pungent situation for the banks
whether to take recourse to IBC Act or not.
The latest order of NCLAT may affect the investment opportunity in the financial
sector. It is argued by the bankers that if the financial creditors and
operational creditors are treated at par, the very purpose of IBC is defeated.
Hence, SBI has filed an appeal with the Supreme Court.
However, the government is bringing further reforms which upholds the preference
given to the financial creditors besides enhancing the deadline from 270 days to
330 days. A dispassionate and unbiased analysis would prove that the recovery
proceedings presently undertaken by the banks and financial institutions under
the available legal system is neither congenial nor conducive either to the
lender or to the borrower leaving both of them in the lurch and many of the
enterprises particularly coming under the category of MSME have been deprived of
their livelihood and sustenance.
The introduction of prudential norms changed the very approach of the banks and
financial institutions towards asset classifications and income recognition. But
the reforms also put a great pressure on their profitability, compatibility and
competitiveness with the world banking trend and market demands. A dispassionate
and non-prejudiced review on the experiences of the past and the result achieved
and an understanding of the present unpleasant financial situation prevailing in
the banking and financial sector would indicate none too pleasant situation for
the future. That is because what steps that were taken in the past and being
pursued in the present and envisaged for the future are for treating the
symptoms and not the disease.
Hence, a reorientation in the approach to the existing problems is very much
necessary to produce the desired results without damaging much both the lender
and borrower. There exists a trust deficit and mutual suspicion creating a
divide between the bank and the borrower about their perceptions of their
respective roles and their contribution to the nation building activities and
The primary objective of the banks and financial institutions are raising the
resources and lending for productive purposes and the duty and responsibility of
the borrower is to utilize the resources for the purpose for which it is lend
for the development of the economy and for the welfare of the citizens of the
nation. Hence, it is apparent that the roles of the bank and the borrower are
complimentary to each other and not contradictory.
But in the process of lending and utilization of funds, there arise conflicts of
interest from time to time which affect the respective cash flows on either side
depending on the situation prevailing then which results in the creation of
non-performing assets (NPA) which leads to recovery process being initiated by
the bank which the borrower resents. The perceived knowledge about
non-performing asset by the borrower and the bank alike and the modus-operandi
of the recovery process adopted by the banks leads to further conflict and
This is counterproductive to the objectives of lending and
utilization of funds affecting severely the economic wealth and health of the
nation. Thus, it is the inevitable necessity that such deterioration in the
economic wealth and health of the nation should be arrested for which the basic
requirement is a tacit understanding between the lender and the borrower and
their respective roles in the nation building and creation of wealth.
An effective communication is the only way to create the much-needed
understanding between the lender and the borrower. The very purpose of
communication is to understand and be understood. KYC (Know your customer) norms
are already introduced and implemented and are mandatory for the banks and
financial institutions to comply with. More important is the for creating an
understanding between the lender and borrower.
Creation of trust between the bank and the customer is the key that opens all
doors. In any relationship, the essence of trust is not in its bind, but
in its bond. Communication, if effective, leads to co-operation to
understand each other creating an intimate relationship valuing each other’s
So, it is with the bank and its customer. Acceptance comes out of
understanding which can lead to better customer banker relationship. Recovery of
debt can be effectively achieved more easily if the problems and predicaments
faced by both the lender and the borrower in their correct perspectives are
understood and accepted and how they are interconnected with their mutual
In the ultimate analysis, the bank must reorient their attitude towards their
customers to match the habits and behaviour of the customer. The banker must
take decisions to serve the customer with a delightful service and improve upon
further based on feedback and through innovation.
The customers particularly the
borrowers can match and reciprocate the proactive borrower friendly good gesture
of the banks by understanding their role and duties in their correct viewpoints
so that the bank can become the friend, philosopher, and guide to the borrowers
which can produce excellent economic results.
The perceptions, culture, values, and business ethics of the bank and that of
the customers should be complimentary to each other and if united will not only
lead to excellence in business but also ensure an adoring relationship between
the bank and the customers.
Recovery of debt can be made more effective and more rewarding through mutual
co-operation and not through confrontation between the lender and the borrower.
Legal proceedings for the recovery of debt is a path of confrontation leaving
many wounds but arriving at an OTS (One Time Settlement) through mutual consent
is a peaceful way towards a noble end for mutual benefit and satisfaction
leaving no scars and avoiding the hazard and the haze of the legal system.
What is advocated is while accepting the right of the lender to recover the
debt, recovery of debt should be made with a human touch. What is recovery with
a human touch is another aspect to be understood in its correct perspectives and
practiced diligently with its beneficial effects.
Written By: T. R. Radhakrishnan
(The author invites comments from readers. He can be contacted through his
mobile 9229248048 or E-mail; [email protected]
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